Why Earned Value?
You are halfway through a project and you know how much work is finished and how much money you spend. How do you know whether you have completed the work which was supposed to be done for the money you spend? Earned value calculations will provide you the necessary tools for these.
Let me explain this with a simple example.
You are in the third week of a 5 week project. You were planning to spend $100 per week. Each week you were planning to complete 20% work. At the end of 3rd week, you found that only 40% of the work is completed and you have spent $400.
Now let us look at the earned value terms.
Your Planned Value (PV) = $300 (3 weeks $100 each)
Your Actual Cost (AC) = $400 (You know how much money you spent)
Your Earned Value = Budgeted Cost of Work Performed. In this case your budgeted cost for completing 40% of the work was $200.
So your Earned Value (EV) = $200.
Now let us look at the Schedule Variance, Cost Variance, Cost Performance Index and Schedule Performance Index.
Schedule Variance (SV) = EV-PV = 200 - 300 = -100
Cost Variance (CV) = EV-AC = 200 - 400 = -200
Schedule Performance Index = EV/PV = 200/300 = 0.67
Cost Performance Index = EV/AC = 200/400 = 0.5
-ve SV indicates schedule overrun and -ve CV indicates Overspend.
Similarly SPI less than 1 indicates schedule overrun and CPI less than 1 indicates Cost overrun.
For practice questions, Visit ajithn.com
You are halfway through a project and you know how much work is finished and how much money you spend. How do you know whether you have completed the work which was supposed to be done for the money you spend? Earned value calculations will provide you the necessary tools for these.
Let me explain this with a simple example.
You are in the third week of a 5 week project. You were planning to spend $100 per week. Each week you were planning to complete 20% work. At the end of 3rd week, you found that only 40% of the work is completed and you have spent $400.
Now let us look at the earned value terms.
Your Planned Value (PV) = $300 (3 weeks $100 each)
Your Actual Cost (AC) = $400 (You know how much money you spent)
Your Earned Value = Budgeted Cost of Work Performed. In this case your budgeted cost for completing 40% of the work was $200.
So your Earned Value (EV) = $200.
Now let us look at the Schedule Variance, Cost Variance, Cost Performance Index and Schedule Performance Index.
Schedule Variance (SV) = EV-PV = 200 - 300 = -100
Cost Variance (CV) = EV-AC = 200 - 400 = -200
Schedule Performance Index = EV/PV = 200/300 = 0.67
Cost Performance Index = EV/AC = 200/400 = 0.5
-ve SV indicates schedule overrun and -ve CV indicates Overspend.
Similarly SPI less than 1 indicates schedule overrun and CPI less than 1 indicates Cost overrun.
For practice questions, Visit ajithn.com
