Earned Schedule Management (ESM) with MS Project

Imagine the following scenario. You are working on a software implementation project, which has 10 modules to complete. The cost of each module is US$100,000, and you want to complete the project in 10 months. The project actually took 12 months to complete with a cost of US$1.3M. Because of regulatory compliance, you have to do an earned value management (EVM) report. Consider what’s shown below with schedule indicators.

Schedule variance = US$0.0M

Schedule performance index = 1.0

How is that possible? The schedule variance can’t be zero. Obviously, the project is two months behind schedule. It also has a cost overrun of US$0.3 million.

To understand this anomaly, first let’s go through the basics of Earned Value Management (EVM).

This article was first published by MPUG.com. This is a refined and updated version with latest MS Project software tool. The EVM understanding and content of this article has been taken from the course: MS Project Live Lessons.   

Basics of Earned Value Management

Earned value management (EVM) is a management methodology that combines measurements for scope, schedule, and cost in order to assess project performance and progress. EVM integrates scope, schedule, and cost baselines to form the performance measurement baseline (PMB). The assessment happens against the PMB.

There are few basic metrics in EVM, which are noted below.

With these metrics, we can determine schedule and cost variances, as well as schedule and cost performance indices. They are depicted in the following table.

As shown, if the CV is negative or CPI is less than 1.0, we are over budget; whereas, if the SV is negative or SPI is less than 1.0, we are behind schedule.

Now, consider our scenario:

Budget at completion (BAC)

= 10 * $100,000 (10 modules and each module’s cost is $100,000)

= $1,000,000, or $1M

Planned value (PV) is the authorized budget assigned to scheduled work or simply the “work planned.” The budget authorized for scheduled work of 10 modules is $1M.

Hence …

Planned Value (PV) = $1M

Earned value (EV) is the measure of work performed expressed in terms of the budget authorized for that work (i.e., value that we have earned in the project by completing the work). The project is complete and we have completed all the 10 modules.

Therefore, the following is true:

Earned Value (EV)

= 10 * $100,000

= $1M

The amount of total money spent for the entire project is $1.3M. The realized cost incurred for the work performed (i.e., AC) will be come out as follows:

Actual Cost (AC) = $1.3M

Taking the formula for cost variance and the cost performance index from the above table, we get the following results:

Cost Variance (CV) = Earned Value – Actual Cost

=> CV = EV – AC

= $1M – $1.3M

= – $0.3M

Cost Performance Index (CPI) = Earned Value / Actual Cost

=> CPI = EV/AC

= $1M/$1.3M

= 0.77

The results for CV and CPI look alright. We do have a cost overrun of $0.3M, which is reflected in the CV. It is also reflected in CPI with a value of 0.77, which tells us the project is over budget because it is less than one.

Next, let’s figure out the schedule metrices.

Schedule Variance (SV) = Earned Value – Planned Value

=> SV = EV – PV

= $1M – $1M

= $0.0M

Schedule Performance Index (SPI) = Earned Value / Planned Value

=> SPI = EV/PV

= $1M/$1M

= 1.0

Looking at SV, we learn there was no variance in schedule when the project was completed?! This is also reaffirmed by SPI.

Earned Value Management with MS Project ***NEW***

With MS Project software, these values can be quickly calculated. It is possible that your actual cost of the 10 components may vary, as depicted in the following figure. You can see the EVM metrics in MS Project by using the Earned Value Cost Indicators table. 

In the above table, I’ve added SV and SPI both as fields/columns.

As you can see, at the end of the project, both SV and SPI are $0.00 and 1, respectively.

But, was that really the case? Obviously, we have a delay of two months, and there is no way the SV will be zero. Because of said two month delay, there is no way the SPI will be that perfect 1.

What Went Wrong?***NEW***

In our calculation, CV and CPI are reflected correctly, but not SV and SPI. What went wrong?

As you can see, for both cost and schedule variance calculations, we have earned value (EV) in common. While the cost variance calculation references actual cost (AC), the schedule variance calculation references planned value (PV). This is the root of the problem. PV becomes the BAC when the project is complete. The PV does not change even if the project runs late. In fact, it does not change at all, no matter how late the project is.

