Most Earned Value Management (EVM) environments (particularly for ANSI-748 compliance) use scheduling software like Microsoft Project as the input. But you can Microsoft Project EVM to perform some rudimentary earned value management. You probably wouldn’t want to try for a DCMA (Defense Contract Management Agency) EVM certification with just a scheduling tool, but it has some useful things to offer when it comes to EVMS for best internal practices.
EVM is a positive predictor of project success. EVM values provide valuable insight into the true situation of the project. EVM combines measurements of the triple constraint: scope, time, and cost. The power of EVM is its ability to shift perspective from deliverables planned, deliverables completed, and funds spent to the value of work planned, the value of work done, and funds spent. There are many terms in EVM, but some of the more fundamental variables are available when using Microsoft Project EVM.
This article briefly introduces Microsoft Project EVM features.
We have in Figure 1 our demonstration project schedule.
This schedule records the required effort to install pilings for construction of a pier. (Note the default task type for this project is fixed units.) This project consists of two deliverables: installation of five south pilings and installation of five north pilings. Each piling requires 1 day duration and a cost of $100. Note the fixed cost column in Figure 1 task table. Each piling costs $100 for material, equipment, and labor expenses. To use Microsoft Project EVM we need to set a baseline.
Let’s proceed and set a project baseline. Select the project tab, schedule ribbon group, and set baseline, Figure 2.
In the set baseline dialog toggle set baseline and choose baseline from the drop down menu, Figure 3.
Select OK. This process takes a snapshot of the project at a moment in time and stores this data in baseline. Now to see the baseline on the Gantt chart select the format tab, bar styles ribbon group, baseline drop down menu, and the baseline stored in the field baseline, Figure 4.
The resulting schedule is displayed in Figure 5.
Microsoft Project has EVM variables in an earned value table. To access this table select the view tab, data ribbon group, tables drop down menu, and more tables, Figure 6.
In the more tables dialog, Figure 7, we choose the earned value table and click apply.
Now our project and tabulated earned value data is displayed in Figure 8.
Because we have not yet progressed the schedule most of the variable cells are not populated. In addition to this earned value generic table we want to include the schedule performance index (SPI) and cost performance index (CPI) in our tabulated earned value data, Figure 9.
We now continue and progress the project, Figure 10.
The first three pilings are updated as 100% complete. No progress was achieved on pilings 4 and 5. Next we update the status date. Select the project tab, status ribbon group, and status date icon, Figure 11.
In the status date dialog, Figure 12, move the status date one week forward to November 11th, 2018.
We can see in Figure 13 that some earned value cells are now populated, but we are not done yet.
We need to move uncompleted work to continue after the status date. Select the project tab, status ribbon group, and update project, Figure 14.
In the update project dialog, Figure 15, toggle ‘reschedule uncompleted work to start after’ the status date and click OK.
Observe on the Gantt chart, Figure 16, pilings 1 through 3 are complete and pilings 4 through 10 are delayed.
We make a few more updates to the schedule, Figure 17, including insertion of fixed cost and actual cost columns, and to specify the actual cost of piling 3 as $200.
Additionally, we had a column for to complete performance index (TCPI). Our tabulated earned value data, Figure 17, now has all the elements necessary for rudimentary EVM project analysis.
EVM Fundamental Parameters
Let’s introduce some of the basic EVM parameters observed in our pier piling construction project earned value table, again, Figure 17. These include planned value, earned value, actual cost, and budget at completion. These four parameters enable computation of variety of earned value metrics to examine the health of a project.
The first column lists the schedule Planned Value (PV). The planned value has to do with the schedule budget. Normally when we consider budget we think of the cost for completion of the entire project. But the planned value is the budget separated into periods of time. It essentially is the project spending plan or the value of work planned to be completed over time. The planned value is computed up to the status date, so planned value cells will not be populated until the schedule is progressed.
The Earned Value (EV) is the value of work completed, as measured in dollars. The earned value simply is a dollarized percent complete value; it measures deliverable progress in monetary terms (value of work done). Considering earned value requires a shift in perspective from deliverables percent completed to value of work done or earned. The earned value is also specified over time.
The Actual Cost (AC) is the project funds spent to date. It is the cost of completing each activity. It is often reported in project financial reports using the Work Breakdown Structure (WBS). One of the benefits of earned value management is the capability to compare the cost of work completed with the value of work completed. The actual schedule cost is depicted over time.
Budget at Completion
Budget At Completion (BAC) is the project budget. This is the amount of money estimated to be spent performing the scheduled work. It is also the planned value of all work displayed on the project schedule and performance management baseline.
With our four fundamental EVM parameters we are ready for the races. Let’s review earned value metrics included in our pier piling project earned value table.
