Earned value analysis with Microsoft Project

Project management is an art that demands meticulous attention to detail and the ability to anticipate and adapt to project variances. Earned value analysis (EVA) stands out as one of the most potent tools in a project manager’s arsenal. Essentially, it provides an objective measure of project performance and progress.

Not all alternatives to Microsoft Project (see them here) provide the capability and toolset for conducting this analysis. This presents a significant advantage of the program, albeit it may initially appear somewhat challenging to grasp. This article will guide you through the entire process, ensuring you extract maximum benefits.

What is earned value analysis in project management?

Earned value analysis (EVA), also known as Earned value management (EVM), is a project management technique used to assess a project’s performance and progress. How is it done? By combining measurements of scope, schedule, and cost in a single integrated system.

It is a valuable tool for project managers to understand how far along the project is, how much it has cost, and to estimate future project performance and final costs. EVA enables project managers to identify variances between planned and actual progress and to forecast future performance based on current trends.

Key components of EVA

1. “Planned value” is the budgeted cost for the work scheduled to be completed by a specified date. It serves as a baseline to measure actual progress against.

2. “Actual cost” is the actual cost incurred for the work completed by the specified date. It Indicates the actual expenses of the project.

3. “Earned value” is the budgeted cost for the work actually completed by the specified date. It reflects the actual value earned by the project work.

Key EVA metrics

1. Cost variance. This is the difference between “Earned value” and “Actual cost”. It Indicates whether the project is over or under budget.

2. Schedule variance. This is the difference between “Earned value” and “Planned value”. It shows whether the project is ahead or behind the planned schedule.

3. Cost performance index (CPI). This metric is calculated dividing the “Earned value” by “Actual cost”. It serves as a measure of cost efficiency that indicates how much work is accomplished for each unit of cost.

4. Schedule performance Index (SPI). This index is calculated by dividing “Earned value” by “Planned value”. With its help, you can measure schedule efficiency, seeing the speed of project progress compared to the plan.

Key benefits of EVA

• Offers an objective, quantifiable method to assess project performance and health.
• Helps in early detection of project issues and taking corrective actions before they escalate.
• Facilitates better project planning, execution, and monitoring by integrating scope, schedule, and cost dimensions.

How to do earned value analysis in Microsoft Project?

While it may appear daunting, the process itself is not overly complicated. Take a walk through this guide and you’ll see for yourself.

Set the stage

Before you can perform “Earned value analysis”, ensure your project is set up correctly in Microsoft Project. Go through the whole planning workflow without leaving any detail behind.

• Make a list of tasks.
• Configure all task details and dependencies.
• Add all types of available resources.
• Assign resources and specify costs.

This foundational step is paramount for accurate tracking and analysis later on.

Create a baseline

A baseline is like a snapshot of your project plan that you can use as a reference point for future comparisons. To set a baseline in Microsoft Project, navigate to the “Project” tab and select “Set baseline”. This baseline will save your initial plan, against which you will measure actual progress afterward.

You can also find out more about MS Project’s baseline here.

Configure EVA Metrics

For EVA to work its magic, you need visibility into specific metrics. Thus, add columns for “Baseline cost”, “Cost”, “Actual cost”, “Earned value”, “Planned value”, and “Actual cost of work performed”. Do it by right-clicking a column header in the task view and selecting “Insert column”. These metrics are the building blocks of EVA.

To view EVA metrics, you’ll also need to display the relevant columns in your task view. So, go to the “View” tab, and select a Gantt chart in the task view. A Gantt chart in Microsoft Project is not just a visual representation of task schedules. It plays a crucial role in EVA by providing a clear, graphical representation of project schedules, progress, and the relationship between planned work and completed work.

Monitor a project

With your project underway, regular updates are essential. Revise and refresh actual start and finish dates, completion percentages, and actual costs. This real-time data feeds into your EVA and offers insights into project health and progress.

Analyze Earned value metrics

Now, it’s time to apply the definitions and formulas we’ve seen in the general part of the article. Take the data from “Planned value”, “Actual cost” and “Earned value” and derive critical indicators for the analysis.

Use these metrics to calculate key EVA indicators:

• Cost variance = “Earned value” — “Actual cost”. A positive value indicates under budget, and a negative value indicates over budget.
• Schedule variance = “Earned value” — “Planned value”. A positive value indicates ahead of schedule, and a negative value indicates behind schedule.
• Cost performance index = “Earned value”/“Actual cost”. A value greater than 1 indicates better than expected performance regarding costs.
• Schedule performance index = “Earned value”/“Planned value”. A value greater than 1 indicates better than expected performance regarding schedule.

Address project variances

Armed with EVA metrics, you’re equipped to steer your project back on course if deviations occur. This may involve updating task estimates based on actual performance. Another possible option is to adjust resource assignments to address areas that are over budget or behind schedule. Besides, if significant changes are made to the project plan, you can consider setting a new baseline to measure future progress against.