Earned Value Analysis is a proven technique for accurately measuring the financial situation of a project. Furthermore, this methodology is an effective means of projecting the total cost of a project upon completion.
Steps
Part 1 of 7:
Step 1. Prepare a project plan
To harness the power of Earned Value analysis, the program must define, for each project activity, when it should take place and how much it should cost.
Step 2. List the activities required to complete the project
Step 3. Identify the resources needed to perform each task
Include labor and materials.
Step 4. Determine the amount of each resource that will be needed for each task
Step 5. Determine the unit cost of each resource, which will be an hourly rate for the work
Step 6. Determine the expected cost of carrying out each activity
- Multiply the hourly rate of each required work resource by the number of hours needed.
- Add this product for all required manpower resources.
- Calculate the total cost of materials needed to complete the task.
- Add any additional charges for items such as equipment rental, insurance, transportation, government taxes, etc.
- The total is the budgeted cost for the activity.
Step 7. Estimate the duration of each operation
This is the time it takes to complete an operation, not the hours of work (applied time) required to complete it.
Step 8. Identify the prerequisites for each activity
Prerequisites are the tasks that must be completed before a certain activity can be started.
Step 9. Use project scheduling software or manually determine start and finish dates for each task
A spreadsheet is often used for small projects.
Part 2 of 7: Determine the Actual Cost of the Work Performed
Step 1. Define a "project timeline"
Step 2. Determine the actual costs accrued on the project through the defined timeline
The total is shown as "Actual Cost of Work Performed" (ACWP).
Part 3 of 7: Calculate the Estimated Cost of Scheduled Labor
Step 1. Identify scheduled tasks that need to be completed before or during the timeline
Calculate the total budgeted cost of these activities.
Step 2. List the activities that need to start before the timeline, but are not expected to finish before that date
These are activities in progress (WIP). Determine the percentage of each WIP that should be completed within your timeline. Multiply the total budgeted cost by this percentage for each of the activities.
Step 3. Add the partial costs of activities in progress to the total of those scheduled to be completed
The value obtained will be the budgeted cost of the planned work (BCWS).
Part 4 of 7:
Step 1. Calculate the total budgeted cost of the tasks that have actually been completed
Step 2. Identify tasks that have been started but not yet completed
Estimate the percentage of completion for each of these activities and multiply it by the budgeted cost for each.
Step 3. Add the calculated totals for partially completed tasks to the budgeted costs of completed ones
The total is the budgeted cost of the work performed (BCWP).
Part 5 of 7: Calculate the Schedule Variance and Schedule Performance Index
Step 1. To determine Schedule Variance (SV), subtract the budget cost of the scheduled work from the budget cost of the work performed
- SV = BCWP - BCWS
- A successful Schedule Variance result indicates that the project is ahead of schedule.
Step 2. Divide the budgeted cost of the work performed by the planned cost of the scheduled work to calculate the Schedule Performance Index (SPI)
- SPI = BCWP / BCWS
- If the SPI value is greater than 1, it means that the project is ahead of schedule.
Part 6 of 7:
Step 1. Subtract the "actual cost of the work done" from the "budgeted cost of the work done" to determine the cost variance (CV)
- CV = BCWP - ACWP
- A positive cost variance indicates that the project is within budget.
Step 2. Divide the "budgeted cost of work done" by the "actual cost of work done" to calculate the cost performance index (CPI)
- CPI = BCWP / ACWP
- If the CPI is greater than 1 it means that the project is within the budget.
Part 7 of 7:
Step 1. Calculate the budgeted cost for the entire project by adding the BCWS for all project activities
The resulting total is known as the "completion balance" (BAC).
Step 2. There are 2 methods of estimating the total cost of a project upon completion ("estimate upon completion" or EAC)
It is recommended that you use the method that is most appropriate for your project circumstances.
- If the current cost variance is the result of an unexpected event that shouldn't recur anyway, then the BCWS for the rest of the project is probably still valid. Subtract the variance of costs from the completion budget to estimate the total cost of the project at the end: EAC = BAC - CV.
- In the event that the current cost variance is the result of circumstances that may continue (such as higher than expected labor costs), divide the completion budget by the cost performance index in order to estimate the total cost of the project: EAC = BAC / CPI.
