BALMORE - EARNED VALUE TECHNIQUES.pdf

earned value techniques by: Ma. Elena G. Balmore  earned value techniques -Earned Value technique is used to track and evaluate the progress of a project. Combining scope, schedule, and resource measurements, this technique provides an accurate picture of project performance and h...

earned value techniques by: Ma. Elena G. Balmore  earned value techniques -Earned Value technique is used to track and evaluate the progress of a project. Combining scope, schedule, and resource measurements, this technique provides an accurate picture of project performance and helps forecast future performance trends. EVT has become an essential tool in project management, particularly beneficial in managing large, complex projects where tracking progress and predicting outcomes can be challenging.  importance of EARNED value techniques 1. Performance Measurement and Accountability EVT provides an objective and standardized method to measure a project’s performance. Project managers can compare PV, EV, and AC to determine whether the project is ahead, on, or behind schedule and budget. This information is invaluable in holding team members and stakeholders accountable for project outcomes. 2. Early Issue Detection The EVT enables early detection of issues or deviations from the project plan. If EV is less than PV or AC is higher than EV, it may indicate that the project is not progressing as planned. This system allows project managers to take corrective actions promptly, preventing minor problems from escalating into major setbacks.  importance of EARNED value techniques 3.Cost and Schedule Control Earned Value technique in project management helps managers control project costs and schedules. It allows them to forecast the final cost and completion date based on current performance. With this information, project managers can make informed decisions about resource allocation, schedule adjustments, or scope changes to keep the project on track. 4. Improved Communication This provides a common language for project stakeholders, fostering better communication and understanding of project progress. It allows project managers to present data clearly and concisely, making conveying project status to executives, clients, and team members easier.  importance of EARNED value techniques 5. Risk Management EVT helps identify potential risks and their impact on project performance. Project managers can pinpoint areas of concern by analyzing variances between PV, EV, and AC and allocate resources to manage risks effectively. This reduces project delays and cost overruns.  key componentS of evt 1. PLANNED VALUE 2. ACTUAL COST 3. EARNED VALUE (PV) (AC) (EV)  key componentS of evt PLANNED VALUE (PV) -Planned Value, often called the Budgeted Cost of Work Scheduled (BCWS), is a critical component of EVM. PV is the baseline cost plan that outlines how much money should have been spent by a particular project milestone or date. It helps project managers evaluate if the project is progressing as planned in terms of time and cost.  key componentS of evt ACTUAL COST (AC) -Actual Cost represents the total costs incurred to complete the work at a specific point in time. It includes all costs associated with the project, such as labor, materials, equipment, and overhead expenses. AC is crucial for comparing actual expenses with the budgeted costs (PV and EV), helping project managers identify any cost overruns or underruns. It is often called the Actual Cost of Work Performed (ACWP).  key componentS of evt EARNED VALUE (EV) -also known as the Budgeted Cost of Work Performed (BCWP). EV represents the value of the work completed at a given time. It measures the progress of the project in terms of cost. EV allows project managers to assess how much value has been achieved relative to the planned value and helps determine if the project is ahead or behind schedule.  PLANNED VALUE (pv) PV = BAC × % complete (planned) Project duration: 12 months BAC = budget at completion or project’s Project budget (BAC): 100,000.00 total planned value Elapsed time: 9 months % Complete (Planned) - the amount of work % complete (planned): 75% that should have been completed by a certain date based on the project schedule. PV = 100,000.00 × 75% PV = 75,000.00 (planned value after 9 Given: months) Project duration: 12 months Project budget (BAC): 100,000.00 Elapsed time: 6 months % complete (planned): 50% PV = 100,000 × 50% PV = 50,000.00 (planned value after 6 months)  actual cost (Ac) You have a project to be completed in 12 months. The budget of the project is 100,000.00. Six months have passed, and 60,000.00 has been spent, but on closer review, you find that only 40% of the work has been completed so far. What is the project’s Actual Cost (AC)? The Actual Cost is the amount of money that you have spent so far. In the question, you have spent 60,000.00 on the project so far. Hence, The project’s Actual Cost is 60,000.00  earned value (ev) You have a project to be completed in 12 months. The budget of the project is 100,000.00. Six months have passed, and 60,000.00 has been spent. On closer review, you find that only 40% of the work has been completed so far. What is the project’s Earned Value (EV)? In the above question, you can clearly see that only 40% of the work is actually completed, and the definition of Earned Value states that it is the value of the project that has been earned. Earned Value = 40% of the value of total work = 40% of BAC = 40% of 100,000 = 0.4 X 100,000 = 40,000.00 Therefore, the project’s Earned Value (EV) is 40,000.00. 