INFO5990 Professional Practice in IT
Project Monitoring using Earned Value
1. Monitoring and Controlling
A key role of the project manager (see PMBOK) is monitoring and controlling. To accomplish this it is helpful
to idenitify variables called ‘key perfomance indicators’ (KPI). By monitoring the value of these indicators over
time the manager can quickly carry out a ‘health check’ of the project to assertain whether or not it was on track.
2. Key performance indicators
A popular method used for monitoring prject progress is called “Earned Value Management”. The basic
performance variable chosen is called Earned Value.
Three key values are calculated for each activity:

The budget, also called the budgeted cost of work scheduled (BCWS), is that portion of the approved
cost estimate planned to be spent on the activity during a given period.

The actual cost, also called the actual cost of work performed (ACWP), is the total of direct and indirect
costs incurred in accomplishing work on the activity during a given period.

The earned value, also called the budgeted cost of work performed (BCWP), the proportion of the total
budget represented by the work actually completed. Some managers use only 0 percent or 100 percent
(done or not done) in determining earned value performance.
Two key performance indicators are used to monitor progress, the cost performance index (CPI) and the
schedule performance index (SPI). Table 1 defines all of the variables used in Earned Value management.
Table 1
Variable
Formula
Explanation
Planned value (PV)
(“The budget”)
PV= amount of Total
budget intended to be
performed by current date
Earned value (EV)
EV = amount of budgeted
work completed so far
Actual cost (AC)
AC = Sum of costs
incurred to date
Cost variance (CV)
CV = EV – AC
Schedule variance (SV)
SV = EV – PV
Cost performance index (CPI)
CPI = EV/AC
Schedule performance index (SPI)
SPI = EV/PV
Estimate at completion (EAC)
EAC = Original budget
estimate / CPI
The $ value of that fraction of the
approved total cost estimate planned to be
completed by the current date. PV used to
be called “Budgeted Cost of Work
Scheduled” (BCWS).
An estimate of the $ value of the physical
work actually completed by the current
date. EV used to be called “Budgeted Cost
of Work Performed” (BCWP)..
The total $ value of all direct and indirect
costs incurred in accomplishing the work
done to date. AC used to be called “Actual
Cost of Work Performed” (ACWP).
Difference between the budgeted cost of
work performed to date and the cost of the
work actually performed.
Difference between the budgeted cost of
work performed to date and the cost of the
work scheduled to be performed.
Key performance indicator with regard to
cost. Less than 1 is ‘bad’ (budget over
spent)
Key performance indicator with regard to
schedule. Less than 1 is ‘bad’ (behind
schedule)
Estimate of eventual cost at the present
rate of spending.
Estimated time to complete (ETC)
ETC = Original time
estimate / SPI
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Estimate of when the project will finally
be completed if current rate of progress is
maintained.
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INFO5990 Professional Practice in IT
3. A simple example of project management
In this example, there is only 1 resource and a fixed timeline. You can therefore assume that Effort = Schedule
and Effort = Cost, which is rather simpler than the previous case.
Suppose you are sitting a 2 hour examination consisting of 40 questions in this exam, each question has an equal
value. You must answer every question. Consider how you can monitor your performance?
First you should establish a budget for each question. Say you need to set aside 20 minutes at the end, 10
minutes for review and 10 minutes for contingency. So budget is 100 / 40 = 2.5 minutes per question.
Now after 20 minutes has passed, you find you have completed 7 questions. Are you ahead or behind schedule?
Do you need to take remedial action?
Earned Value (EV) = 7 questions x 2.5 minutes = 17.5minutes
Planned Value (PV) = 20 minutes (i.e. the budgeted amount of work performed after 20 minutes)
Performance Variance (PV) = EV – PV = 17.5 - 20 = -2.5 minutes
SchedulePerformaceIndex (SPI) = EV/PV = 17.5 / 20 = 0875
This tells you that you are currently behind schedule.
You may think that you will finish the remaining 33 questions in 33 × 2.5 = 82.5 minutes, but this would not
take into account the fact that the first 7 questions took longer than expected per question (2.86 minutes per
question). So, since you have completed 7 questions in 20 minutes, it is safer to use this new productivity figure
(20/7 minutes per question) to estimate future work on the project.
Time to complete the remaining 33 question you should allow (33 × 20/7) + 20 for checking = 114.29 minutes
Estimate at Completion (EAC) = 20 + 114.29 = 134.29 minutes, which is more than 14 minutes over time and
over budget.
4. Using Key Performance Indicators to monitor project progress
Table 2 illustrates how earned value calculations can be used to monitor the progress of a project.
Let us suppose that the project has a total budget of $100,000 and is expected to be completed in 10 weeks. For
simplicity suppose that the work breakdown structure is made up of ten equal sized “tasks” and that each task
represents a tenth of the work budgeted. Let us say that each week we expect to complete one task, so that the
planned value (PV) of the project will be exactly $10,000 each week.
