Earned Value Analysis

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Earned Value Analysis. Cost Planning Cost Control Cost Reporting. €1. €1. €1. €1. €1. progress at milestone 1:. €1.50. €2.50. Earned Value Analysis. the original plan. BAC = Budget At Completion = €5. EV = €2. Only 2 tasks; both overspent.
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Earned Value AnalysisCost Planning Cost ControlCost Reporting€1€1€1€1€1progress at milestone 1:€1.50€2.50Earned Value Analysisthe original planBAC = Budget At Completion = €5EV = €2Only 2 tasks; both overspent.We had planned to do €3 of work, but only ‘earned’ €2.Unfortunately it cost us €4 to do it.We can use the power of EVA to forecast the future…Earned Value AnalysisIf you, in the role of project manager, convince your customer that the project will cost xxx, and you also cost each task or major milestone along the way, then in the customer’s mind each task or milestone will be worth what you said.So if you are so poor at controlling the project that a task has cost you twice the original estimate why should the customer pay for your incompetence?This is the essence of EVA; you will only earn what the customer sees as the value of task. Many large organisations pay their contractors in this wayFrom the original estimatesEarned Value Analysis – Jargon - 1EV is Earned ValueEV = €2PV is Planned ValuePV = €3AC is Actual CostAC = €4Earned Value means the total value of the tasks we have actually completed by this timePlanned Value means the total value of the tasks we had meant to complete by this timeActual Cost means the total cost we have incurred getting to this point in timeEV is less than ACWe have spent more than we have earnedAC is less than EVWe have earned more than we have spentPV is less than EVWe have earned more than we had plannedPV is less than ACWe have spent more than we had plannedSo What? – 1IF:…ACEVThis poor performance could have been identified here…The GraphscostPVThe Actual Cost is running ahead of the Planned Value, therefore the project is over budgetThe Earned Value is running behind Planned Value, therefore the project is behind scheduletimeCV is Cost Variance; CV = EV - ACCV = 2 - 4 = -2SV is Schedule Variance; SV = EV - PVSV = 2 - 3 = -1Earned Value Analysis – Jargon - 2We can look at variance:A negative variance is BAD…CPI is Cost Performance Index; CPI = EV/ACCPI = 2/4 = 0.5EAC is Estimate At Completion; EAC = BAC/CPIWarning: may be a naive assumption:…EAC = 5/0.5 = 10Earned Value Analysis – Jargon - 3We can extrapolate from the current position:….Everything we do seems to cost us twice what we had planned:…EAC = AC + Remaining PVEAC = AC + (BAC-EV)EAC = 4 +(5-2) = 7EAC is Estimate At Completion; EAC = BAC/CPIEAC = 5/0.5 = 10So What? - 2This is only true if all future tasks overrun at the same rate as now. If we think we have fixed the problems behind the current cost overrun then a better EAC formula is:…This is a much smaller EAC, but remember our premise…EAC is Estimate At Completion; EAC = BAC/CPIETC = EAC - ACETC = 10 – 4 = 6EAC = 5/0.5 = 10Earned Value Analysis – Jargon - 4The EAC is obviously a really important figure in the overall cost control for the project, but there is another figure that many people will want to know:…ETC is Estimate to Complete, meaning how much more money will it take to finish this project. ETC is easy to compute.EV = €2PV = €3AC = €4CPI = 2/4 = 0.5SPI is Schedule Performance Index; SPI = EV/PVSPI = 2/3 = 0.66Earned Value Analysis – Jargon - 5More extrapolation, albeit slightly more risky. We know that every task we have finished seems to be taking longer than planned, so maybe we can infer that all future tasks will overrun their schedule by a similar amount. This means we can calculate a Schedule Performance Index, as follows:So if the original duration was 5, the new duration could be:OD/SPI = 5/0.66 = 7.61.21.11.00.90.8Earned Value Analysis
  • EVA can be a powerful tool for forecasting outturn
  • it requires accurate estimating as well as control
  • It assumes future cost performance will be similar to current
  • Upper Control LimitLower Control LimitClassroom Practice - 1All figures are cumulative1. What is the CPI at the end of month 42. What is the SPI at the end of month 43. What is the EAC at the end of month 44. What is the ETC at the end of month 4Classroom Practice - 2All figures are cumulative1. What is the CV at the end of month 42. What is the SV at the end of month 43. If all the work completed in Month 4 fails quality testing, and has to be reworked in Month 5, meaning that none of Month 5’s tasks can be completed:3a. What is the EV at the end of month 53b. What is the AC at the end of month 53c. What is the CPI at the end of month 5
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