Our budget at completion (BAC) is $1M. When the project is complete, the planned value (PV) will be equal to BAC because that is the total work we have planned to complete. As we saw in the earlier table, PV is the authorized budget assigned to scheduled work. So, planned value (PV) is also $1M. If the project had run five months late and completed, then the BAC is still $1M. In fact, the planned value when the project completes is still at $1M! The earned value (EV), on the other hand, incrementally becomes BAC when the project completes due to the total work that will be actually done when the project has been completed. This gives us the schedule variance or difference between EV and PV as zero.

To solve this, we have Earned Schedule theory or Earned Schedule Management (ESM). 

Earned Schedule Management

In the EVM scenario that we just looked at, everything is measured in terms of money. For example, schedule indicators are defined in terms of money as we saw with the formula for schedule variance (SV) and schedule performance index (SPI). We also saw for projects, which are late, SV and SPI become zero and 1.0, respectively, when the project ends.

The concept of “Earned Schedule” (ES) extends earned value management. In this case, the schedule is not defined in terms of money, but in terms of duration units or time. Earned schedule replaces earned value and schedule variance measures are also changed.

Let’s term the analysis or management with earned schedule as earned schedule management (ESM). You can give a different name, but the concepts are same. Also, ESM rhymes well with EVM. 

Metrics and Interpretations

The basic metrics used in this case are few and not complicated.

• Earned Schedule (ES): The measure of work performed in terms of schedule as on status date. This is basically Earned Value (EV) in terms of duration worth of work.
• Actual Time (AT): The realized time or actual time as on status date.
• Planned Duration (PD): The total planned duration when the project started. This maps to Budget at Completion (BAC) metrics of traditioal EVM, but is in terms of duration. 

The variance related metrics used here are only with respect to schedule. Earlier in EVM, the schedule variance (SV) is noted as the difference between earned value (EV) and planned value (PV) ( i.e., SV = EV – PV).

Here, earned schedule (ES) replaces earned value (EV) and planned value (PV) is replaced by actual time (AT). Hence, the schedule variance, in terms of time, will be the difference between earned schedule (ES) and actual time (AT). The equation is as follows:

Schedule Variance = Earned Schedule – Actual Time

=> SV(t) = ES – AT

You can interpret the SV(t) metric as indicated below:

• If SV(t) is greater than zero or positive, it means the project is ahead of schedule.
• If SV(t) is equal to zero, it means it’s on schedule.
• If SV(t) is less than zero or negative, it indicates a status of being behind schedule.

Another metric used is the schedule performance index or SPI(t). The formula for SPI(t) correspondingly changes by taking earned schedule (ES) and actual time (AT). SPI(t) measures of schedule efficiency. Here is the equation in terms of time.

Schedule Performance Index = Earned Schedule/Actual Time

=> SPI(t) = ES/AT

I’ve noted SV(t) and SPI(t) for ESM schedule indicators in order to differentiate with traditional EVM schedule indicators of SV and SPI.

You can interpret the SPI(t) metric as follows:

• If SPI(t) is greater than 1.0, it indicates that the project is ahead of schedule.
• If SPI(t) is equal to 1.0, it means the project’s on schedule.
• If SPI(t) is less than 1.0, it means it’s behind.

These metrics for ESM are also now included in the PMBOK guide. It is a good time to summarize them in a table.

S-Curve Representation ***NEW***

While considering EVM, the representations often occur in an S-curve, as depicted in the figure below:

 

Three basic metrics of EVM are shown in the above S-curve. Planned Value (PV curve) is shown with green color coding, whereas actual cost (AC curve) and earned value (EV curve) are shown with orange and blue color, respectively. The end of PV curve is the budget at completion (BAC), another metric which tells the cost baseline or performance measurement baseline (PMB) of the project. The status date is indicated in red, and that gives the instantaneous PV, EV and AC values (i.e., the values as on the status date).

The EVM S-curve is the basis for the S-curve representation for ESM. Earned schedule (ES) value is found by projecting the EV accrued value on to the PV curve. After all, it is the measure of work performed in terms of schedule as on status date.

