Project Management Tips

The word "fun" and "earned value" are rarely, if ever, used together. The last time I heard about a "fun" math calculation was when my fifth grade teacher tried to motivate us to solve story problems. I never really cared to know when two trains, traveling toward each other at 20 meters per second and 6,000 meters apart, would collide. Okay. The answer is 2.5 minutes, but how does this apply to earned value?

Determining a project's earned value is a story problem (without the colliding trains, although some projects fit this analogy):

Joe is managing a small $35,905 J2EE software project that is planned to last 64 days. A recent review of the status report indicated the project had planned to spend $23,570 and had only completed $19,575 of work. The project spent $23,170 to complete the work to date.

Answer the following questions:

1. If the project continues at this performance level, what will be the final cost of the project?
2. Does the team need to increase or decrease its performance?
3. How many days will it take to complete the project?

Initially, these questions make you feel like you're strapped to those two colliding trains, but with MS-Project you can calculate the answers in less than the 2.5 minutes it takes for the two trains to collide. The previous articles, How to Calculate EVA with MS-Project Part 1 and Part 2 , introduced MS-Project's Earned Value table. MS-Project also supports two other earned value tables that provide additional cost and schedule performance information.

The Earned Value Cost Indicator and Earned Value Schedule Indicator tables automatically calculate the cost performance (CPI) and schedule performance (SPI) indices mentioned in the previous article. They also provide cost and schedule variances and provide a percent complete for the budget and the project schedule.

To view either of these tables, perform the following steps:

1. Start on the Gantt Chart View or click on an active window pane to change the underlying table
2. Select View – Table – More Tables menu item.
3. The More Tables dialog box will appear and you can select from a variety of tables.
4. Select one of the following tables:Select the Earned Value Cost Indicators table for cost performance information; select the Earned Value Schedule Performance Indicators table for schedule performance information.
5. Click OK.

The current earned value information will be displayed for each task. Figure 1 displays the Earned Value Cost Indicators table:

Figure 1: Earned Value Cost Indicators Table

Referring to our story problem, we can determine the final cost of the project by looking at the EAC (Estimate At Complete) column. The EAC column provides a forecast of the estimated project costs at the end of the project. For the math enthusiast, the EAC formula is calculated by dividing the original budget (BAC) by the Cost Performance Index (CPI)

EAC = BAC / CPI = $35,905 / .84 = $42,744

In this example, the project will cost $42,744 dollars and have a cost variance of $6,839. In this example, the project doesn't have any contingency reserve available and the project manager will overrun the budget if the project continues at this pace.

The To Complete Performance Index (TCPI) determines if the team needs to increase or decrease performance based on the project budget. The TCPI field is a ratio of remaining work to the remaining budget. If the ratio is greater than 1, then the project needs to increase its output to stay within the original budget. If the ratio is less than 1, the output can decrease its performance to stay within budget. The TCPI value is another metric to measure performance and determine if actions need to be taken to bring the project back on schedule.

The TCPI is calculated by dividing remaining work by the remaining budget. The remaining work is calculated by subtracting the earned value from the original budget and the remaining budget is calculated by subtracting the actual cost of work produced from the original budget.

TCPI = (BAC - BCWP) / (BAC - ACWP)

TCPI = ($35,905 - $19,575) / ($35,905 - $23,170) = 1.28

In this example, the project TCPI is above 1 and the team definitely needs to increase its productivity without incurring additional costs. Identifying the need to improve or decrease performance is the easy part. The challenge is increasing your team's productivity to make up the lost time without exceeding your budget.

Before we answer the third question in our story problem, we know the project has negative schedule and cost variances since the SPI and CPI indices are less than 1. We also know the project needs to improve its performance, if the project is planning to complete on time and within budget. If a project is running behind and the original date cannot be met, stakeholders want to know when the project be completed. MS-Project provides excellent forecasting tools to help the project manager determine an expected end date. However, earned value calculations can also be used to determine the total number of days at the completion of the project.

The Time Estimate At Completion (TEAC) is determined by the following equation:

TEAC = Baseline Duration (in days) / SPI

TEAC = 64 days / .83 = 78 days

Joe's J2EE project was originally scheduled to last 64 days. The project's current SPI is .83. Based on the objective project data, the project will take 78 days instead of the original 64 days. MS-Project may provide a different estimate based on the resource level and remaining project assignments. However, the TEAC calculation is helpful to provide a high-level project duration estimate based on the current project performance.

The SPI can be calculated by the SPI formula in the previous article, or the project manager can view the schedule performance metrics in Earned Value Schedule Indicators view. To view this data in MS-Project, follow the mentioned steps and select the Earned Value Schedule Indicators view. Figure 2 depicts the Earned Value Schedule Indicators view:

Figure 2: Earned Value Schedule Indicators Table

Summary

Earned value is an effective approach to answer more questions than just project schedule and budget tracking. In our story problem, the additional earned value calculations forecasted the estimated dollars at the completion of the project (EAC) will be $42,744. It also determined the project needed to improve their performance by 28 percent (TCPI), and it will take 78 days to complete the project instead of the original 64 days (TEAC).

Once the objective data is captured, the future schedule and budget performance can be easily calculated. If you can multiply and divide, then earned value can be easily applied to your project. Three little numbers expressing planned value (PV), earned value (EV) and actual cost (AC) provide a large amount of insight into project health. Give it a try and use the objective metrics help to augment the subjective status commonly found in project status reviews.

Earned value is one solution to managing the various project story problems that we run into on daily basis. Although, I feel like my fifth grade teacher, trying to convince project managers that earned value story problems can be fun!

This article was written by Andy Makar and originally published at Gantthead.com