Earned Value Analysis
What is earned value analysis, and how can it help you manage and monitor projects and serve as an early warning system for cost and schedule variances?
Earned Value Analysis (EVA) is a tool to measure the progress and success of a project for controlling, as well as to map the current schedule and cost situation. The terms performance value analysis, completed value method or labour value analysis are also used synonymously.
Definition
Earned Value Analysis (EVA) is a management control method that, regardless of a project’s size and complexity, uses planned and actual data on costs, time, and scope of work to provide clear metrics on project progress. The results of these calculations provide valid insights into the project’s status and serve as a basis for forecasting the project’s future course in terms of costs and duration.
Objectives
Project managers use earned value analysis to check costs and deadlines by comparing planned values with actual values in a given time frame. This allows them to check whether time and money are being used wisely and, on this basis, to make informed decisions on how to proceed with the project.
EVA is used to:
- Monitor adherence to deadlines and costs
- Forecast the expected total costs and the final deadline of a project
- Provide early warning for project controlling
Basic terms
Planned value (PV): The planned value comprises the estimated project results as well as the effort planned for them. It is determined from the project planning and forms the basis for further calculations.
PV = planned quantity x planned costs
Actual Costs (AC): The actual costs incurred for work performed up to a specific date. This figure is typically derived from cost reports or the controlling department.
AC = actual quantity x actual costs
Percentage of completion (PC): This value is given as a percentage and indicates the proportion of a project that has already been completed by the key date.
Earned value(EV): The aarned value of the work performed states how much value the work on a project has created by the key date.
EV = PV * PC
Cost Variance (CV): This value indicates whether the project has incurred more costs than expected as of the reporting date—in other words, whether the project is within the planned budget.
CV = EV – AC
Schedule Variance (CPI): Schedule variance allows you to determine whether the project is ahead of or behind schedule.
CPI = EV / AC
Cost Efficiency (SV): This is a metric used to assess the costs incurred relative to the project scope.
SV = EV – PV
Time Efficiency (SPI): Time efficiency measures a project's progress against schedule.
SPI = EV / PV
How do you perform an earned value analysis?
1. Define the input variables (planned total project cost and project duration)
These figures are derived from the project structure plan and the cost estimate. During the project, you can use this information to calculate and analyze the key performance indicators at any time you choose—for example, once a month on a set date.
2. Determine planned expenses, actual costs, and earned value as of the current reporting date
In order to determine the earned value, you first need the percentage of completion. This can be calculated in different ways. Use your experience to decide which form is appropriate for your particular project or activity.
- Percentage of Completion: With this option, your employees estimate their progress and express it as a percentage. However, take these estimates with a grain of salt, as people tend to overestimate the amount of work they have completed.
- 0/100 Rule: Under this rule, only completed activities are included in the calculation at 100 percent. All other activities are assigned a 0 percent weight. This variant is particularly suitable for short-term activities and projects with short reporting cycles, as well as for activities with uncertain outcomes. Since the degree of completion is consistently underestimated in this method, it is a safe approach.
- 25/75 rule: Here, each activity started is valued at 25 per cent and only when it is completed is the remaining 75 per cent added. This mitigates the 0/100 rule.
- 50/50 rule: A started activity is always valued at 50 per cent. This means that the first half of the activity is overrated and the second half is underrated. This rule is particularly suitable for short activities that are started and finished within two consecutive reporting periods.
3. Calculate cost and schedule variance
Negative values indicate that you are exceeding the planned costs or that the project is behind schedule If the values are positive, then the project has so far incurred fewer costs than planned or the project has progressed faster.
4. Calculate CPI and SPI performance indices
Schedule deviation relative to the project scope to date.
For the CPI (Cost Performance Index), a value less than 1 indicates that work completed to date has incurred higher costs than planned. If the value is exactly 1, your project is exactly on schedule. Conversely, values greater than 1 indicate that you have saved costs.
The same applies to the SPI (Time Efficiency): If the value is less than 1, your project is behind schedule. A value of 1 means the project is exactly on schedule, and a value greater than 1 means the project is progressing faster than planned.
5. Calculate projected project costs using the CPI
Usually two values are calculated for this under different assumptions.
- Assumption that future measures will be effective: If you assume that no further deviations from the plan will occur, then the estimated total cost (Estimate at Completion = EAC) is the sum of your costs to date and the remaining planned costs.
EAC = AC + (PV – EV) - Assuming the CPI remains constant: If you assume that the error in cost planning persists, calculate the EAC by applying the current CPI to the entire project estimate.
EAC = PV / CPI
6. Calculate estimated values for the project duration
The simplest way to forecast the project duration is to divide the originally planned duration by the calculated SPI. However, this calculation only gives a rough estimate and is not very reliable because it does not take into account interdependencies between activities and, for example, resource availability. You will get more reliable forecasts, if you carry out a forecast in combination with the network planning technique or the critical path method.
7. Interpreting Calculated Metrics
Visual representations are usually easier to understand and more clear than tables. For this reason, you can also display the trends in values over time using line charts. The trend of the lines makes it clear at a glance to you and anyone to whom you present the analysis whether the planned and actual production figures match and how costs and deadlines are holding up. You can also use such a chart to assess the effectiveness of control measures you have implemented in the past.
8. Take action
If the calculated values differ significantly from the planned values, you should try to identify the cause and take steps to address it.
Overview of Terms
AC (Actual Cost)
CPI (Cost Performance Index)
CV (Cost Variance)
EAC (Estimate at Completion) | Expected Total Cost
EC (Estimated Completion)
EV (Earned Value) | Earned Value
PC (Percent Complete)
PV (Planned Value)
SPI (Schedule Performance Index)
SV (Schedule Variance) | Schedule Variance
Overview of formulas
EV = PV * PC
CPI = EV / AC
CPI > 1: within budget
CPI < 1: over budget
CV = EV - AC
SPI = EV / PV
SPI > 1: on schedule
SPI < 1: behind schedule
SV = EV - PV
EAC:
No further deviations: AC + (PV – EV)
Deviations remain constant: PV / CPI
EC = planned duration / SPI
Advantages
- the completed work is evaluated on the basis of the originally planned and actual costs
- provides a snapshot of the project status in terms of time and cost at the selected point in time
- the future development of the project can be forecast with the EVA
- the method is objective and fully comprehensible
- projects can be compared with each other
Disadvantages
- EVA does not provide any information on the quality of the work done.
- Implementation is very time-consuming if the calculations are not performed automatically in project management software
- Ensuring that the data is up-to-date and of high quality requires more effort
- The estimate of the degree of completion may be inaccurate
- the interpretation of the key figures requires experience
- it can only be used for projects with a clearly defined scope of work and requires a high degree of project maturity.
Conclusion
Earned Value Analysis is a very valuable tool to monitor and control projects as well as an early warning system for schedule and cost variances. However, many project managers are put off by the many key figures and formulas. Good project management software determines all key figures automatically and thus provides you with a valuable overview of your project status at any time as well as with meaningful forecasts for the further development of your projects.
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