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The last article concluded with the realization that the Schedule Performance Index (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. The Earned Schedule approach is an extension to EVM and enables creating an index that is accurate not only at the early stages of the project but also towards the end of the project.

To understand Earned Schedule let’s re-examine the following table and focus, initially on the results reported at the end of week 5.

Analyzing the status of the project at the end of week 5 you are able to make the following conclusions:

1. The value of project throughput (Earned Value) is lower than the planned output (Planned Value) and the project is behind schedule.
2. The Earned Value achieved at the end of week 5 ($80,000) was planned to be accomplished at the end of week 4 (see Planned Value for Week 4).
3. In Earned Schedule terminology, the Actual Time (AT) is 5 while the Earned Schedule (ES) is 4.

Armed with this information you can now construct a revised, time based, Schedule Performance Index, calculated as SPI_t (i.e. SPI based on time as opposed to cost) = ES / AT =4 / 5 = 80%. With this revised SPI we can estimate the Expected Duration (ED) as the total Planned Duration (PD) divided by SPI. ED = PD/SPI_t = 10 / 0.8 = 12.5 weeks.

Let’s compare the revised approach to the one we presented last week. With the old approach, based on the original SPI, we calculated the following:

With the help of Earned Schedule we get a more accurate and continuously correct Estimated Duration, as presented below:

It is clear from the above two tables that while the Estimated Duration in the first table (based on SPI_$) gets progressively out of sync, the Expected Duration in the second table (based on SPI_t) maintains its accuracy and correctly predicts the total project duration.

This concludes the fourth instalment in the Earned Value for Dummies series. If you wish to receive working copies of the tables provided above please drop me a line at blog@quantmleap.com and I will send you the relevant spreadsheets.

…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!

In the previous post (Earned Value Management for Dummies – Part 1) I outlined the details of a renovation project and your attempts to figure out whether or not the renovation work on your house is progressing well.

After one week of work you are presented with the following facts:

• 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

As explained previously, the renovation work on your house is not only over budget (as the cost to deliver the work output is larger than the value of the output) but is also behind schedule (as the value of the work produced is below the value of the work planned).

You are now in an urgent need to understand the impact that these figures have on the project in its entirety. More specifically you would like to obtain a projection of:

1. The total cost at completion, based on project performance to-date.
2. Estimated completion date.

The budget you’ve assigned to this work is $200,000 (based on $20,000 per room x 10 rooms). In Earned Value ‘speak’ this value is called Budgeted At Completion (BAC) and it represents the originally planned cost for the project. From the CPI you know that each $1 invested produces a returned value of $0.84. Since the total value of the final renovation work hasn’t changed and is still $200,000, you figure out that the level of investment required for producing that value is $200,000 / $0.84 = $238,000. In Earned Value ‘speak’ this value is called Estimate at Completion (EAC) and in its simplest form is calculated as BAC/CPI.

Regarding your 2^nd question: The Earned Value set of tools does not adequately address duration issues, as it primarily cost focused. I will deal with this issue, in greater detail, in one of my next posts, but at a simple level you can derive an indicative end date based on the following technique. From the SPI calculation you already know that the project is progressing at a pace that is 80% of that planned. Given that the project was initially planned to be finished in 10 weeks, and given the slower pace to-date, you estimate that the total time taken to complete all work planned will be 10 / 0.8 = 12.5. This means that the renovation will be complete after a total number of 12.5 weeks, or 2.5 weeks after the initial planned completion date. Further elaboration on this question will be available in my next post titled “Earned Schedule (ES) for Dummies”.

Armed with the above information you produce the following chart:

• The blue line represents your projected accumulated costs to the end of the project.
• The Red line represents your budgeted costs. Notice that as your project was planned to complete at the end of the 10^th week, your accumulated planned cost remain static and do not change after that point in time.
• The Green line represented the projected accumulated earned value. Given current performance, ‘planned’ earned value will only be achieved after 12.5 weeks of work, at which time the Earned Value will reach the planned value of $200,000.

To summarize:

At its core, Earned Value Management makes use of five variables:

• Budgeted At Completion (BAC) – how much was the originally planned to cost
• Planned Value (PV) – The value of the work that should have been complete during a period of time.
• Earned Value (EV) – The value of the work that was actually complete during a period of time.
• Actual Cost (AC) – The actual value of the cost incurred during a period of time.

