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As discussed in the preceding sections, one way to analyze the status of a project is to look at the cost, work, and finish variances. These measures tell you the impact of experience to date on the total work, total cost, and finish date of the project and its component tasks . One problem with using these variances for analysis is that when one is favorable and another is unfavorable, it's difficult to tell which value is more critical to the project's success. They are measured in different units: the cost variance is measured in dollars, the work variance is measured in hours, and the date variances are measured in time units.
Another problem with using the simple variances is that you can't tell if the costs you have incurred to date have produced as much work and output as you had assumed in the baseline plan. In other words, they don't tell you whether productivity (output per dollar cost) is at the levels you planned. If there is a problem with productivity, then an unfavorable cost variance you might have detected may be just the beginning of an ever-expanding cost variance as work continues on the project and actual values replace estimated values. You can't tell from the simple variances if there is enough left in the budget to finish the project as planned.
Earned value analysis measures performance (productivity) as of a specific date in the life of the projectusually the current date. This allows you to receive early warning signals if a project is not producing the output per dollar cost that you had planned. Earned value analysis makes it possible to compare work and cost variances because work is converted to the dollar value of the work. Therefore, you can compare the value of the work completed to date with the cost of completing it.
If the earned value measurements are to accurately reflect performance, your tracking methodology must include not only recording actual start and finish dates, work, and costs, but also rescheduling work not completed on time and work that is completed but that was scheduled after the status date.
Understanding Earned Value Measurements
Projects must generate value for their sponsors, or the projects would not be undertaken and funded . Furthermore, that value must be at least as great as the project's estimated cost (its baseline cost) or the sponsors would not approve the project. If the project produces output that is to be sold at a profit, then the buyer must have an even higher value for the project's output. Therefore, you take the baseline cost of the project as a measure of the value of the output of the project. It is at least a minimum measure of the planned value of the project.
When resources perform work on the tasks in a project, they generate the value that the project delivers. Cost accountants like to say that the resources "earn" for the employer the value that will be sold to the buyer. Consequently, the "earned value" of an assignment, a task, or a project at any moment in time is the portion of the planned value that is associated with the work that has been completed.
For example, if you have a project with a baseline cost of $1 million, then you say that the planned value of the project is $1 million. The planned value of each summary task, task, and task assignment in this project will also be its baseline cost. If on a specific datesay, the end of Septemberyou find that 60% of all the work that is scheduled for the project has been completed, you say that the earned value as of that date is 60% of the value of the project, or $600,000. If the baseline schedule called for the project to be 50% complete as of the end of September, then you say that the planned value for that date is $500,000. Thus, the project appears to be earning value at a faster rate than planned. Finally, suppose that the actual cost as of the end of September is $550,000. You have spent more than you budgeted to spend by that date! Do you have enough left in the budget to finish the project? There's a high probability that the answer is yes because the value of what has been produced is not only greater than you had planned, but it's also greater than the actual cost.
The productivity is greater than you anticipated, and the project will likely come in at least on time, if not early, and under budget.
The comparison of planned value, earned value, and actual cost helps you assess performance better than simple variances do. Earned value analysis uses these core measurements (planned value, earned value, and actual cost) to create earned value variances and productivity indexes that you can use to predict, based on experience thus far, when the project will finish and what the total cost will be when the project finishes.
Whereas the cost, work, and time variances are based on estimated values at the end of the project, the preceding example makes it clear that earned value analysis compares planned work and cost with actual work and cost as of a given status date . By default, Project uses the current date (which is taken from the computer's system date) as the status date. If you last updated tracking information three days ago but use today's date for the earned value calculations, Project would not have any actual work and cost to offset the planned work and cost for the past three days. Therefore, you generally want to define the status date as the last time you brought actual values up-to-date.
