Using Earned Value Management for Improving Processes

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the CV is $-850.00 or over budget.

There are two additional tools that earned value provides that help project managers reforecast project costs. They are cost performance index and schedule performance index.

Cost Performance Index
Cost performance index (CPI) is a measure of cost efficiency. CPI is calculated as EV divided by AC. In the example above, the CPI would be $266.50/$350 or 0.76. Basically this means that for every dollar spent, you received $0.76 worth of cost performance. This is an indication of a cost issue on the project.

Schedule Performance Index
Schedule performance index (SPI) is a measure of schedule efficiency. SPI is calculated as EV divided by PV. For our example above, the SPI would be $266.50/$350 or 0.76 again. This also means that for every dollar spent you are only receiving $0.76 of schedule performance. A SPI that is less than one is an indication of a schedule issue on the project.

Consider a project that has a CPI of 0.76, as stated above. If the project manager considers the performance of the project to date to be representative of the future performance on the project, a $100,000 budgeted project with a current accumulated EV of $20,000 and a current AC of $26,316 can be reforecasted using the following formula:

Estimate to complete (ETC) = (BAC - EV)/CPI or $105,263
The reforecasted budget for the project is $26,316 + $105,263, or $131,578.

Reporting Progress
In many cases, project managers will provide earned value management metrics to their sponsors in order for them to view and assess project progress. Project managers may calculate earned value manually, however, many portfolio and project management solutions provide comprehensive earned value assessment in real-time. If the project team members enter in their actual hours against tasks, then the project manager can view project progress and earned value in real-time. The keys to using earned value successfully are:

      -Realize that each task is measured independently
      -Tasks must be defined clearly and budgeted

By tracking these values, the project manager can more readily identify projects in danger of running behind schedule and over budget and can make adjustments along the way. Sponsors may more easily determine if a project will succeed or need to be quashed.

Project XYZ - Performance as of today

Sample Project Summary from Project Insight including EV, AC, CPI, SPI.

About the author

Cynthia K. West's picture Cynthia K. West

Cynthia K. West, vice president and partner at Project Insight, oversees the sales and marketing efforts for the project management company. West is a "serial entrepreneur" with over 15 years of experience in IT. She specializes in building the sales infrastructure for new companies or divisions. Cynthia can be contacted at
info@projectinsight.net
.

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