A simple example of Earned Value Management in action.
A team is tasked with planting trees on a new housing development.
– 30 batches of 20 trees (600 trees)
– Budgeted cost per tree £2.90 (£2.50 per small tree / 40 pence for slow release fertiliser)
Total budget = £1740
– 70 trees were planted (the team hit a patch with stones that had to be removed before the trees could be planted)
– Total cost was £350 (a special machine was required to remove the stones which cost £147 for the day)
Simple EVM calculation:
– Earned Value = 70 trees planted x £2.90 = £203
– Budgeted Cost = 100 trees planned per day x £2.90 = £290
– Actual Cost = 70 tress planted x £2.90 + £147 for the machine = £350
Think about cost
The team have spent £350, but they should only have spend £203. The CV (Cost Variance) can be calculated as follows; EV-AC (Earned Value – Actual Cost).
The team is over budget and have spent 58% more budget than anticipated. This is the CPI (Cost Performance Index).
Think about schedule
The team are at the end of day 1, but they should only be a three quarters through the day. The SV (Schedule Variance) can be calculated as follows; EV-BC (Earned Value – Budgeted Cost.
The team is late and have only performed 70% of the work planned. This is SPI (Schedule Performance Index).
Extending the Actual Cost into the future gives us the end result if we do not modify the performance of the project.
BAC (Budget at Completion) = £1740
EAT (Estimate at Completion) = £3000
Cost over = the difference between the BAC and EAC.
Planned Finish = 6 Days
EAC Finish = 8.57 Days
Project Slippage = the difference between Planned Finish at EAC
– If the team continue at this rate, they will need £3000 (Cost EAC) and 8.57 days (Schedule EAC) to finish the work.
– If the team want to finish on budget, they need to work at 104.3% of the originally planned performance (Planned remaining budget/Actual remaining budget).
– If the team want to finish on time, they need to work at 106% of the originally planned performance (Actual remaining work/Planned remaining work)
In real life, the elements calculated above have slightly difference names:
– The Actual Cost is usually ACWP (Actual Cost of Works Performed.
– The Planned Cost is usually BCWS (Budgeted Cost of Work Scheduled)
– The Earned Value us usually BCWP (Budgeted Cost of Work Performed)