The meanings of the three core earned value measures (planned value, earned value, and actual cost) are summarized as follows :
Cost accrual methods determine when costs are scheduled and when they are recognized as actual costs. Microsoft Project spreads most costs over the duration of the task. The hourly costs of work resources (both standard and overtime costs) and the unit costs of material resources are incurred as work is scheduled for the assignment. By default, fixed cost for a task is also prorated over the duration of the task; but you can change the fixed cost accrual method to Start or End if you want to accrue the total fixed cost at the start or finish of the task. Resource cost per use is always accrued at the start of an assignment. These accrual methods determine when costs show up in the timephased data that is used for variance calculations (and for earned value calculations, as you will see later in this chapter). If the accrual method stipulated for a task's fixed cost is changed after the baseline is captured, that change alone creates a cost variance for status dates between the start and the finish of the task. However, after a task is complete, all costs are counted and the accrual method is no longer an issue.
Microsoft Project calculates the three core earned value measures at the assignment level, the task level, and the summary task level. At the summary task level they are simply the rolled-up sums for subtasks . At the task level, planned value (BCWS) and actual cost (ACWP) are rolled-up sums for the assignments. However, earned value (BCWP) is calculated using a unique formula that only Microsoft Project uses and the result is sometimes different from the rolled-up earned values of the assignments. This formula uses the task % Complete (which is a measure of completed duration), whereas the assignment level calculations use % Work Complete.
The fact that earned value at the task level is not equal to the rolled-up earned values of assignments may not invalidate the use of Microsoft Project's implementation of earned value analysis. The method used is, after all, a weighted average, and it does provide valuable information about performance, even if it's not theoretically accurate. As you will see later, it's often more useful to examine the trend in earned value over time than to calculate a specific number at a moment in time. Because the calculation method is consistent over time, an analysis of the trend is valuable even if you question the precision of an individual calculation.
To illustrate the three core measures and to help you understand what they mean, let's use several variations on a simple example. Assume that Task 1 is scheduled with a duration of 4 days and the resource named Abe is assigned 100% to the task. To keep the math simple, duration is shown in hours (32 hours), and Abe's standard rate is simply $1. Figure 15.12 illustrates the task and Abe's assignment before any actual work is recorded.
Figure 15.12. Project calculates planned value (BCWS) up to the status date as soon as the baseline is captured, but earned value (BCWP) and actual cost (ACWP) require some actual work in order to be calculated.
Note these features in Figure 15.12:
Now let's assume that it's Day 3 (the status date), and the project manager finds out that Abe has worked only 2 of the 3 days and the task is 50% complete. Figure 15.13 shows what happens to the calculations when the project manager enters 50% in the % Complete field. Project makes actual work equal to scheduled work for each day in the timephased grid until it reaches the 50% point in the task duration. The BCWP and ACWP values for Day 3 are the same as for Day 2 because no additional work was done on Day 3.
Figure 15.13. When actual work is recorded, Project calculates the BCWP and ACWP fields up to the status date.
Because Abe's assignment is 50% complete, he has earned 50% of the planned value of $32 (that is, $16), and the BCWP (earned value) field shows $16. By comparing earned value with planned value, you see that Abe earned $8 less value than you had planned, and the reason was because he didn't stay on schedule.
Microsoft Project calculates three earned value schedule indicators that compare earned value with planned value to show you the impact on your project. Figure 15.14 shows the three earned value schedule indicators. They tell you at a glance whether your project is earning value at the rate that was planned. To save space in the figure, all the timephased detail rows except for the earned value fields have been hidden.
Figure 15.14. The schedule variance fields SV, SV%, and SPI express the differences between earned value and planned value as a number, a percentage, and a ratio.
The table on the left in both panes in Figure 15.14 is called the Earned Value Schedule Indicators table. This table has all three of the following schedule indicators:
In the preceding example, earned value (BCWP) and actual cost (ACWP) are the same. To illustrate how they might differ, and what that would mean, let's modify the example and assume that although Abe was scheduled to perform the work, he was unavailable at the last minute, and the project manager assigned Sam to replace Abe. Thus, Sam worked only 2 days. However, Sam's standard rate is 25% higher than Abe's, $1.25 per hour . Obviously, actual costs will be higher than planned.
When the resource substitution is recorded and 50% actual % Complete is recorded, the calculations look like those in Figure 15.15.
Figure 15.15. You can compare the BCWP and ACWP fields to see whether you spent more than the planned value of the work that was produced.
