EVM Example Part 3 - Forecasting ETC and EAC

Now, let's find the ETC and EAC.

From part 1:
PV = $450,000 USD
EV = $420,000 USD
AC = $415,000 USD
BAC = $2,000,000 USD

From part 2:
CV = $5,000 USD
CPI = 1.01
SV = -$30,000 USD
SPI = 0.93


We'll use the formula for ETC for typical variance, meaning that we expect progress to continue the way it has in the past.

ETC = (BAC - EV) / CPI
ETC = ($2,000,000 USD - $420,000 USD) / 1.01
ETC = $1,564,356 USD

Now for the final cost estimate based on our EVM metrics:

EAC = AC + ETC
EAC = $415,000 USD + $1,564,356 USD = $1,979,356 USD

So according to our EVM forecast, this project should come in around $20,000 under budget.

What about the schedule? I have never used EVM in practice. I can see it's merit in terms of cost control especially. For schedule however, I think I would use the SPI and SV merely as extra information when controlling the schedule. My first focus would be the critical path, and an SPI lower than 1 would tell me that perhaps I need to start looking at other tasks as well, before they become risks to the flow of the critical path. I'm sure you could take your 10 months and divide it by 0.93 to get around 10.75 months as your projected TAC (Time At Completion, did I just make that up?), but I wouldn't use that as a reliable estimate of completion time. I'm sure there are more advanced EVM metrics geared towards schedule control. If they don't take the critical path into consideration though, they are treating all tasks as equal, which they are not in terms of schedule.

Go Back: EVM Example Part 2 - Finding CV, SV, CPI, and SPI

EVM Example Part 2 - Finding CV, SV, CPI, and SPI

Next, you need to find your CV, SV, CPI, and SPI.

From part 1:
PV = $450,000 USD
EV = $420,000 USD
AC = $415,000 USD


Just plug in the numbers

CV = EV - AC
CV = $420,000 USD - $415,000 USD = $5,000 USD

CPI = EV / AC
CPI = $420,000 USD / $415,000 USD = 1.01

SV = EV - PV
CV = $420,000 USD - $450,000 USD = -$30,000 USD

SPI = EV / PV
CV = $420,000 USD - $450,000 USD = 0.93

Go Back: EVM Example Part 1 - Finding PV, EV, and AC
Up Next: EVM Example Part 3 - Forecasting ETC and EAC

EVM Example Part 1 - Finding PV, EV, and AC

You are the project manager working on building the first prototype of a new whiz-bang gadget. You are about 2 months into the project, which was projected to be 10 months long in the beginning, with a budget of $2,000,000 USD.

Let's take a look at your project with EVM with the goal of making a forecast as to when the project will be done and what the total cost will be.

To start with, you take a look at your project schedule. You count the tasks that should have been done at this time, which comes to 25. Add up the total budgeted cost for those 25 work packages, and you get $450,000 USD. What is your PV, or BCWS?

PV = $450,000 USD.

Now, you see that you are actually finished with only 23 work packages. (Personally, I wouldn't give any earned value unless a task is fully finished) Add up the total budgeted cost for those 23 work packages you actually did, and you get $420,000 USD. What is your EV, or BCWP?

EV = $420,000 USD.

Finally, add up the actual cost for those 23 work packages you actually did, and you get $415,000 USD. What is your AC, or ACWP?

AC = $415,000 USD.

Go Back: EVM Forecasting
Up Next: EVM Example Part 2 - Finding CV, SV, CPI, and SPI

EVM Forecasting

EVM is meant to be used during project execution to monitor progress and hopefully find problems early so that adjustments can be made. Forecasting is an important part of finding out how big of a deal your CPI or SPI is at this point in the project.

We'll use the same numbers from the last post, so:

• PV = $100k
• EV = $90k
• AC = $85k
• CPI = 1.06
• SPI = 0.90
  

BAC - Budget at Completion

• This is the total planned budget for the project (no EVM calculations)
• Let's say we estimated the total cost for this project to be $200k.
  

ETC - Estimate To Complete

• How much is it going to cost to finish this project?
  