As shown, cumulative value accrued for EV is projected onto the PV curve on the status date. Then, a line is drawn towards the Time-axis, which gives the Earned Schedule (ES) value. The line drawn directly from the status date towards the Time-axis gives the Actual Time (AT) value. The difference between ES and AT gives the SV(t) value. The planned duration (PD) is also shown, which the total planned duration for the project.

Our Example with ESM

Now, let’s go back to the example I began with. You might be wondering how the values would come out if we used ESM? Or, what the schedule indicators would be using ESM? Let’s begin our calculation.

We completed 10 modules in 12 months. In terms of earned schedule (or duration earned), it is actually 10 months’ worth of work.

Hence …

Earned Schedule (ES) = 10 months

Our project was completed in 12 months.

Therefore …

Actual Time (AT) = 12 months

Applying the formula for schedule variance in ESM returns the following:

Schedule Variance = Earned Schedule – Actual Time

=> SV(t) = ES – AT

= 10 – 12 = – 2 months

As SV(t) is negative, we are behind schedule. This correctly reflects what happened in our project.

Applying the formula for schedule performance in ESM shows:

Schedule Performance Index = Earned Schedule/Actual Time

=> SPI(t) = ES/AT

= 10/12 = 0.83

SPI(t) is no longer 1.0, as we saw in the case of SPI of traditional EVM. In this case, SPI(t) is less than 1. We can see that our project is behind schedule.

Earned Schedule Management with MS Project ***NEW***

Going to MS Project again, we can see the metrics for ESM and that they match with our calculations above. I’ve used few custom fields and associated mathematical formula to calculate ES, AT, SV(t), and SPI(t).

I hope this article has given you a foundational understanding of earned schedule concepts. For aspiring Project Management Professionals (PMPs) and Certified Associates in Project Management (CAPM), earned schedule management is a concept to get familiar with, as it has been introduced in the PMBOK Guide as a current trend and emerging practice.

 

References

[1] I Want To Be A PMP: The Plain and Simple Way To Be A PMP, 2nd edition, by Satya Narayan Dash

[2] Project Management Body of Knowledge (PMBOK) Guide, 6th Edition, by Project Management Institute (PMI)

[3] PMP Live Lessons, PMBOK 6th Edition – Guaranteed Pass or Your Money Back, by Satya Narayan Dash

[4] Paper – Schedule is Different, by Walt Lipke

[5] Practice Standard for EVM, by Project Management Institute (PMI)

PMP, RMP Exam: Estimate to Complete (ETC) Calculation – Formulas for ETC (Composite)

I received this question from one of my readers. 

*****

Hello Satya, 
I am a project management instructor for Sacramento State University College of Continuing Education and one of the areas I teach is earned value management.  I found your article written on June 23, 2015 about calculating EAC and ETC when I was looking for a formula to use when calculating ETC with weighted SPI and CPI.  PMBOK refers to this proportional variation but provides no formula to calculate it.  You provided the following formula which makes sense:

            ETC = (BAC - EV) / (CPI * CPIweight) + (SPI * SPIweight)

Both in PMBOK and in your example, there is an implication, but not explicitly stated, that the CPI and SPI weight must equal 1.0.  For example, if the CPIweight is .8, the SPIweight must equal .2.  Therefore, the non-weighted formula,  

           ETC = (BAC – EV) / (CPI * SPI)

would be used when the CPI and SPI have equal influence on the ETC, whereas if they are disproportionate, you would use an 80/20 or other appropriate weighting with your formula.  Using this logic, it would seem that if you used a 50/50 proportion with the weighted formula, it should render the same result as the non-weighted formula.  However, in practice the results are vastly different.

This was causing me a great deal of confusion where I couldn’t determine whether it was my logic or the formula that was incorrect.  Eventually, I came to the conclusion that the formula is correct, but that my logic was flawed.  I’d like your input as to whether my conclusion is accurate.  It is not logical to make the weighting of CPI and SPI a function of each other, but solely a judgement of how much each index influences the remaining cost independently.  In other words, and for example, if the CPI is weighted at .8, that simply means that only 80% the CPI is only influencing the ETC; it doesn’t mean that only 20% of the SPI is influencing the ETC.  In fact, the SPI could also have an 80% influence.  This would mean that the 80 of the cost overruns will continue to influence the remaining cost and that 80% of the schedule delays will be an influence as well. 