Using these five variables you could derive the following parameters:

• Cost Performance Index (CPI) – A Return on Investment (ROI) indicator, determining the actual value produced against each $1 of cost incurred. Calculated as EV/AC. CPI > 1 is good news, whereas CPI < 1 might require corrective actions.
• Cost Schedule Index (SPI) – the project speedometer, indicating whether the rate of actual project production is faster or slower than the planned progress. Calculated as EV/PV. SPI > 1 is good news, whereas SPI < might require corrective actions.
• Estimate At Completion (EAC) – Projection of the total cost at completion based on performance to-date. Calculated as BAC/CPI.

This concludes today’s post but there’s much more to EVM than outlined here. In the next post I will attempt to explain some issues with EVM and introduce the next item of discussion, which will be “Earned Schedule (ES) for Dummies” .

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

You are planning some major renovations around the house and having discussed your plans with a local building consultant you realize that renovating each of your 10(!) rooms house will cost you $20,000 and the work in its entirety will take 10 weeks to complete. Your friends warn you to be vigilant with your building contractors and so you request the renovation manager to report back to you, at the end of each week, with a report outlining the status of the project.

One week into the renovation your renovation manager provides you with a report advising you that costs to-date have reached $19,000 while the 1^st room is 80% complete.

Armed with this information you ponder whether or not the renovation is progressing as planned. The good news is that total spend for the week has been lower than expected ($19,000 actual spend vs. $20,000 of planned spend). But there’s also bad news. According to the initial plans it was expected that by now work on the 1^st room will be complete but according to the contractor’s report only 80% has actually been achieved. Having come from a fairly analytical project management background you contemplate the following points:

• Prior to embarking on you building journey you’ve expected to complete 1 room each week, in which case the total value of the work planned (aka Planned Value (PV)) would have come up to 1 x $20,000 = $20,000.
• According the builder’s report, they have only been able to complete 80% of one room, so the value of the work output, using as a calculation baseline the initial budgeted cost of each room, is only 80% x $20,000 = $16,000. In Earned Value ‘speak’ this value is called the Earned Value (EV) as it is a representation of the tangible value, to the end user (which is you) of the work performed.
• The actual cost (Actual Cost (AC)) incurred was $19,000

Having realised the above you are now armed with the basic, yet necessary, information required to perform some further analysis:

• You are looking for an indicator that will provide you with an efficiency indication to the level of return you’ve received for every dollar invested in your renovation so far. You know how much you’ve spend to-date (your Actual Costs) and you also know what was the value of the work produced so far (your Earned Value). If you divide the Earned Value by the Actual Cost you will get this measure, which in Earned Value ‘speak’ is called the Cost Performance Index (CPI) and is calculated as EV/AC = $16,000/$19,000 = $0.84. This figure tells you that each $1 of renovations investment has only earned you $0.84 of renovation value.

This is obviously disappointing and you are just about to pick up the phone and contact the building contractor when you realise that your anger might be a bit pre-mature. It is true that your return on the investment, to-date, has been negative, but perhaps work is progressing faster than expected, in which case, although the total cost of work might be higher than expected, the total time for completing the work will be shorter than the 10 weeks planned for this activity.

• You are now looking for an indicator that will provide you with an efficiency indication to the pace in which work is progressing. You know how much was planned to be spent during each week ($20,000 per week, as per the original plan) and you also know the value of the work actually done. You figure out that if the value of the work actually done exceeds the value of the work planned then this could be used as an indication that work is performed faster than planned, in which case there is a good indication that the total work will finish earlier than planned. If however, the value of the work actually done is lower than the value of the work planned, that would be an indication that the total work is behind schedule and is likely to finish late. In Earned Value ‘speak’ this indicator is called the Schedule Performance Index (SPI) and is calculated as EV/PV = $16,000/$20,000 = 0.80. This figure tells you that work is progressing at a rate of 80% of its original plan.

In part 2 we will continue our story through the renovation work and explore some of the other Earned Value tools, more specifically the ability to utilize past performance and project future work parameters.

Until next time.