The timephased and total values for planned value (BCWS, $24) and earned value (BCWP, $16) in Figure 15.15 are the same as those for Abe in Figure 15.13. Consequently, you would have the same SV (schedule variance, $8). In this example, though, the timephased actual cost is $10 per day instead of the budgeted (that is, baseline) $8 per day, and the actual cost (ACWP) as of the status date is $20. The earned value up through the status date is $16 (that was the planned value of the actual work), but the actual cost was $20. Therefore, it cost $20 to generate the earned value of $16. The " overrun " of $4 clearly has negative implications for the final cost of the project if it is a pattern that is repeated.
A comparison of BCWP and ACWP produces cost indicators similar to the schedule indicators shown in Figure 15.14. Figure 15.16 shows the same example, with the earned value cost variance fields displayed. The table on the left of each view is named the Earned Value Cost Indicators table.
Figure 15.16. The Earned Value Cost Indicators table summarizes the effectiveness of cost thus far in generating the planned value.
Note that the Earned Value Cost Indicators table contains the BCWS field but does not, by default, include the ACWP field. Because ACWP is used in calculating the indicators, and BCWS is not, the table in Figure 15.16 has been modified to include the ACWP field. For this illustration it's titled *ACWP, to remind you that it's not by default included in the table.
You should redefine the table and store the redefined table in your Global template. To redefine the table, choose View, Table, More Tables, Earned Value Cost Indicators, and click Edit. Select BCWS in the Field Name column and change it to ACWP. Click OK to save the definition in the active project. Click the Organizer button to display the Organizer dialog box. Select the Earned Value Cost Indicators table in the list on the right (the list of table definitions in the active project). Click the Copy button to copy that definition to the Global template. Click Yes to replace the current definition in the template. Then click Close to close the Organizer and click Close to close the More Tables dialog box.
For more information about managing the template, see "Working with the Organizer and the Global File," p. 107 .
The cost indicators in Figure 15.16 have the following meanings:
There are still more fields to the right of CPI in the Earned Value Cost Indicators table. Figure 15.17 shows those additional fields in the top pane:
Figure 15.17. The cost indicators can be used to estimate the total cost of finishing the project, given the current cost performance index.
Controlling the Calculation of Earned Value
Project 2003 provides for an alternative method of calculating earned value (BCWP) at the task level. Sometimes an assignment or a task involves the production of physical units of output or the processing of physical units of input, and you might want to base earned value on the number of units produced (or processed ) as of the status date instead of on the default method, which uses the % Complete field (the percentage of actual duration completed). The Earned Value Method field lets you choose to use Physical % Complete in the calculation instead of % Complete. This field is available at the bottom of the Advanced tab of the Task Information dialog box, where it is labeled Earned Value. It has two possible values: % Complete (which is normally the default) and Physical % Complete. You could also add the field to a table. If you choose to use the Physical % Complete method, you enter that percentage complete to be used in the calculation in the Physical % Complete field, which is now included on the standard Tracking table.
Figure 15.18 shows the Earned Value table with the Earned Value Method and Physical % Complete fields inserted. Tasks 17 and 18 are duplicates of the same task, Assemble First Batch, which is a trial run of a new assembly process. Each version is scheduled for 20 days and is expected to produce 4 fully assembled units. Work has proceeded as scheduled on both versions of the task, and the status date is April 28, which is the 40% complete mark for the task. However, as of the status date, only 1 unit has been assembled . (You assume that the remaining units will go together faster now that the team has worked out the kinks in the process.) The task Assemble First Batch 1 uses the conventional % Complete method of calculating earned value. The task Assemble First Batch 2 uses the Physical % Complete method. Because only 1 of the 4 units is completed, the Physical % Complete is 25%. The baseline cost for each task is $1,080 (not shown in the figure). The earned value (BCWP) for Assemble First Batch 1 is 40% of $1,080that is, $432. The earned value for Assemble First Batch 2 is 25% of $1,080that is, $270.
Figure 15.18. You can use the Physical % Complete method of calculating earned value for selected tasks.
