Earned Value Management (EVM): The company Bungalow Life Ltd. is contracted to construct 100 uniform bungalows in a bungalow area by the sea. The cost of construction is 100,000$ for each bungalow. The construction process is sequential, with each bungalow being constructed one after the other.
The overall plan is to complete five bungalows each month, resulting in a total construction period of 20 months.
| BCAC (Budget Cost at Completion). | 10.000.000$ | 100.000$ times 100 bungalows. |
| BTAC (Budget Time at Completion). | 20 months | 100 bungalows divided by 5 bungalows. |
Two months into the project, the project manager gives the following progress report on the project:
| BCWS (Budget Cost Work Scheduled). | Planned | 1.000.000$ | 5 bungalows time 2 months times 100.000$. |
| BCWP (Budget Cost Work Performed). | Earned | 800.000$ | 8 bungalows times 100.000$. |
| ACWP (Actual Cost Work Performed). | Burned | 1.200.000$ |
As you can see, we should have used 1.000.000$, but we ended up using 1.200.000$, thus 200,000$ over the budget. And we have only built houses for 800,000$. These are not good results as shown by the project manager.
Calculate three different deviations based on the results above. What are the deviations and how do you calculate them?
The following deviations can be used to tell us something about the project status.
| SV (Schedule Variance). | -400.000$ | BCWP minus ACWP. 800.000$ minus 1.200.000$. |
| BV (Budget Variance). | -200.000$ | BCWS minus ACWP. 1.000.000$ minus 1.200.000$. |
| CV (Cost Variance). | -600.000$ | SV pluss BV. -400.000$ pluss -200.000$. |
The fact that we are behind budget would perhaps not have been so dramatic if we had not simultaneously spent more money than we should have. The fact that we had spent more money than we should have would not have been so dramatic either if we had built more than we were supposed to. It is the combination of these two factors that is leading the project in the wrong direction.
Calculate the projection going forward for this project.
| CPI (Cost Performance Index). | 0.66 | BCPW divided by ACWP. 800.000$ divided by 1.200.000$. |
| ECAC (Estimated Cost at Completion). | 15.151.515$ | BCAC divided by CPI. 10.000.000$ divided by på 0.66 |
Based on the calculations, we can projection that the project will cost an extra 5.151.515$ after 20 months with the current project status.
Estimate the projection of when the project could be finished given the current status of the project.
| SPI (Schedule Performance Index). | 0.8 | BCWP divided by BCWS. 800.000$ divided by 1.000.000$. |
| ETAC (Estimated Time at Completion). | 25 | BTAC divided by SPI. 20 months divided by 0.8 |
This indicates that the project is advancing at 0.8 of the planned speed, resulting in a completion time of 25 months instead of the originally planned 20 months.
As the project manager, it is your responsibility to implement measures. You have a one-month timeframe to turn around the negative projections. One of the measures you implement is to mobilize additional human resources and deploy new technology that assists the workers in enhancing their speed and performance.
NOTE: It should be noted that he following projections are unrealistic in real life. The fact that a project can turn around so dramatically is not realistic. However, I have deliberately used these figures so that we, in a pedagogical manner, can bring the differences to light.
After one month (month three), you return with an updated status indicating that you have successfully reversed the course of the project.
| BCWS (Budget Cost Work Scheduled). | Planned | 1.500.000$ | 5 bungalows times 3 months times 100.000$. |
| BCWP (Budget Cost Work Performed). | Earned | 1.400.000$ | 14 bungalows times 100.000$. |
| ACWP (Actual Cost Work Performed). | Burned | 1.300.000$ |
Calculate the projection going forward for this project.
| CPI (Cost Performance Index). | 1.08 | BCWP divided by ACWP. 1.400.000$ divided by 1.300.000$. |
| ECAC (Estimated Cost at Completion). | 9.259.259$ | BCAC divided by CPI. 10.000.000$ divided by 1.08. |
The updated projection now indicates that you are below the overall budget for the project, which is extremely positive.
Estimate the projection of when the project could be finished given the current status of the project.
| SPI (Schedule Performance Index). | 0.93 | BCWP divided by BCWS. 1.400.000$ divided by 1.500.000$. |
| ETAC (Estimated Time at Completion). | 21.5 | BTAC divided by SPI. 20 months delt på 0.93 |
This indicates that the project is advancing at 0.93 of the planned speed, resulting in a completion time of 21.5 months instead of the originally planned 20 months.
We have estimated the projection assuming that the situation continues as it did in months 1, 2, and 3, on average. If the events of month three are taken as the foundation for the remainder of the project, then this is a grave error.
We now decide to calculate new projection based solely on month three.
| BCWS (Budget Cost Work Scheduled). | Planned | 500.000$ | 5 bungalows times 100.000$. |
| BCWP (Budget Cost Work Performed). | Earned | 600.000$ | BCWP (month 3) minus BCWP (month 2). 1.400.000$ minus 800.000$. |
| ACWP (Actual Cost Work Performed). | Burned | 100.000$ | ACWP (month 3) minus ACWP (month 2). 1.300.000$ minus 1.200.000$. |
The projections indicate that we constructed 6 bungalows in the third month and only expended 100,000.
Estimate the future projection.
| CPI (Cost Performance Index). | 5 | BCWP divided by ACWP. 500.000$ divided by 100.000$. |
| ECAC (Estimated Cost at Completion). | 2.000.000$ | BCAC divided CPI. 10.000.000$ divided by 5. |
| SPI (Schedule Performance Index). | 1.2 | BCWP divided by BCWS. 600.000$ divided by 500.000$. |
| ETAC (Estimated Time at Completion). | 4 | BTAC divided by SPI. 20 months delt på 5. |
This indicates that the project is advancing at 1.2 of the planned speed.
It is important to remember that we can only calculate the projection for what remains of the project.
| Remaining work. | 8.600.000$ | BCAC minus BCWP (what has been used after three months). 10.000.000$ minus 1.400.000$. |
| Remaining costs. | 1.720.000$ | Remaining work divided by the new CPI. 8.600.000$ divided by 5. |
| Projection for the entire project. | 3.120.000$ | Remaining costs pluss BCWP (what has already been used after three months). 1.720.000$ pluss 1.400.000$. |
It will cost 1.720.000 to complete the rest of the project. In addition to this, it is now evident that the project will yield a mega surplus.
| Remaining bungalows to build. | 86 | 100 bungalows minus 14 bungalows. |
| Remaining time. | 14 | 86 divided by 6 bungalows each month. |
| Total time projection. | 17 | 14 months plus the three months that have already passed. |
Earned Value Management (EVM)
BCWS (Budgeted Cost of Work Scheduled): This is the amount that was budgeted for the work scheduled to be completed by a specific point in time. It is simply the planned cost for the work scheduled up until a specific point in the project.
BCWP (Budgeted Cost of Work Performed): This is the amount that was budgeted for the work that has actually been completed by a specific point in time. It is the planned cost of the work that has actually been completed, also known as Earned Value (EV).
ACWP (Actual Cost of Work Performed): This is the actual cost incurred for the work performed up until a specific point in time. It is the actual cost of the work that has been completed up to a specific point.
To determine BCWS, BCWP, and ACWP, you will need to have a detailed project plan, including a work breakdown structure (WBS), resource plans, and a detailed budget and schedule.
This fictitious case is presented as a framework to explore the subject Earned Value Management (EVM).