This means that the non-weighted formula is basically stating that 100% of the cost factors and 100% of the schedule factors are influencing the ETC.  Part of the past cost overruns may be from atypical factors which could reduce the CPI weight (perhaps to 60%) and the schedule delays may only have a slight impact (perhaps 10%).  In this example, the formula would be:

            ETC = (BAC - EV) / (CPI * .60) + (SPI * .10) 

Clearly, the weights do not add up to 1.0, but this would appear to be appropriate in this scenario.
I’d appreciate your input on my analysis.  Essentially, my theory is that CPI and SPI should be weighted independently based on their respective influence rather than proportionately as a function of one another and do not necessarily need to be something like 80/20, 70/30, or the like.  If fact, they could be 60/50, 10/30, 75/75, etc.

Thank you for taking the time to read this and for any feedback you have.  I hope you are safe and well during this pandemic.  All of my courses are now being taught virtually.  I’m anxious to be able to return to the classroom in person when it is safe. 

Kindest regards,
Gary R. Slavit, PMP
gary@slavitconsulting.com

*****

It’s a very good question and a discussion on it will clarify a number of things on Estimate to Complete (ETC) calculation in earned value management (EVM). The question and subsequent explanation by Gary are very thoughtful and analytical.

Indeed, it confuses many – particularly when the weighted values of CPI and SPI are considered.

Hence, I’m putting it as a separate post and explaining the concepts with ETC (Composite) and ETC (CPI), with focus on the former.

First, let me put the formulas for ETC. As noted in the article (June 23, 2015), it is actually the ETC which changes. This in turn impacts the Estimate at Completion (EAC). Now, ETC is calculated with many assumptions. They are noted in the below table.

In the below table:

• CPI stands for Cost Performance Index.
• SPI stands for Schedule Performance Index.
• BAC is for Budget at Completion.
• EV is for Earned Value.

Table - ETC Assumptions and Formulas

The content of this table is from the previous article and I've added a few notes, information and classifications of ETC, i.e., ETC (Composite), ETC (CPI) and ETC (Management). All the assumptions are also from the previous mentioned article.

ETC (CPI) and ETC (Composite)

The above table has been divided into three sections. Let's understand them.

• ETC (CPI): For ETC calculation, only the cost performance index is in consideration. Hence, in the name, "CPI" word is appended.
• ETC (Composite): For ETC calculation, both cost and schedule performance indices are considered. As both are considered, it’s called “composite”.
• ETC (Management) or ETC (Formal): Neither CPI nor SPI is explicitly taken in a formula for ETC. Rather, the calculation is a bottom-up and manual one. This is what the management commonly uses and hence appended with word "management".

These naming conventions will be useful to remember the formulas.

The question raised in the beginning directly relates to these assumptions - Assumption # 3 and Assumption # 4. Both of these assumptions fall under ETC (Composite). The calculations for ETC (CPI) are quite straight-forward. 

Hence, in this post we will check on ETC (Composite), i.e., when both CPI and SPI are involved. The related assumptions and formulas are light-yellow highlighted in the above table.

Now let’s check on the questions raised in the beginning. 


Questions and Answers

Question – 1: When CPI and SPI are both considered in proportions, do the proportions together equal 1.0 or 100%? 

Answer: 
In this case, we consider giving certain weightage to CPI and certain weightage to SPI. Based on it, ETC - or as I've named ETC (Composite) - will be calculated. The actual formula is:

ETC 
= (Work Remaining)/Future cost efficiency
= (BAC – EV)/ Future cost efficiency 

When the future cost efficiency with weightage values of CPI and SPI are taken, e.g., 80% and 20% for CPI and SPI, respectively, the formula for ETC will be:

ETC 
= (BAC – EV)/ ((80% × CPI) + (20% × SPI))

Can there be other proportions? For example, can be it 60% of CPI and 10% for SPI?

