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Performance Measurement Analysis
By Raymond Keckler | December 2, 2007
Earned value technique
This compares what you will produce to what you have already done. You use the earned value technique to continuously monitor the planned value, earned value and the actual costs spent. These can give you variances that will help keep the project on target for the cost and schedule. Knowing the variances will allow the project manager to make corrective actions. The three values must be known to calculate variances
Planned value (PV) is the cost of work that has been budgeted for a schedule activity or a WBS component. PV is also called budgeted cost of work scheduled (BCWS). Notice that PV is based on the schedule.
Actual cost (AC) is the cost of completing the work in a given time period. Actual cost could include direct and indirect costs. Only use costs that have been budgeted for the scheduled activity.
Earned value (EV) is the value of the work completed to date as it compares to the budgeted amount assigned to the work component. EV is also called budgeted cost of work performed (BWCP).
All values computed will be based on cost so the graph will be a S curve.
Cost variance (CV) tells you whether you costs are higher or lower than the budgeted amount.
- CV = EV -AC
- Positive numbers mean you are spending less than what was budgeted.
- Negative numbers mean you are spending more than what was budgeted.
Schedule Variance (SV) tells you whether you are ahead or behind schedule.
- SV = EV - PV
- Positive numbers mean you are ahead of schedule.
- Negative numbers mean you are behind schedule.
SV and CV are efficiency indicators.
Cost and schedule performance indexes are used to calculate the performance efficiencies. They can be used to predict future performance.
Cost performance index (CPI)
CPI = EV / AC
Schedule performance index (SPI)
SPI = EV / PV
Results greater than 1 shows good performance.
Results lower than 1 shows poor performance.
Results equal to 1 in expect performance.
Forecasting uses the information gathered to date to estimate the future performance of the project. The two techniques in forecasting is estimate to complete (ETC) and estimate at completion (EAC). They each have three variation and use the budgeted at completion (BAC) cost. BAC is the amount budgeted for the project.
Estimate to complete (ETC) forecasts how much it will cost to complete the work remaining. We can get the first variance just by adding up the cost of the remaining work that needs to be done. The other two calculations use the earned value data.
If future costs variances will be similar to the types of variances you seen to date:
ETC = (BAC -EV) / CPI
If future costs variances will not be to the types of variances you seen to date:
ETC = (BAC - EV)
Estimate at completion (EAC) forecasts the expected total cost of the project.
If the original assumptions used when estimating were flawed or changes have occurred that changed the original estimates:
EAC = AC + ETC
Use this formula when variances are typical:
EAC = AC + ((BAC - EV) / CPI
Use this formula when the variances are atypical:
EAC = AC + BAC - EV
Finally variance at completion calculates the difference between the budget at completion and the estimate at completion:
VAC = BAC - EAC
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Raymond Keckler
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