Now consider the calculations shown in Table 2 which represent the state of the project at the end of Week 1
and Week 2. As expected the planned value will be $10,000 and $20,000 respectively.
Table 2 Earned Value Calculations
Variable
Week 1
Week 2
Planned Value (PV) at this date
$10,000 (Task 1 finished)
$20,000 (Tasks 1 and 2)
Earned Value (EV) so far
$7,500 (say 75% complete)
$22,000 (Tasks 1 and 2, and
20% of Task 3 completed)
Actual Cost (AC) so far
$12,000 (salaries plus a new
computer)
$23,000 (salaries plus other
sundry costs)
Cost Variance (CV)
EV – AC = -$4,500
EV – AC = -$3,000
Schedule Variance (SV)
EV – PV = -$2,500
EV – PV = +$2,000
Cost Performance Index (CPI)
EV/AC = 0.625
EV/AC = 0.956
Schedule Perfomance Index (SPI)
EV/PV = 0.75
EV/PV = 1.10
Estimate at completion (EAC)
100,000/0.625 = $160,000
100,000/0.956 = $104,545
Estimated time to complete (ETC)
10 / 0.75 = 13.3 weeks
10 / 1.10 = 9.09 weeks
Position at the end of Week 1
Suppose that Task 1 is only 75% complete, so that the Earned Value (EV) is only $7,500, but that due to
circumstances the cost of achieving this is $12,000. Then as can be seen in the centre column, both the cost and
schedule variances are negative, and both the cost performance index (CPI) and schedule performance index
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G Kennedy, 2012
INFO5990 Professional Practice in IT
(SPI) are less than one, indicating that the project is running over cost and behind schedule. If things continue as
they are the project will run $60,000 over budget (EAC) and more than three weeks over time (ETC).
In the light of the position at the end of the first week we can assume that the project manager will investigate
matters. He may find that there are less resources are available than planned, or some staff have taken unplanned
time off due more illness, or that resources have arrived late or that the project team is less efficient than had
been thought. This may lead to some remedial action being taken to get the project back on track.
Position at the end of Week 2
Suppose that by the end of Week 2 both Tasks 1 and 2 and 20% of Task 3 have been completed, giving an
Earned Value (EV) of $22,000. Suppose actual costs so far total $23,000. The right hand column now shows us
that the cost variance is negative and the cost performance index (CPI) is less than one, but closer to one than it
was, so the project is closer to budget than the previous week, but will still run over budget if nothing else
changes (EAC). On the other hand, the schedule variance is positive, and the and schedule performance index
(SPI) is greater then one, so the remedial action has been effective and the project mat well be finished ahead of
schedule (ETC).
The graph lines in Figure 1 illustrate the position in the project described above at the end of the fourth week,
assuming an Earned Value and Actual Cost of $38,000 and $45,000 respectively. The project appears to be still
slightly over budget and. behind schedule.
Figure 1
Earned Value Chart
Estimate at Completion
(EAC) = $118,421
at 10.5 years
120000
100000
$ Value
80000
Planned value (PV)
60000
Actual Cost (AC)
40000
Earned value (EV)
20000
0
1
2
3
4
5
6
7
8
9
10
Period
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INFO5990 Professional Practice in IT
5. Preparing a budget
Table 3 shows how a budget can be prepared for a project that will use each of the resources listed to the extent
shown in the table. Next, unit rates can be used to determine the cost of these resources.
Project
Management
3
5
5
5
Design
10
10
15
15
5
5
5
3
5
5
5
5
5
BUDGET
24-Jun
17-Jun
10-Jun
3-Jun
27-May
20-May
13-May
6-May
29-Apr
22-Apr
8-Apr
15-Apr
Table 3
2
53
Project Manager
50
Analyst + Exp User
+ Trg Dev
Build
15
15
5
10
10
20
45
2 Programmers
+ Trg Dev
Test
25
25
25
115
Analyst + Exp User +Trg
Dev +2 Programmers
Communication
2
2
User Acceptance
3
7
Project Manager
10
10
20
Analyst + Exp User
290
Days
Testing
Days
15
15
25
25
30
30
30
30
30
30
15
15
People
3
3
5
5
6
6
6
6
6
6
3
3
6. Project status report template
Figure 2 below, is an example of a pro-forma for a routine project report.
Figure 2
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INFO5990 Professional Practice in IT
7. Earned Value calculations and performance indicators
Table 3 (over page) shows a spreadsheet for recording actual cost (AC) and determining earned value for a
project with a duration of twelve months. Note that the figures for the months July to November are hidden
simply to save space on the page. The spreadsheet represents the position at the end of the fifth month (May).
The figures in the first seven rows and twelve columns (only seven visible) represent ‘the budget’ or planned
value (PV) for each of the seven tasks over the twelve month period. The planned value summed month by
month is shown in the “Monthly Planned Value (PV)” row, and the cumulative total in the row below that.
At the right hand end of the table, the column “To Date Planned Value” replicates the planned value amounts,
this time summed by task.