This is indeed a confusing part and as Gary has rightly mentioned in the query, there is an implicit assumption, i.e., together the proportions equal 1.0 or 100%.

Yes. It can be any other proportion and it need not be 1.  

For example, considering for 60% CPI and 10% SPI, ETC will be:

ETC 
= (BAC – EV)/ ((60% × CPI) + (10% × SPI))
= (BAC - EV)/ ((0.6 × CPI) + (0.1 × SPI))

As you can see, together the proportions for CPI and SPI equal 0.7 (0.6 + 0.1), not 1.0.

Hence, it means the proportions together need not equal to 100% or 1.0. 

Question – 2: Is the non-weighed formula same as equal weighted formula for ETC (composite)?

Answer: 
The non-weighted formula is:  
ETC = (BAC – EV) / (CPI × SPI)

The equal weighted formula, on the other hand, is:
ETC = (BAC – EV) / (50% × CPI) + (50% × SPI)

Mathematically, the value of (CPI × SPI) is not equal to ((50% × CPI) + (50% × SPI)).

Example: Let’s say CPI is 0.6 and SPI is 0.8. Hence,

CPI × SPI 
= 0.6 × 0.8 = 0.48

However, if I use the weighted one, it comes as:
 (50% × CPI) + (50% × SPI)
= (50% × 0.6) + (50% × 0.8)
= (0.3) + (0.4) = 0.7

As you can see the results are different and hence the ETC values will be different. 

So, what does it mean?

It means that for the non-weighted formula of ETC, i.e., (BAC – EV) / (CPI × SPI), the future cost performance/efficiency will also be (additionally) influenced by schedule performance. It does not mean both will have equal weightage.

For example, it’s possible that a bad schedule performance in the future can impact the cost performance and add-up more cost. The reverse is also true.

On the other hand, with the weighted formula, the project manager and management team examine and take a judgement call on how much weight they want to assign to CPI and SPI. 

Again, as noted earlier, together it need not be 1 or 100%.


How to Proceed?
I agree when you take with weighted values for ETC (Composite), it creates confusion. On the other hand, the calculations for ETC (CPI) are straight. Hence, I look at it differently, while considering both ETC (Composite) and ETC (CPI). Instead of saying the formula for ETC as:

ETC 
= (BAC – EV)/ Future cost efficiency,

I would put would it as: 
[Considering both ETC (Composite) and ETC (CPI) ]

ETC 
= Inverse Performance Factor × (Work Remaining)
= Inverse Performance Factor × (BAC – EV)
= IPF × (BAC – EV)

Other than inverse performance factor (IPF), you can call it future performance factor or performance-future, performance-forecast or any other name. 

The key point note here is this: Putting "cost efficiency" or "cost performance" or only "CPI-future" in the ETC equations, gives you an an impression that only CPI and(/or) cost are involved. But it is not the case - because both CPI and SPI can be there in the case of ETC (Composite). However, going with IPF altogether removes this impression of "cost-only efficiency" or "CPI-only future performance".

Now, for non-weighted one, the value of IPF will be:

• IPF = 1/ (CPI × SPI)

For weighted one, the value of IPF will be:

• IPF = 1/ (%age × CPI) + (%age × SPI)

Important Notes on IPF:

• If IPF > 1, it is bad and ETC will be more. Hence EAC will be more.
• If IPF < 1, it is good and ETC will be less. Hence, EAC will be less.
• The concept of IPF applies both to ETC (Composite) and ETC (CPI). It does not apply to ETC (Management).

Using IPF in ETC Formulas

Next, let's apply IPF to calculate the ETC formulas. Remember when IPF is used, I'm considering both ETC (Composite) and ETC (CPI).

Assumption # 1: Future performance will be same as the past performance 

In this case, IPF = 1/CPI.

ETC 
= IPF × (BAC – EV) 
= (1/CPI) × (BAC – EV) 
= (BAC – EV)/CPI

And, EAC = AC + [ (BAC – EV)]/CPI
AC stands for actual cost.

