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…In the beginning God created the Earned Value Methodology (EVM). And man was put upon the earth to utilize EVM and EVM was implemented widely and God was happy. And God said, let there be Actual Costs (AC), and Planned Value (PV) and Earned Value (EV). And man went forth and calculated Cost Variance (CV), and Schedule Variance (SV), and Cost Performance Index (CPI) and Schedule Performance Index (SPI) and God was satisfied that everything was as intended. So God rested. But the imagery of man’s heart is evil from his youth, and man ran projects with SPI < 1 and there was chaos…

This post is the third installment in the Earned Value for Dummies series and is the first dealing with the concept of Earned Schedule (ES).

Summary of the events so far (for the complete details see part 1 and part 2):

• You have engaged a building contractor to renovate your 10 bedrooms house. You have received a quote of $20,000 per room (for a total of $200,000) and with a planned completion of 1 room per week.
• After the 1^st week you received a report advising you that costs to-date have been $19,000 with one room 80% complete.
• Based on the above you calculated that:
  • Actual Cost (AC) = $19,000
  • Planned Value (PV) = $20,000
  • Earned Value (EV) = $16,000
  • Cost Performance Index (CPI) = EV / AC = $0.84
  • Schedule Performance Index (SPI) = EV/PV = 0.8
  • Estimate At Completion (EAC) = BAC/CPI = $237,500
• You also concluded (utilising your interpretation of the SPI) that the total time taken to complete all work planned (Estimated Duration) will be 10 / 0.8 = 12.5 weeks (Planned Duration / SPI).

The reports you’re getting from your building contractor over the next 9 weeks are identical to the one you received at the end of week 1, and as time progresses you record the actual and calculated data in your diary. The data you’ve collected looks as follows:

Up to this point everything progresses pretty much along the projections you’ve made earlier on. Estimated Costs remain at $237,500 and the Estimated Duration is still 12.5 weeks for completing all projected work.

Week 11 goes by, and having recorded the results in your diary you find out that while your Earned Value is still growing, your Planned Value has now reached its peak, and as it remains constant at $200,000, your SPI has now changed as follows:

• Earned Value = $176,000
• Planned Value = $200,000
• Schedule Performance Index = 0.88

If you were to use the SPI to estimated total project duration, the result will be 10/0.88 = 11.36 weeks and that is materially different than the estimates you’ve had over the past 10 weeks, and no changes were implemented in any of the other project indicators. If we were to record future weeks the discrepancy can be expected to increase, with the most ridiculous projection delivered at the end of the project (at the end of the 12.5 weeks), at which point the Earned Value and Planned Value will be identical, meaning that SPI will equal 1 and the Estimated Duration calculated as 10 weeks! (See fully populated table for weeks 9-13 below).

The above issue lies at the heart of an extension to the EVM methodology, called Earned Schedule. This approach is based on the realisation that SPI is a useful indicator for determining overall project duration but only at the earlier stages of the project. As the project progresses towards completion the SPI cannot be relied upon for determining total duration, and an alternative, more accurate approach had to be put in place.

The next article, “Earned Schedule for Dummies – Part 2“, will conclude this discussion and provide all the necessary tools to utilize Earned Schedule techniques as part of the overall Earned Value methodology. In the meantime, if you wish to receive working copies of the table provided above please drop me a line at blog@quantmleap.com and I will send you the relevant spreadsheets.

I value your comments, if you have any thoughts on the above please join in and share with others!

Related posts:

1. Earned Value Management (EVM) for Dummies – Part 1
2. Earned Value Management (EVM) for Dummies – Part 2
3. Implementing Earned Value Management in Agile