Normally the default method of calculation uses % Complete. You can change the default by choosing Tools, Options, to display the Options dialog box. Click the Calculation tab and then click the Earned Value button. The Earned Value dialog box lets you choose the default calculation method (see Figure 15.19). Note that changing the setting affects only tasks that are inserted after the default is changed. If there are existing tasks already in the project, they have the old default value unless you have manually changed them. If you want this to be the default for all your new projects, you can click the Set As Default button. Of course, existing projects are not affected by thistheir default setting will not have been changed, and their tasks will not use the new method. You have to open those projects, change the default calculation method, and change the method for any task that you want to use the new method.
Figure 15.19. You can control the calculation of earned value for individual tasks by selecting the method of calculation.
Figure 15.19 also reveals another earned value feature in Project 2003. As you learned in Chapter 14, Microsoft Project 2003 allows you to save a total of 11 baselinesthe default baseline plus 10 baselines named Baseline 1 through Baseline 10. In the Earned Value dialog box, the field labeled Baseline for Earned Value lets you choose which of the 11 baselines will be used to calculate earned value. Note that this choice has no effect on the duration, work, cost, start, and finish variancesthey continue to use the standard baseline fields.
For example, if a project schedule had to be revised dramatically after work actually started, you might have decided to capture the revised schedule as Baseline 1. That way you could show progress reports against the original baseline but also show reports against the revised baseline (which might be more meaningful).
Using Earned Value Analysis in Project 2003
If you want to view earned value measurements and indicators for a project, you must take three necessary preliminary steps:
You can use any of the major task views, but the Gantt Chart view is probably the view that is used most often. There are three tables you can apply to the view to see earned value calculations:
You can display the table you want to use by choosing View, More Views, and then selecting the table you want in the More Views dialog box. Figure 15.20 shows the Earned Value table displayed for the New Product example used for the simple variances earlier in this chapter.
Figure 15.21. The Task Earned Value custom form shows the same fields as the Earned Value table, but for a single task.
Creating Earned Value Graphs with Microsoft Excel
As discussed earlier in this chapter, one of the most meaningful ways to analyze earned value data is by examining trends and tendencies. Although hard numbers are informative, they do not provide the whole picture that will best help you manage projects and make informed decisions. Tracking the earned value data graphically over time allows you to see and assess trends in earned value over the life of the project.
Microsoft Project does not generate a graph for earned value, but it can export the timephased data you need to Excel, which can then create the graph for you. The Analyze Timescaled Data in Excel command on the Analysis toolbar exports timephased information into Excel for any of the tasks and fields that you choose. This command lets you export timescaled data for any of the detail rows that you can view in the Task or Resource Usage viewsincluding BCWS, BCWP, and ACWP.
To display the Analysis toolbar, you right-click over a toolbar and choose Analysis from the list of toolbars . When the project you want to analyze is active on the workspace, click the tool named Analyze Timescaled Data in Excel to start the Analyze Timescaled Data Wizard. There are five pages in the wizard. Follow these steps to export the data to Excel:
What can you tell from a graph of earned value measurements such as Figure 15.28? First, for any status date along the X-axis, the vertical distance between the Earned Value curve and the Planned Value curve measures the Schedule Variance (SV). In this example, Planned Value is above Earned Value, which means that SV is negative at the current status date (the last plotted points). That's unfavorable because it means that at the present performance level, the project won't be completed on time. The vertical distance between the Earned Value curve and the Actual Costs curve at any date measures the Cost Variance (CV) as of that date. In this case, that is close to zero as of the current status date, although it's been negative for most of the project because Actual Cost has been higher than Earned Value. When CV is negative, it means that you are paying more than you budgeted for the amount of value you're actually generating. If the project continues until all work is completed (which the unfavorable SV predicts will be past the scheduled finish date), that work will have cost more than budgeted.
An earned value table can tell you just as much as the graph (or maybe more) for any chosen status date. The graph adds the ability to see the trend in the variancesto see whether things have been getting better or worse . In this example, the SV continues to be unfavorable, which means that you have not resolved the problem(s) that cause you to be behind schedule. But the CV has recently been reduced to zero, and that means that you have begun to bring costs down to the level they were scheduled for the amount of work that is actually being done.
If the purpose of earned value analysis is to tell you the type of corrective measures you need to take to meet your project goals, the graph helps you assess whether your corrective measures are working.
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