Assumption # 2:  Future performance will be same as planned rate or budgeted rate  

In this case IPF = 1/CPI = 1/1 = 1.
ETC 
= IPF × (BAC – EV)
= 1 × (BAC – EV) 
= BAC – EV

And, EAC = AC + BAC – EV.

Assumption # 3:  Future performance will be influenced by both CPI and SPI.  

In this case, IPF = 1/(CPI × SPI).

ETC 
= IPF × (BAC – EV)
= [1/(CPI × SPI)] × (BAC – EV) 
= (BAC – EV)/(CPI × SPI)

And, EAC = AC + (BAC - EV)/(CPI × SPI)

Assumption # 4:  Future performance will be influenced by some proportion of cost performance (CPI) as well as schedule performance (SPI).  

In this case, IPF = 1/[CPI × CPI (weight) + (SPI × SPI (weight)].

ETC 
= IPF × (BAC – EV)
= [1/(CPI × CPI (weight) + SPI × SPI (weight)] × (BAC – EV) 
= (BAC – EV)/[CPI × CPI (weight) + SPI × SPI (weight)]

And EAC = AC + (BAC - EV) / [CPI × CPI (weight) + SPI × SPI (weight)]

Again, taking an example:

• If IPF is 1.2, it is bad. ETC will be more and hence EAC will be more.
• If IPF is 0.8, it is good. ETC will be less and hence EAC will be less.

Advantages with this Approach

The advantages of this approach are quite a few:

• The complexities associated with ETC formulas go away. 
• If you are calculating using a simulation software or a spreadsheet, then you just have to multiply the IPF value with the ETC value. The value of IPF can be separately set. In fact, I’ve seen project management software calculating this way for ETC and hence Estimate at Completion (EAC).
• The impression of "cost-only efficiency" or "CPI-only future performance" while calculating ETC doesn't arise. As we have seen, ETC can be ETC (Composite), ETC (CPI) and of course, ETC (Management).
• It’s easy to remember the ETC formula(s) this way. 

Conclusion
In conclusion, in the weighted/proportioned approach or in the case of ETC (composite), both CPI and SPI are can be proportioned separately and when combined, it need not be 1.0 or 100%. As we saw, the proportions for CPI and SPI, respectively, can be 50%:50%, 80%:20% or it can be 60%:10%, 60%:70%. It can also be 120%:130%!


References:
[1] Article: PMP® Prep: Calculating EAC and ETC for Forecasting, first published by MPUG.com, written by Satya Narayan Dash

[2] Book - I Want To Be A PMP, The Plain and Simple Way, 2nd Edition, by Satya Narayan Dash

[3] Book - I Want To Be A RMP, The Plain and Simple Way, 2nd Edition, by Satya Narayan Dash

[4] The Standard for Earned Value Management (EVM), 2nd Edition, by Project Management Institute (PMI).

PMP Protein: Earned Value Management – Advanced

By Sathish Babu, PMP

In my previous article PMP Protein: Earned Value Management (EVM) – Basics, we have discussed about how to calculate earned value, variances and performance indices based on the past performance of a project. These values are important to identify whether you’re on, ahead of, or behind schedule and on, under, or over budget. 

In this article, we will discuss about forecasting project costs and future performance of a project.


Terms to Know:
1. Estimate at Completion (EAC) is a forecast of how much the total project will cost (total cost of completing all work).  It projects the total cost at completion based on project performance up to a point in time.

When calculating EAC, different formulas can be used, depending on your assumptions. The assumptions are with respect to the cumulative cost performance index (CPI) or a combination or cumulative CPI and cumulative schedule performance index (SPI) or if your estimate is no longer valid. 

Given below with simple explanation to identify where to use what.

Formulas:
EAC = BAC / CPI – If the CPI is expected to be the same for the remainder of the project, the EAC can be calculated using this formula.

EAC = AC + BAC - EV – If the future work will be accomplished at the planned rate (initial one), the EAC can be calculated using this formula.

EAC = AC + Bottom Up ETC – If the initial plan is no longer valid, the EAC can be calculated using this formula.

