There are several values that need to be calculated (or estimated), as follows:

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1 Earned Value Toolkit 1. Overview EVA is a technique for monitoring the costs within a project. You might think that just keeping account of expenditure is enough, but on major projects this can be too simplistic because you really ought to take into account how much has been achieved for what has been spent. This is what EVA does: it tells you how much has been spent on the basis of the work done so that you can see whether you re still on track. 2. Why do we need to do EVA? For small and many medium projects we don t. A simple monitoring of overall project budget commitments and expenditures is probably good enough. But in major projects which can often last quite a long time this simple approach can be dangerous. This is because you need to have an idea of how much work should have been done in relation to spend, because otherwise there s a risk of underestimating the actual costs of the project. For example if you ve spent 50% of your project budget and you re about halfway through the project but should only have spent 30% at the halfway point, does this mean you have overspent? The answer is that it depends on the work done. If you ve actually achieved more than was originally planned in the timescale you may well still be on budget. EVA is a mechanism for sorting this out. 3. EVA components There are several values that need to be calculated (or estimated), as follows: BCWS (budgeted cost of work scheduled the project budget) This is how much the work that should have been done at a particular point in time was estimated to cost. For example task 1, with a duration of two months is estimated to cost 100 and task 2 with a duration of ten months is estimated to cost 500 (in equal instalments of 100 every two months) both tasks start at the same time. It s now month seven so in theory you should have spent 100 for task 1 and 300 the first three parts of task 2, so the BCWS is 400. (The appendix gives the data upon which the examples in this toolkit are based) BCWP (budgeted cost for work performed) This is how much the work that has actually been done is valued according to the original estimate. Using the same example as above, if after six months you have completed task 1 and two parts of task 2, then those were estimated to cost 100 and 200 respectively, so 300 overall. ACWP (actual cost for work performed) This is how much the work that has actually been done has cost in real terms. Using the same example as above, if after six months you have completed task 1 and spent 85 and two parts of task 2, spending 95 and 150 respectively, then the ACWP is 330. SVAR (schedule variance) This is the budgeted value of what has been done less the value of what should have been done (BCWP- BCWS). Using the above example this is , i.e A negative figure indicates you are lagging behind schedule on cost terms, but on its own this doesn t give you an estimate of the budget position; for that you need CVAR. M M U E a r n e d V a l u e t o o l k i t ( v 1 ) Page 1

2 CVAR (cost variance) This is the budgeted value of what has been done less the actual cost of what has been done (BCWP- ACWP). Using the above example this is , i.e A negative figure indicates you have overspent on the budget estimate for the amount of work completed. BAC (budget at completion cost) This is the original estimate of the overall cost of the project. In the example this would be 600. ETC (estimate to complete) This is a new estimate of the remaining cost of the project taking into account what you ve done so far. EC (estimated completion cost) This is a new estimate of the overall cost of the project taking into account what you ve done so far and a new estimate of the remaining work to be done. EVAC (estimated value at completion) This is the difference between your original and new completion budget estimates (BC-EC), and a negative figure means a potential cost over-run. CPI (cost-performance index) This is BCWP/ACWP. It s an indication of how much value you re getting for each pound spent. A figure over 1.0 means you re getting more bang for your buck. 4. Charting EVA An effective way to show an EVA is on a graph that plots costs so far against estimated costs. An example appears below Expenditure ( ) ACWP BCWS BCWP Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 M M U E a r n e d V a l u e t o o l k i t ( v 1 ) Page 2

3 The red BCWS line shows the project budget (cumulative expenditure). The ACWP line (blue) shows that costs have been running below the budget estimate so you might think that you re doing really well and have saved around 1400 because in this example the SVAR figure for July is - 1,430 (negative means behind schedule). However the CVAR figure is 920 (positive numbers mean you re under budget, and this takes BCWP into account). So although you might be tempted to think you ve saved 1430, actually the saving is Reporting EVA From the above you can see that the key figure is CVAR the estimate of actual variance from the budget, so this is the figure that should be reported. The other figures the project board will be interested in are what s the expected budget going to be (EC) and how much over or under budget will we be (EVAC ). There are several different ways of calculating EC, as follows: Reasoning for calculating EC If the expected final budget figure has not changed Original estimated was flawed Current variances are not typical Current variances are typical Formula for calculating EC BAC / CPI ACWP + ETC ACWP + BAC BCWP ACWP + (BAC BCWP) / CPI The table below shows the various outcomes using the example figures. The differences are quite small in our example project, but in reality you would use this approach only for projects with budgets of over 1 million, and the differences could potentially be significant, so it s important to pick the right reasoning. Reasoning for calculating EC Result EVAC If the expected final budget figure has not changed 7,241 ( 1,739.00) Original estimate was flawed (ETC= 3,500) 7,330 ( 1,650.00) Current variances are not typical 8,060 ( ) Current variances are typical 7,241 ( 1,739.00) BAC 8, Using Microsoft Project MS Project has built in tools to calculate EVA; however you must ensure that you record the relevant information about task times, costs and progress for this to work, and have created a project baseline. (The baseline is required to compare original estimates against actual progress). The following is for MS Project 2007 see Project s help section for other versions. EVA settings: 1. On the Tools menu, click Options, and then click the Calculation tab. 2. Click Earned Value. 3. In the Default task Earned Value method box, click the calculation method that you want Office Project 2007 to use when it calculates the BCWP. (Note Changing this setting affects only the tasks that are added to the task list after the setting is changed. It has no effect on the existing tasks. To change the earned value method for M M U E a r n e d V a l u e t o o l k i t ( v 1 ) Page 3

4 the existing tasks, select the tasks whose earned value method you want to change, click Task Information, and then click the Advanced tab. In the Earned value method box, click the calculation method that you want.) 4. In the Baseline for Earned Value calculations box, select the specific set of baseline values that you want Office Project 2007 to use when it calculates the earned value totals, and then click Close, then OK. EVA views: 1. To see project and task-level earned value totals in tables, on the View menu, click More Views. 2. In the Views list, click Task Sheet, and then click Apply. 3. On the View menu, point to Table, and then click More Tables. 4. In the Tables list, click Earned Value, Earned Value Cost Indicators, or Earned Value Schedule Indicators, and then click Apply. (Note To see detailed information about each Earned Value field, point to the field heading.) 5. To see a breakdown of the earned value of tasks by period, so you can determine the exact date that your project will run out of money, on the View menu, click Task Usage. 6. On the Format menu, click Detail Styles, and then click the Usage Details tab. 7. In the Available fields list, select the Earned Value fields that you want to display, click Show, and then click OK. (Note: you can use this view to view all of the EVA components listed above) M M U E a r n e d V a l u e t o o l k i t ( v 1 ) Page 4

5 Appendix Example project budget spreadsheet Task 1 Task 2 Task 3 Task 4 Task 5 Date Est Act Est Act Est Act Est Act Est Act Budget BCWS ACWP BCWP SVAR CVAR CPI EC1 EC2 EC3 EC4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec M M U E a r n e d V a l u e t o o l k i t ( v 1 ) Page 1