The Cost Variance (CV) compares the economic value of completed work to the value of the actual cost. It is computed as follows:
In our pier piling project the PV is $500 and the AC is $400. Without our earned value variable it appears that the project is underspent by $100. Including EV provides insight to the true health of our project.
The reality of our project situation, as per earned value, is an overspent project. This demonstrates the power of EVM: you compare what you spent to what you accomplished, not what you spent compared to what you planned to spend.
You may determine Schedule Variance (SV) using both a dollarized approach and a time units approach. SV in economic terms uses the vertical performance management baseline axis. SV determined in time units uses the horizontal axis. The vertical axis is the traditional SV approach. SV in monetary vertical axis terms is identified with the ($) symbol subscript and SV in time units is labeled with the (t) subscript. The dollarized SV equation is below:
SV$ = EV-PV
The SV$ for our piling project is
SV$ = $300-$500
SV$ = -$200
Negative SV$ values result if the project is behind schedule. Positive SV$ values are good news; more project work was completed than planned. So the SV$ formula allows project ahead or behind schedule assessment in terms of dollars.
Cost Performance Index
Both the Cost Performance Index (CPI) and schedule performance index (SPI) represent unit-less measures of the projects performance efficiency. CPI shows the efficiency with which the project is spending funds. It computes as follows:
CPI = EV/AC
The CPI for our pier piling project is as follows:
CPI = $300/$400
CPI = 0.75
You interpret CPI results as below:
- CPI less than 1.0 indicates the project is overspending funds.
- CPI equals 1.0 than the project is on target.
- CPI greater than 1.0 says the project is under budget.
CPI is a particularly important EVM metric, because past performance can be used to accurately determine final performance requirements to meet financial goals.
Schedule Performance Index
Again, SPI can be computed from time units or the more traditional monetary units. The dollarized SPI equation is as follows:
SPI$ = EV/PV
Our project’s SPI is below:
SPI$ = $300/$500
The SPI$ is less than one indicating the project is behind schedule. However, our SPI$ value does not indicate whether the project is behind a week, month, or year. SPI$ is not an exact value, it does, however, indicate the scheduling trend.
Estimate at Completion
Compute Estimate At Completion (EAC) as follows:
EAC = AC + (BAC-EV) ⁄ CPI
The numerator (BAC – EV) is the remaining work. The EAC equation estimates that the remaining work is accomplished at a cost based on the efficiency to date or CPI. This CPI reflected EAC provides the most optimistic estimate of the final project cost. This equation algebraically simplifies to the below:
EAC = BAC ⁄ CPI
The EAC for the pier pilling project is below:
EAC = $1000 ⁄ 0.75
EAC = $1,333.33
Again, this is the most optimistic estimate of final project cost when you consider that past overruns are not recoverable and future problems and realized risk may still occur. Our EAC, assuming current fund spending efficiency, is greater than the BAC, so this project at conclusion will be overspent.
To Complete Performance Index
The TCPI is the last Microsoft Project supported EVM metric discussed in this article. Some consider CPI and TCPI the two most important EVM metrics. TCPI focuses on future performance, whereas, the CPI indicates past performance. The TCPI equation is as follows:
TCPI = Work Remaining / Funds Remaining
TCPI = BAC-EV / BAC-AC
As per status to date, the TCPI of the pier piling project is as follows:
TCPI = $1000-$300 / $1000-$400
TCPI = 1.17
You interpret TCPI results as below:
- TCPI less than one the target cost is easy to achieve or better.
- TCPI equals one the target cost is achievable at the current level of performance.
- TCPI greater than one means an improvement in performance is required.
Our pier piling project TCPI is 1.17, this means all remaining work has to be completed with a cost performance that is 17% better than the original plan. The current CPI is 0.75. The increase in performance required to achieve our target is 1.17 – 0.75 = 0.42. The required percent increase in performance is 0.42/0.75 = 56%. Not good! This would be very difficult to achieve.
Using Microsoft Project EVM for basic analysis is possible. Numerous EVM metrics are within reach in Microsoft Project when the four horsemen of EVM are derived. These four horsemen or parameters, as discussed, are: PV, EV, AC, and BAC. Achievement of these parameters requires assigning tasks costs and setting a baseline.
Note, in particular, that the PV requires progressing the schedule; PV values populate up to the status date. The CV and CPI metrics require actual costs. Adjust the actual costs, accordingly, if the spending does not go precisely as planned. After progressing the schedule and updating the actual costs EVM analysis is possible. This analysis includes computation of the EAC, which provides to the most optimistic estimate of final project cost.
The CPI and TCPI metrics are considered two of the most important EVM metrics. CPI highlights past performance and TCPI focuses on future performance. All these mentioned tabulated earned value metrics are available in Microsoft Project.
For a more thorough introduction to earned value management concepts consider “The Earned Value Management Maturity Model” by Ray W. Stratton.