Earned Value Management : Part 2
Earned Value Management (EVM) is a project management technique to effectively track progress of a project and measure project performance at any given point in time.
Earned Value Management is very much useful for answering questions such as — is the project over budget, is the project behind schedule, what will be the total project cost by the time project is completed, etc.
In the Part1 article, the key terms and concepts of earned value management were explained. We have also gone through an example illustrating some of the calculations involved in earned value analysis.
In this article, we will get into more details of cost and schedule analysis.
The CPI or Cost Performance Index is a measure of cost efficiency of the budgeted resources. CPI is calculated as Earned Value/Actual Cost.
SPI or Schedule Performance Index is a measure of schedule efficiency on a project. SPI is calculated as Earned Value/Planned Value.
A zero or a positive value, in case of both SPI and CPI, is always favorable.
The below table shows the inferences which can be made for different combination of SPI & CPI values.
The below 3 examples should help us understand how we can calculate the SPI & CPI, given the planned value, earned value and actual cost and also to draw inferences about the current state of the project using these metrics.
Example1:
At a specific point in time, the project A has the following measures:
ACWP = 340, BCWS = 240, BCWP = 300
What is the inference made?
Solution:
Planned Value or BCWS is 240, Earned Value or BCWP is 300, Actual Cost or ACWP is 340
SPI = EV/PV = 300/240 = 1.25 (greater than 1)
CPI = EV/AC = 300/340 = 0.88 (less than 1)
Inference: Project A is Ahead of Schedule and Over Budget
Example2:
At a specific point in time, the Project B has the following measures:
ACWP = 340, BCWS = 300, BCWP = 240.
What is the inference made?
Solution:
Planned Value or BCWS is 300, Earned Value or BCWP is 240, Actual Cost or ACWP is 340
SPI = EV/PV = 240/300 = 0.8 (less than 1)
CPI = EV/AC = 240/340 = 0.71 (less than 1)
Inference: Project B is Behind Schedule and Over Budget
Example3:
At specific point in time, the project C has the following measures:
ACWP = 300, BCWS = 240, BCWP = 340.
What is the inference made?
Solution:
Planned Value or BCWS is 240, Earned Value or BCWP is 340, Actual Cost or ACWP is 300
SPI = EV/PV = 340/240 = 1.41 (greater than 1)
CPI = EV/AC = 340/300 = 1.13 (greater than 1)
Inference: Project C is Ahead of Schedule and Under Budget.
The above 3 examples demonstrates how we can effectively use SPI and CPI to understand the progress of a project.
References
PMI’s The Practice Standard for Earned Value Management is a great guide to know in depth about Earned Value Management.
The Practice Standard for Earned Value Management — Second Edition (2011).
Link: https://www.pmi.org/pmbok-guide-standards/framework/earned-value-management-2nd
Hope this article was helpful to you. Thank you.
