Earned Value Management is the most powerful project control method you can apply. In this article I will show you how you calculate the EVM performance indicators Schedule Variance (SV), Cost Variance (CV), Schedule Performance Indicator (SPI) and Cost Performance Indicator (CPI) to monitor your project and how to display them in graphs. These performance indicators help you to detect problems with costs and deadlines at an early stage and then define measures to correct deviations from the planned data. In this article you will learn how to calculate these performance indicators and what you must bear in mind when evaluating them.
The Best Project Control Method
For project monitoring there are different project controlling methods, which I described and evaluated in the article Which is the Best Project Control Method. This article also states that the most effective project control method is Earned Value Management, but that this method also requires a high level of project management maturity in your company, if it is to be used company-wide.
When you use Earned Value Management, you evaluate your project performance with the following performance indicators: SV, CV, SPI and CPI. If you apply these performance indicators during project execution, then you should also know how their behaviour changes, especially towards the end of the project—otherwise you may be in for a nasty surprise. To prevent you from such surprises, I will also show you what you need to pay attention to here.
If you are looking for an explanation for an acronym, such as BCWP, while reading, you will quickly find it in the EVM Glossary.
CV – Cost Variance
The Cost Variance (CV) answers the question: How much are the Actual Costs (AC) of work performed under or over the budgeted costs of work performed (EV) at the status date? You calculate the Cost Variance by subtracting the Actual Cost (AC) at the status date from the Earned Value (EV).
CV = EV – AC or BCWP – ACWP
You can calculate the Cost variance in percent by dividing the Cost Variance (CV) by the Earned Value (EV).
CV% = CV/EV or CV/BCWP
A negative Cost Variance means that the approved budget for the work performed to date has been exceeded.
SV – Schedule Variance
The Schedule Variance (SV) answers the questions: Is the project ahead or behind schedule in accomplishing the work? How much is the budgeted cost of work performed (PV) over or under the budget costs of work performed (EV) at the status date?
You calculate the Schedule Variance by subtracting the Planned Value (PV) from the Earned Value (EV) for the status date. A positive SV indicates that more work has been accomplished than planned. A negative SV indicates that less work has been accomplished.
SV = EV – PV or BCWP – BCWS
You can calculate the Schedule Variance as a percentage by dividing the Schedule Variance (SV) by the Planned Value (PV).
SV% = SV/ PV or SV/ BCWS
The Schedule Variance expressed in Dollars or Euros often leads to confusion. The SV derives from accounting data and not from the “time-based planning”. As the SV does not measure time, the detailed analysis of the “time-based planning” is also important—especially towards the end of the project.
CPI – Cost Performance Index
The Cost Performance Index (CPI) and the Schedule Performance Index (SPI) are derived from the Earned Value and show how efficiently project performance is achieved. You need these two key figures to forecast the project end costs and the project end date.
The CPI is the cost-related performance figure. It measures the efficiency of the achieved “physical progress” compared to the baseline. The CPI is mainly used to calculate the estimated costs at the end of the project (Estimate at Completion EAC).
The CPI answers the question: “How efficiently are we using our resources?” It also reveals planning errors and too optimistic estimates. You calculate the CPI by dividing the budgeted cost of the work performed (EV) by the Actual Cost (AC) of the work performed.
CPI = EV/AC or BCWP/ACWP
With a CPI greater than 1.0, you create project results at a lower cost than originally planned. If the CPI is less than 1.0, your project will exceed the budget. This means that with a CPI of 0.95, only 95 cents (Earned Value) is realized for every Dollar spent.
SPI – Schedule Performance Index
The Schedule Performance Index (SPI) is the time-related performance figure of Earned Value Management. It is calculated by dividing the budgeted cost of work performed (EV) by the budgeted cost of work scheduled (PV).
SPI= EV/PV or BCWP/BCWS
A SPI value higher than 1.0 indicates that project results were accomplished faster than originally planned, while a value less than 1.0 means that the project is progressing too slowly. At a value of 1.0, you obtain one Dollar of Earned Value for every Dollar of planned work.
The SPI converges towards project completion always to the value 1.0, as the Earned Value then equals the Planned Value or, in other words, anything planned was also completed. The validity of the SPI is therefore only useful as long as the project will also be completed on or before the planned project completion date. If the planned project completion date is expected to be late, the SPI loses its significance some time before the project completion.
CPI and SPI Graphics
In the following figure, you can see the graphical representation of the CPI and SPI. They are either shown both or separately in a diagram. Has the project achieved what was planned in the predefined time? If so, then this corresponds to the “standard project performance”, which is assigned to the value 1.0
The Behavior of SV, CV, SPI and CPI
In the beginning of this article, I have pointed out that the SV and SPI don’t behave the same as the CV and the CPI. On the next two figures, you can see the behavior of SV, CV, SPI and CPI more in detail. You should know this behavior, otherwise you might experience sometime a unpleasant surprise.
In next figure you can see that the SV becomes smaller towards the effective end of the project and then converges to “0”. This is because the EV and PV always have the same value at the end of the project. Therefore, the value of the SV is usually no longer usable from about the last quarter of the project duration. The CV, on the other hand, always shows the correct cost variance until the actual end of the project. The CV is “0” at the end of the project only in one case. This is when the project is completed at the planned cost—which is rarely the case.
Now let’s take a closer look at the behavior of SPI and CPI. In the next figure you can see that the SPI converges towards “1” at the end of the project, although the project has considerably exceeded the costs. Also, in this case, the EV and PV take on the same value at the end of the project and, therefore, the quotient of EV and PV is “1”. The CPI will rarely be ”1” at project end – only if the project is completed within the planned cost
The problems with the insufficient reliability of the SV and SPI were already known for a long time. They were never really tackled until the “Earned Schedule” concept was developed by Walter Lipke in 2003. This concept has been regarded as a promising mathematical approach for time-related EVM performance figures. A detailed description of the Earned Schedule can be found in a future article.
A more time-consuming, but more reliable forecast of the project end date is still made by the project manager with a detailed bottom-up estimate of the remaining work, based on the revised project schedule.
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Would you like to learn more about how to make your projects more successful with Earned Value Management? My book “Earned Value Management – Fast Start Guide” takes you an important step further!
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