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By: Shripad Khairnar | May 11, 2017
The Project or Program Managers usually evaluate the Triple Constraints i.e. Time, Scope and Cost. While evaluating this IRON TRIANGLE, they are trying to judge if the ongoing project is following the approved budget. Additionally, they want to understand if the project is on schedule – are our deliverables meeting the expected scope?
It’s been a convention that these managers mostly select to use GREEN, YELLOW and RED status to symbolically summarise the project health to their superiors. Now that sources a list of questions as to whether this has any guidance based on objective measurement that reflects real health of the project? How come a project gets on the RED status from GREEN exactly at the time the production release is about to occur? Does such report indicate the problems on the projects with an objective data well ahead of the time as an alarm to stakeholders?
EARNED VALUE ANALYSIS helps you make your reports that are worthy sharing the runtime facts about your PROJECT HEALTH. That in turn guides the stakeholders to take appropriate decisions and actions well in advance.
What should you mean by EARNED VALUE ANALYSIS? – It is an objective method to measure project performance in terms of scope, time and cost. It helps the relevant stakeholders to measure the project health and project performance at any given moment of its execution.
Enlisted below are some of the characteristics that help us understand the benefits of EVA
- It certainly is a Point in Time Evaluation for the project performance
- It indicates Planned Value for the project – How much work did you PLAN to complete?
- It indicates Earned Value for the project – How much work did you ACTUALLY Complete?
- It indicates Actual Cost for the project – How much did you spend to complete the work?
Let’s try to understand the EVA concept with an example below….
A Testing project with an initial budget of $20,000 is being scheduled for 8 weeks.
At the end of the sixth week, the project is 50% complete and the actual costs to date is $18,000
Planned Value (PV)
|Earned Value (EV)||Actual Cost (AC)|
Based on the objective data that is derived out of the current project performance – you can determine the project health as below
|Schedule Variance||EV – PV = $10,000 – $15,000||- $5,000|
|Schedule Perf Index (SPI)||EV/PV = $10,000 / $15,000||.66|
|Cost Variance||EV – AC = $15,000 – $18,000||- $8,000|
|Cost Performance Index (CPI)||EV/AC = $10,000 / $18,000||.55|
You need to know that On-target projects essentially have an SPI and CPI of 1 or greater
As the above example indicate SPI and CPI less than 1 – the current project health indicates that project is behind schedule and over budget
Imagine that the project continues at the current performance and you should be able to determine True Cost of the project at its completion.
Budget At Complete (BAC) / CPI
|$20,000 / .55||
At the end of the project, the total project cost will be $36,363
Responsible managers should establish the SPI and CPI Range that determines true colour for the project health and performance at any given point in time.
|[1.0 – .95]||[.94-.85]||
Thus, EVA stands out to be an objective method to determine run time project performance and health over the subjective methods. The relevant stakeholders can be updated with meticulous project health which enables them to take appropriate decisions concerning the project execution further.