Life and Spiritual Coaching

December 27, 2008

Using Earned Value to Predict Project Success

Filed under: PMP,Project Manager — by Donna Ritter @ 9:08 am

This Post examines how the data points of Planned Value (PV), Earned Value (EV), and Actual Cost (AC) can be used to analyze the current status of a project and forecast its likely future. EVM looks at project performance for the current period and at cumulative performance to date. EVM is described and illustrated here in terms of cumulative data, using the Project data.

This post introduces a fourth data point, Budget at Completion (BAC), which is the final data point on the performance measurement baseline (PMB). Budget at Completion represents the total Planned Value for the project. For Project EZ, the BAC is 150.

This is a goof rule of thumb:

• If your SV >0 and your SPI > 1.0, you are ahead of schedule and under budget. If your SV = 0 and your SPI > 1.0, you are on budget and ahead of schedule. If your SV < 0 and your SPI 0 and your SPI > 1.0, you are ahead of schedule and under budget. If your SV = 0 and your SPI > 1.0, you are on budget and ahead of schedule. If your SV < 0 and your SPI < 1.0 you are behind in budget and schedule.
• Indices: Schedule Performance Index (SPI); Cost Performance Index (CPI); and To-Complete Performance Index (TCPI)
• Forecasts: Time Estimate at Completion (EACt); Estimate at Completion (EAC); and Estimate to Complete (ETC)

These variances, indices, and forecasts can be used to answer the key project management questions. It lets us show the relationship between those project management questions and the EVM performance measures.

Schedule Variance (Are we ahead or behind schedule?)
The Schedule Variance (SV) determines whether a project is ahead of or behind schedule. It is calculated by subtracting the Planned Value (PV) from the Earned Value (EV). A positive value indicates a favorable condition and a negative value indicates an unfavorable condition.

The Schedule Variance can be expressed as a percentage by dividing the Schedule Variance (SV) by the Planned Value (PV). In other words, the project is 33 percent behind schedule, meaning that 33 percent of the planned work has not been accomplished.

Schedule Performance Index (How efficiently are we using time?)
The Schedule Performance Index (SPI) indicates how efficiently the project team is using its time. SPI is calculated by dividing the Earned Value (EV) by the Planned Value (PV). The Schedule Performance Index indicates that—on average—for each 8-hour day worked on the project, only 5 hours and 20 minutes worth of the planned work is being performed; that is, work is being accomplished at 67 percent efficiency. This is a very useful statistic to use in resource allocation.

Time Estimate at Completion (When are we likely to finish work?)

Using the Schedule Performance Index (SPI) and the average Planned Value (PV) per unit of time, the project team can generate a rough estimate of when the project will be completed, if current trends continue, compared to when it was originally supposed to be completed.

The originally estimated completion time for the project was 12 months, so the project manager now knows that if work continues at the current rate the project will take six months longer than originally planned. It is important to note that this method generates a fairly rough estimate and must always be compared with the status reflected by a time-based schedule method such as critical path method. It is possible that an earned value analysis could show no schedule variance and yet the project is still behind schedule; for example, when tasks that are planned to be completed in the future are performed ahead of tasks on the critical path.

One trick I always use is to have the engineers update their time on the project daily. This is quite normal. But I also have them update the remaining time that task will take. If the original estimate was 40 hours, and the engineer spent 20 hours on it, that does not mean he is 50% done. Software is very hard to predict and new things are learned as one gets deeper in the project. So if the culture allows the engineers to update their remaining work every day, I can run Project scenarios to see if the critical path has changed. I can also have a discussion with the engineer to see if we can work smarter to pull in the estimate. Most of the time, we don’t spend enough time estimating a project and just jump in and write code. This mode usually bites you in the end.

Next I will show an example I found using the techniques I’ve written about in this post.

earned-value1

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1 Comment »

  1. Thanks for this useful resource! Your explanations are clear. I confirm that EVM is a powerful project management tool!

    Comment by pmtoolbox — December 27, 2008 @ 2:10 pm |Reply


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