6th month (Assessment date) PV = 50,000.00 AC = 60,000.00 EV = 40,000.00 Conclusion: EV is below PV, BEHIND SCHEDULE AC is above EV, OVER BUDGET project managers can get a clear picture of the project’s performance and make informed decisions to address any issues related to cost and schedule.  variance analysis and performance indexes -If the project manager wants to know how far off we are from the project baseline, it can be known using schedule and cost variance. Another way of looking at project performance, apart from variance, is through indexes. Here, we have two parameters— schedule and cost index.  1. cost variance -If the CV is positive, the project is under budget, and the progress is good. If the CV is negative, the project is over budget and needs corrective actions to bring the project on budget. A CV value equal to zero shows the project is on budget. 1. cost variance PV = 50,000.00 AC = 60,000.00 EV = 40,000.00 CV = EV - AC CV = 40,000 - 60,000 CV = -20,000 CV < 0 ; 0VER BUDGET  2. schedule variance -If the SV is positive, the project is ahead of schedule and performing well. An SV is negative; the project is behind schedule and needs corrective actions to bring the project on track. An SV value equal to zero shows the project is on schedule. 2. schedule variance PV = 50,000.00 AC = 60,000.00 EV = 40,000.00 SV = EV - PC SV = 40,000 - 50,000 SV = -10,000 SV < 0 ; BEHIND SCHEDULE 3. COST PERFORMANCE INDEX -Cost Performance (CPI) shows whether the project is under or over budget. If the variance is beyond permissible limits in both cases, the project manager can investigate the root cause of the deviation and take necessary actions to improve the cost performance. 3. COST PERFORMANCE INDEX PV = 50,000.00 AC = 60,000.00 EV = 40,000.00 CPI = EV/AC CPI = 40,000/ 60,000 CPI = 0.667 CPI < 1 ; OVER BUDGET 4. SCHEDULE PERFORMANCE INDEX -The schedule performance index (SPI) shows how you are progressing as compared to the planned project schedule. The schedule performance index gives you information on your project’s time efficiency. 4. SCHEDULE PERFORMANCE INDEX PV = 50,000.00 AC = 60,000.00 EV = 40,000.00 SPI = EV/PV SPI = 40,000/ 50,000 SPI = 0.8 CPI < 1 ; BEHIND SCHEDULE  FORECASTING TECHNIQUES -Forecasting techniques are methods used to predict future project performance and outcomes based on current progress and trends. 1. ESTIMATION AT COMPLETION -It predicts the total cost of a project once it’s finished. It considers the project’s current performance and adjusts the initial cost estimate based on actual performance. EAC helps project managers guess if they can complete the project within budget or if extra funding is required. I.Case #1: EAC = BAC / CPI -You assume that the project will continue to perform, to the end, as it has been performing in this scenario. -In other words, your future performance will be the same as your past performance. 1. ESTIMATION AT COMPLETION II.Case #2: EAC = AC + (BAC – EV) -You have deviated from your budget estimate, but you can complete the remaining work as planned. -Unforeseen circumstances or one-time incidents can cause this and increase costs. However, it will not happen again, and you can complete the remaining work as planned. -In this formula, you add the money spent to date to the budgeted cost of the remaining work. III.Case #3: EAC = AC + [(BAC – EV) / (CPI * SPI)] -You are over budget, behind schedule, and the client insists you complete the project on time. The cost and schedule performance must be taken into consideration. 1. ESTIMATION AT COMPLETION predicted total cost of a project once it is finished. EAC > BAC indicates a major budget overrun.  2. Estimate To COMPLETION -It is a forecasting technique that gives you the approximate cost required to complete the remaining project work. ETC = EAC - AC  3. To-complete perfromance index -It estimates the future cost performance you may need to complete the project within the approved budget. I.Case-1: You Are Under Budget (CPI > 1) TCPI = (BAC – EV) / (BAC – AC) (TCPI compared to BAC) II.Case-2: You Are Over Budget (CPI < 1) TCPI= (BAC – EV) / (EAC – AC) (TCPI compared to EAC) 3. To-complete perfromance index "Your allowance won't stay on budget if 'deserve ko to' becomes your financial mantra!" -MEB, 2024 REFERENCES: https://www.simplilearn.com/earned-value-management-and-its-formulas-article Date accessed: June 8, 2024 https://edward-designer.com/web/pmp-earned-value-questions- explanined/ Date accessed: June 8, 2024 https://chatgpt.com/ Date accessed: June 8, 2024 https://pmstudycircle.com Date accessed: June 8, 2024 https://www.indeed.com/career-advice/career-development/earned-value Date accessed: June 8, 2024