EAC = AC + (BAC - EV) / (CPI * SPI) – If both the CPI and SPI influences the remaining work, the EAC can be calculated using this formula.

To know more on how these formulae are derived you can refer:
PMP Exam Prep: Calculating EAC and ETC for Forecasting

2. Estimate To Complete (ETC) is the expected cost to finish all the remaining work. It forecasts how much more will be spent on the project, based on past performance.

         Formula for ETC = EAC - AC If the work is proceeding to plan, the cost of completing the
         remaining authorized work can be calculated using this formula.

3. Variance At Completion (VAC) is the projection of the amount of budget deficit or surplus. It is expressed as a difference between budget at completion and the estimate at completion.

         Formula for VAC = BAC – EAC

4. To Complete Performance Index (TCPI) describes the performance that must be achieved in order to meet the financial or schedule goals. It is expressed as a ratio of the cost to finish the outstanding work to the budget available.

         Formulas:
         • TCPI = BAC - EV / BAC - AC The efficiency that must be maintained in order to complete to
            plan.
         • TCPI = BAC - EV / EAC - AC The efficiency that must be maintained in order to complete
            the current EAC.

To know more on how these formulae for TCPI are derived, you can refer:
To Complete Performance Index (TCPI) and Cost Performance Index (CPI)

Example:
Let’s take the same example given in my previous article to continue further.

A project has a budget of $1,000,000 and schedule for 10 months. It is assumed that the total budget will be spent equally each month until the 10th month is reached. After 4 months, the project manager finds that only 10% of the work is finished and a total of $200,000 spent.

We have already calculated the following values my earlier post.

If you know your CPI now, you can use it to predict what your project will actually cost when it’s complete. 

• If your CPI is below 1, EAC will be larger than project budget (BAC).
• If your CPI is above 1, EAC will be smaller than project budget (BAC).
• If your CPI is under budget, TCPI calculation will be based on your BAC.
• If your CPI is over budget, TCPI calculation will be based on your EAC.

Let’s derive further to find out estimates of final cost and time to complete.

It is always a good practice to plot the values on a graph in order to help stakeholders concerned to visualize the progress and the health of the project. This is shown below.

Twist for Exam: 

Sometimes you get question which provides partial information. Depending on the information you are given in a question, you can reverse the formulas. 

Below are some formulas for you.

Most of the earned value questions on the exam will be pretty straightforward. You will be given the numbers that you need to plug into a formula and when you do it you will get the answer. But occasionally, you will get a question that isn’t quite so straightforward.

Below are some exercises for you. 

Exercises:

1. Your project has a total budget of $300,000. You can check your records and find that you have spent $175,000 so far. The team has completed 40% of the project work. However, when you check the schedule it says that 50% of the work should have been completed. What is the SPI and CPI of your project?
2. BAC is $40,000 and EAC is $30,000, EV is $17,000 and AC is $15,000. What is your TCPI considering BAC as the budget?
3. Your project has a BAC of $4,522 and EV of $587.66. What is the PV of your project?

Aiming for Exam:

• The earned value formulas have numbers divided into or subtracted from EV.
• Variance is always subtraction and an index is always division.
• SV and SPI use PV, while CV and CPI use AC. EV comes first in each of these formulas.
• If it is a variance, the formula is EV minus something.
• If it is an index, the formula is EV divided by something.
• If the formula relates to cost, use AC.
• If the formula relates to schedules, use PV.
• For variances interpretation: negative is bad and positive is good.
• For index interpretation: and less than one is bad and greater than one is good.

References: 

1. “7.4 Control Costs” from PMBOK Guide 5th Edition.
2. “Chapter – 8: Project Cost Management” from Book - I Want To Be A PMP by Satya Narayan Dash.
3. “Chapter - 7. Cost Management” from Head First PMP 3rd Edition.

Written by Sathish Babu:

Sathish Babu is working for Kodiak Networks as a Project Manager and having 11+ years of experience in Product, Project Management and Service Delivery in Telecom domain.

Part 1 of EVM Series:

• PMP Protein: Earned Value Management – Basics 

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