Earned value management is a methodology used to measure and report project performance from initiation to completion. The methodology integrates various project management processes to provide a combined cost and schedule control system to ensure project completion on time and within budget.
Earned value management provides a method of managing projects by understanding the mathematical relationships between project scope, work, and budget to determine project health. The metrics used in calculating earned value enable you to gain knowledge about the true health of a project. Also, you can use various earned value metrics to monitor trends in a project.
Oracle Project Planning and Control supports the following standardized earned value metrics:
Planned Value (PV): The planned cost for an activity. Planned value is also known as Budgeted Cost of Work Scheduled (BCWS).
Earned Value (EV): The value of the work actually performed. Earned value is also known as Budgeted Cost of Work Performed (BCWP).
Actual Cost (AC): The cost incurred in accomplishing an activity. Actual cost is also known as Actual Cost of Work Performed (ACWP).
To measure and report earned value, you must first collect progress information against tasks. Oracle Projects enables you to collect progress from tasks, assigned resources, and deliverables for re-planning, forecasting, and reporting.
Progress information includes actual effort and costs, estimate to complete (ETC), estimated and actual dates, and physical percent complete. Earned value is calculated using budgeted values for tasks, and progress information that represents the work accomplished.
The earned value of a project is derived from the work actually accomplished, which in turn is derived from the physical percent complete. For more information, see: Deriving Physical Percent Complete.
Performance reporting in Oracle Projects provides both fundamental and derived metrics. These metrics present an objective insight into the progress of the project.
Fundamental metrics are the basic earned value calculations. These metrics include:
Actual Cost: The amount of cost to accomplish all the work completed as of analysis date.
Current Budget: The sum of all budgets allocated to a project or task. This can be expressed as a planned effort or cost value. Current Budget is also known as Budget at Completion (BAC).
Earned Value: For completed work, this value is the cost or effort originally budgeted to accomplish that work.
Earned Value = Current Budget x Physical % Complete
Estimate to Completion: The amount of work remaining. It can be calculated using the following methods: remaining plan, plan to complete, and earned value.
Percent Complete: A measure of performance based on the actual amount of a particular measure used to date and the estimated amount necessary to complete the task or project.
Physical Percent Complete: The percentage of the work performed, indicates the progress of a task or project, and is calculated based on the percent complete.
Percent Spent: A measure of performance based on the actual amount of a particular measure used to date and the amount that was originally planned for consumption.
Planned Value: The total budgeted cost up to the analysis date.
Oracle Project Planning and Control reports earned value based on the workplan structure and the financial structure. Depending on the relationship between the two structures, earned value reporting numbers may be the same or different. For information on relationship between the structures, see: Deriving Physical Percent Complete for Financial Structures.
Derived metrics are calculated using the base measures of earned value, planned value, actual cost, and current budget. Like the fundamental metrics, these metrics continue to compare actual data against planned data. For example, cost performance compares earned value with actual cost and schedule performance compares earned value with planned value. Oracle Projects uses the variances and indices these metrics provide, to report on performance against the work breakdown structure.
Derived metrics include:
Earned Value Schedule Variance (SV) = Earned Value - Planned Value
Schedule Performance Index (SPI) = Earned Value / Planned Value
Earned Value Cost Variance (CV) = Earned Value - Actual Cost
Cost Performance Index (CPI) = Earned Value / Actual Cost
To Complete Performance Index (TCPI) = Current Budget - Earned Value / Current Budget - Actual Cost
Variance At Completion Percent (VAC%) = (Forecast Cost - Current Budget) / Current Budget
Example
In this example, a company has a project with start and end dates as September 2004 and July 2005 respectively. To complete the project successfully within the specified deadline, the project managers have recorded and calculated various values such as actual cost, planned value. These values will help them predict the project performance and analyze the risk factors.
Consider the values for February 2005 in the following table:
| Metrics | Value |
|---|---|
| Actual Cost | $125K |
| Planned Value | $100K |
| Current Budget | $200K |
| Physical % Complete | $37.5K |
From the above values, the derived metrics are calculated in the following table:
| Earned Value Metrics | Calculation | Description |
|---|---|---|
| Earned Value | Current Budget * Physical % Complete = 200 * 37.5 = $75K | The value indicates that the project is under performing. |
| Earned Value Cost Variance | Earned Value - Actual Cost = 75 -125 = -50 | The negative value indicates that actual cost exceeds the planned cost of work performed. |
| Earned Value Schedule Variance | Earned Value - Planned Value = 75 -100 = -25 | The negative value indicates that the project is behind schedule. |
| Cost Performance Index | Earned Value / Actual Cost = 75 / 125 = .60 | The value indicates that for every dollar spent, only 60 cents of work is performed. This information can be used in the early stages of the project for forecasts. |
| Schedule Performance Index | Earned Value / Planned Value = 75 / 100 = .75 | The value indicates that for every planned dollar, only 75 cents work is complete. |
| To Complete Performance Index | Current Budget - Earned Value / Current Budget - Actual Cost = 200 - 75 / 200 -125 = 1.67 | The index indicates the level of efficiency required to complete the work within the budgeted effort or cost. |
You can use and view the earned value metrics while:
Evaluating project progress
Tracking and reviewing project performance
Building budgets and forecasts
Managing projects
Earned value is derived from the progress collected for a task. Progress information rolls up through the financial structure and is used to report earned value against work complete. Earned value information is rolled up to all levels of the workplan and financial structures. This roll up is based on various task-weighting methods such as: cost, effort, duration, and manual entry.
A detailed earned value analysis by the work breakdown structure helps identify the source of variance as alerts. The alerts help project managers ensure timely corrective action for the project completion as scheduled and within budget. You can compare the earned value metrics to determine variances and indices that reflect the performance of the project based on cost and schedule. You can include values for these metrics in project status reports at all levels of a project.
In addition to an evaluation of current project performance, these earned value metrics and variances form the input for project forecasts that predict project cost and schedule. The forecasting techniques utilize reported metrics to accurately predict the project outcome. The tracked work accomplished when compared with the scheduled and budgeted work determines the final cost and estimated completion date for the project accurately.