The key row in the table is “Monthly Actual Cost (AC)”, which gives the actual costs recorded for the project
month by month. These figures come from such accounting records as invoices, cheques and salary details. The
cumulative total of these ‘actuals’ is given in the row below.
To the far right of the table, the values in the column “Planned % complete” represent the % of each task that
according to the project schedule should have been completed by the end of May.
The next column, “Actual % complete” is the key column. It contained estimates of % of each task actually
complete at the end of May. The project manager has to assess these figures by examining the work actually
done and comparing with the specifications of the respective tasks, for example by estimating what proportion
of a program or prototype system has been completed, or the extent to which testing is finished.
At the extreme right of the table are two columns headed “Earned Value”. The first of these is headed RP (Rate
of Performance) and is the ratio of actual % work completed to planned % work completed 1. Thus, for Task 7 of
this project, RP = 50%/75% = 0.5/0.75 = 0.6667.
The second column headed EV represents the earned value of the work complete. In this example it was planned
to complete 75% of Task 7 (planned value $8,000) by the end of May, but this work was actually only 50%
complete, so the earned value (EV) is 66.667% of $8,000 = $5,333 ( final column).
Once these figures have been entered into the spreadsheet it is possible to calculate a number of “Key
performance indicators” (KPI) that can be used by the project manager to determine at glance whether the
project is on track or behind schedule.
The three rows labelled Earned Value (EV), Planned Value (PV) and Actual Cost (AC) “…to monthend” simply
replicate rows above and are included for convenience only.
The rows Cost Variance (EV-AC) and Schedule Variance (EV-PV) indicate “on track” if positive, behind
schedule if negative.
The rows Cost Performance Index (EV/AC) and Schedule Performance Index (EV/PV) indicate “on track” if
values 100% or greater behind schedule if less than 100%.
The two final rows showing “Estimated Cost at Completion” and “Estimated Time to Completion” give the
project manager a feel for the likely outcome if nothing is done and the project continues at the present rate.
Clearly if it is behind schedule the possibility of remedial action should be considered.
It is possible that any ‘bad’ performance figures could be the result of random variations (‘hiccups’) rather than
a major trend, in which case the project may ‘come right’ by itself. One rule of thumb is the “seven run rule”,
which says that is seven successive data points are above or below the mean then it is unlikely to be due to
random variation. By making use of earned value calculations such as those shown here the project manager is
in a good position to take action if necessary before the project is too far behind schedule.
Figure 1 (over page) show the Earned Value Chart. It can that “Actual Costs” are slowly climbing away from
the budget line and “Earned Value” is slipping below, so that the project can be expected to end up over budget
and behind schedule.
1
This is an sophistication proposed by Brenda Taylor, who suggested that earned value (EV) should be
calculated as percentage complete only of percentage planned to be complete.
Week 5
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INFO5990 Professional Practice in IT
Table 3
Duration (months)
Earned Value Calculations - May
12
Activity
Jan
1. Plan and staff project
4,000
2. Analyze requirements
3. Develop ERDs
4. Design forms, reports
5. Design database tables
6. Design forms, reports and
queries
7. Construct working prototype
8. Test/evaluate prototype
9. Incorporate user feedback
10. User acceptance testing
Monthly Planned Value (PV)
4,000
Cumulative Planned Value
4,000
Monthly Actual Cost (AC)
4,000
Cumulative Actual Cost
Cumulative Earned Value
Project Earned Value (EV) to monthend
Project Planned Value (PV) to monthend
Project Actual Cost (AC) to monthend
Cost Variance (EV - AC)
Schedule Variance (EV - PV)
Cost Performance Index (EV/AC)
Schedule Performance Index (EV/PV)
Estimated Cost at Completion
(Planned Cost/CPI)
Estimated Time to Completion
(Planned Time/SPI)
Week 5
To date
Feb
4,000
6,000
Mar
6,000
4,000
Apr
4,000
6,000
May
Jun
4,000
8,000
4,000
10,000
2,000
10,000
14,000
11,000
10,000
24,000
11,000
10,000
34,000
12,000
12,000
46,000
15,000
53,000
43,333
43,333
46,000
53,000
-9,667
-2,667
81.76%
94.20%
16,000
62,000
...
...
...
...
...
...
...
...
...
...
...
0
##
122,308
…
12.74
…
Dec
1,000
4,000
5,000
100,000
G Kennedy, 2012
Plan Val.
8,000
12,000
8,000
10,000
8,000
Planned
%
Compl.
100
100
100
100
75
Actual
%
Compl.
100
100
100
100
50
Earned Value
RP
100%
100%
100%
100%
67%
EV
8,000
12,000
8,000
10,000
5,333
43,333
INFO5990 Professional Practice in IT
Figure 2
Earned Value Chart
90,000
80,000
70,000
Value ($)
60,000
50,000
Earned Value
Actual Cost
Planned Value
40,000
30,000
20,000
10,000
0
1
2
3
4
5
6
7
8
Month
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INFO5990 Professional Practice in IT
Week 5
G Kennedy, 2012