- an introduction
Earned value is a technique that originated within US
Department of Defense (DOD) to get control over all
the projects they had going, mainly through outside
contractors. Cost overruns and late delivery was the
norm, rather than the exception. Many projects were
Earned value is a technique that will make it possible
to track the results and to make estimates of final
cost (cost at completion) and time of delivery.
Basically the technique compares the tasks that were
planned to be completed at each point in time during
the project to the actual completed tasks at that time.
The measurement is usually in monetary terms (units
of currency), as this is most often the common denominator
within a project with different kinds of inputs (time,
The actual completed tasks are compared to the planned
tasks and the associated cost of these tasks is compared
to the planned cost of these tasks.
The basics with an example
Say for example that you are running a project that
has been estimated to be finished in 12 months and a
total cost of one million.
Reviews are scheduled every three months.
At the first review after 3 months your plan was that
three tasks should have been completed to the planned
cost of 300,000. However, you have at that time only
achieved 2 of the 3 tasks. The actual cost, however,
is on plan, that is you have spent 300,000.
Superficially this does not look to bad, or does it?
Using Earned Value terminology
the facts are:
• PV (Planned Value,
the planned cost of tasks planned to be completed at
review time): 300,000
• EV (Earned Value,
the planned cost of tasks actually completed at review
• AC (Actual Costs,
the total cost incurred at the time of review): 300,000
From these facts the following can immediately be derived:
• SV (Schedule Variance,
that is the difference between the planned value (PV)
and earned value (EV) achieved): EV-PV = 200,000 –
300,000 = -100,000. This means that the project is behind
plan by 100,000.
• SPI (Scheduling Performance
Index) = EV / PV = 200,000 / 300,000 = 0.67 or
67 %. This means that we have only accomplished 0.67
of every monetary unit that was planned.
• CV (Cost Variance, that
is the difference between the earned value (EV) and
actual costs (AC) incurred): EV – AC = 200,000
– 300,000 = -100,000.
• CPI (Cost Performance
Index) = EV / AC = 200,000 / 300,000 = 0.67 or
67 %. This means that we have only got 0.67 for each
monetary unit that was spent.
These calculations can be used
to determine both the Estimated cost At Completion
(EAC) and when the project will be finished.
If the project continues with the same cost efficiency
rate of 67% it means that the project will need 50%
more budget to complete the work. The Budget At
Completion (BAC) was 1,000,000. With a CPI of 0.67
the EAC (Estimated cost At Completion) will be BAC /
CPI = 1,000,000 / 0.67 = 1,500,000.
In the same way the project will take 50% longer time,
that is 18 months as the original plan was to complete
the project in 12 months. (12 / 0.67 = 18). This time
it is the Scheduling Performance Index (SPI) that
is used to calculate the date of completion.
The estimations of final cost and when the project will
be finished is in this case done under the assumption
that the track record so far will continue in the future.
Normally a deeper analysis must be made to determine
if anything unusual has occurred to impact the current
status and if this was a one time occurrence (e.g. there
was a fire in the office) or if it is probable that
similar events will happen in the future also (wrong
estimates, more work, bottle necks etc).
Ten musts to implement
Earned Value in all projects
According to the texts on Earned Value there are some
a number of Musts to implement Earned Value. The top
10 of these are (see Fleming and Koppelman, 1998):
1 Define Work Scope. You must define 100 %
of the project’s work scope using a WBS.
2 Create an Integrated Bottom-Up Plan. You
must combine critical processes. Including defined scope,
schedule, and estimated resources, into an integrated
bottom-up plan of detailed measurement cells called
Control Account Plans (CAPs). The performance measurement
will take place within the detailed CAPs and the total
project’s performance is the summation of what
was reflected in the detailed CAPs. In essence, each
project CAP is a subproject of the total project.
3 Formally Schedule CAPs. Each of the defined
CAPs must be planned and scheduled with a formal scheduling
system. This scheduled work will constitute the projects
PV (planned value).
4 Assign Each CAP to an Executive for Performance.
Each of the defined CAPs must be assigned to a permanent
functional executive for performance. This assignment
effectively commits the executive to oversee the performance
of each CAP.
5 Establish a Baseline that Summarizes CAPs.
A total project performance measurement baseline must
be established, which represents the summation of the
detailed CAPs. Must include all defined CAPs plus any
management (contingency) reserves.
6 Measure Performance Against Schedule. Periodically,
you must measure the project’s schedule performance
against its planned master project schedule.
7 Measure Cost Efficiency Against the Costs Incurred.
You must periodically measure the project’s cost
performance efficiency rate, which represents the relationship
between the project’s earned value performance
and the costs incurred to achieve the earned value.
8 Forecast Final Costs Based on Performance.
Periodically, you must forecast the project’s
final cost requirements based on its performance
against the plan.
9 Manage Remaining Work. You must continuously
manage the project’s remaining work. The improvements
in performance must come from future work.
10 Manage Baseline Changes. You must continuously
maintain the project’s baseline by managing all
changes to the baseline.
 Quentin W. Fleming and Joel M. Koppelman, CROSSTALK
The Journal of Defense Software Engineering, July 1998,