• 3 ways to get this (choose the best one for your situation):
• New estimate - go and re-estimate the work remaining. Most accurate, most time-consuming.
• EVM based on atypical variances - past performance is expected to change, use ETC = BAC - EV (or ETC = BAC - BCWP) $200k - $90k = $110k
• EVM based on typical variance - past performance is expected to continue, use ETC = (BAC - EV) / CPI (or ETC = (BAC - BCWP) / CPI) ($200k - $90k) / 1.06 = $103.8k

EAC - Estimate At Completion

• This is simply what the total project is expected to cost given what you know right now
• Use the ETC from whatever method you chose to use.
• EAC = AC + ETC (or EAC = ACWP + ETC)
• So for atypical, we would say $85k + $110k = $195k
• For typical, we would say $85k + $103.8k = $188.8k

Go Back: EVM Variances and Indexes
Up Next: EVM Example Part 1 - Finding PV, EV, and AC

EVM Variances and Indexes

I'd like to first discuss calculating variances and indexes from those fundamental EVM numbers I discussed in my last post.

Variances

Variances are always expressed in currency. They are just what they sound like, the difference between where you are at and where you had planned to be.

CV - Cost Variance

• CV = EV - AC (or CV = BCWP - ACWP)
• Tasks 1-20 are done. You planned on that costing $90,000, but it actually cost you $85,000. $90k - $85k = $5k
  

SV - Schedule Variance

• SV = EV - PV (or SV = BCWP - BCWS)
• Tasks 1-20 are done, but you planned on getting 1-23 done. 1-20 was planned to be $90,000, and 1-23 was planned to be $100,000. $90k - $100k = -$10k

Indexes

Indexes are used to measure performance on a ratio basis which could actually be compared across projects regardless of their comparative sizes. If you are working perfectly to plan, your indexes will both be 1.00. Greater than 1.00 means you are doing better than planned, less than 1.00 means you are doing worse than planned.

CPI - Cost Performance Index

• CPI = EV / AC (or CPI = BCWP/ACWP)
• Using the numbers above, $90k / $85 = 1.06

SPI - Schedule Performance Index

• SPI = EV / PV (or SPI = BCWP / BCWS)
• Using the numbers above, $90k / $100k = 0.90

So, looking at these variances and indexes, you can see in the example above that we are behind schedule, although it looks like we've managed to keep our costs down so we are actually below budget too.

Go Back: EVM Basics
Next up: EVM Forecasting

Itchy for Earned Value

When I originally started this blog, it was because I wanted to explore ways of making Earned Value Management (EVM) work with Critical Chain project management. I still believe that is a worthwhile goal. I have been doing a lot of brushing up on EVM lately, and am ready to dig in again. Since I am already very familiar with the theory behind Critical Chain and buffer management, I am going to focus on EVM for awhile and then try to meld Simple EVM in the terms described by Joel Koppleman and Quentin Flemming to Critical Chain.

Why EVM?

EVM at it's core is a way to measure performance in terms of cost, schedule, and technical performance. One of the key benefits I have heard cited regularly is that with EVM, you can tell early on whether or not a project is at risk. Quentin Flemming said in an interview on The PM Podcast that there is strong evidence that poor EVM performance at the 20% done mark in a project is very unlikely to be made up unless more resources are added, more funds are appropriated, or the scope gets trimmed.

Another benefit of EVM is objectivity. It measures performance compared with an original baseline schedule and budget. The performance indexes in EVM allow comparisons between projects even when their actual budgets and schedules are very different. You can compare a 6 month project to a 6 year project in the same terms. Because of the objective and universal measure, it also can help make project performance visible to all levels of stakeholders.

Why Not EVM?

There are a few criticisms of EVM I have heard that I would like to discuss. First, full-blown EVM is simply too much overhead for small projects. Simple EVM was introduced for this very reason, and I believe it could be a suitable replacement for smaller projects.

Another thing to keep in mind is that EVM does not take the critical path into consideration. It treats all work equally, which works really well for cost performance but not so well for schedule performance. At first blush, it seems to me that in addition to the SPI (schedule performance index) which I will detail in later posts, there should be an index that tracks progress along the critical path. This could be done by simply tracking schedule performance on the critical path against the original baseline. In this way, the SPI relates more to the amount of work done than the timeliness of the project. They are different but related ways of looking at project schedule performance.

Up Next: EVM Basics

EVM and Critical Chain Presentation courtesy of Larry Leach

I contacted Larry Leach of www.advanced-projects.com to ask his permission to post a great presentation he did at a NASA project management conference in 2005. He graciously gave his blessing. If you don't know Larry's work, he wrote a book with great reviews called Critical Chain Project Management. I haven't read it yet but hope to soon.


The presentation is regarding how EVM and Critical Chain Project Management (CCPM) can be complimentary, and gives pros/cons of both, etc.

Check it out here.

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