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Project management systems – Earned value management – part 2



Earned value management – part 2

Terminology

  • Performance terms
Cost Variance (CV)

This is simply Earned Value – Actual Costs.

The difference between the work that has been accomplished (in dollars or pounds) and how much was actually spent to complete it.
If the difference is greater than 0 it is good.

That is, the project is under budget.

A positive variance means the project has achieved more then planned for the actual costs.
A negative variance means that the project has achieved less than planned for the actual costs involved.

If, at a specific point in time, a project has an Earned Value [or Budgeted Cost for Work Performed (BCWP)] of £40,000 and an Actual Cost [Actual Cost of Work Performed (ACWP)] of $48,000 then it has a cost variance of -£8,000 and a percentage variance of -20%.
In other words it is overspent by £8,000 or 20%.

Schedule Variance (SV)

This is simply the Earned Value – Planned Value.

The difference between what was planned to be completed and what has actually been completed as of the current date.
If this is positive then the project is ahead of schedule, if negative it is behind schedule.
Make sure that any variance is analysed closely and that conclusions are not rapidly drawn.

Schedule variance (cost), is a measure of the deviation between the actual progress and the planned progress.
This is usually measured in units of cost rather than time.

If, at a specific point in time, a project has an Earned Value [or Budgeted Cost for Work Performed (BCWP)] of £40,000 and a Planned Value [Budgeted Cost of Work Scheduled (BCWS)] of £48,000 then it has a schedule variance (cost) of minus £8,000 and a percentage variance of -20%.

In other words it is behind schedule by 20%.

The conversion to a percentage is done to avoid confusion, that is, the use of cost units to represent schedule variances.

Cost Performance Index (CPI)

This is the ratio of Earned Value / Actual Costs.
This is a variation of the Cost variance related to a ratio instead of a dollar amount.

A ratio less than 1.0 indicates that the value of the work that has been completed is less than the amount of money spent.
Greater than 1.0 suggests the value of work completed is greater than the amount of money spent.

That is:

< 1 means that the cost of completing the work is higher than planned (bad)
= 1 means that the cost of completing the work is right on track (good)
> 1 means that the cost of completing the work is less than planned (good mostly).

You will need to be careful in interpreting these values.
If the original information is poor it may lead to an inferior baseline.
If the CPI is > 1 it could mean that the costing of the project may have been overestimated.

Schedule Performance Index (SPI)

This is the ratio of Earned Value / Planned Value.
This is a variation of the Schedule variance related to a ratio instead of a dollar amount.
A ratio less than 1.0 indicates that work is being completed slower than planned.
Greater than 1.0 suggest that work is being completed faster than planned.

To-Complete Performance Index (TCPI)

The TCPI projects what the CPI will be for the remainder of the project based on the manager's projection of subsequent performance.
That is, it indicates the Cost Performance Index (CPI) required throughout the remainder of the project to stay within the stated budget.

The TCPI should be compared to the CPI.
Any significant difference should be accounted for to explain why the manager projects either improved or degraded performance in the future.

This is the Budget At Completion (BAC) – Earned Value (EV) / Budget At Completion (BAC) – Actual Cost (AC).

PRINCE2® 2009 describes project monitoring within the Progress theme.
The purpose of the Progress theme is to establish mechanisms to monitor and compare actual achievements against those planned; provide a forecast for the project objectives and the project’s continued viability; and control any unacceptable deviations.
Two of the principles of PRINCE2 [see ‘The Complete Project Management plus PRINCE2’] are managing by stages and continued business justification.
The Progress theme provides the mechanisms for monitoring and control, enabling the critical assessment of ongoing viability.
[see Progress - purpose]

PRINCE2® is a Registered Trade Mark of the Office of Government Commerce in the United Kingdom and other countries.

Non - PRINCE2 information