Earned Value Reporting – Percent Complete and Percent Spent

In this final article on Earned Value Reporting we’ll look Percent Complete and Percent Spent. For percent complete, we’re looking at the amount of completed work at a given point against the planned budget at completion. For percent spent, we’re simply considering the amount of planned budget that has been spent so far on a given project.

Newell and Grashina’s book is the basis for much of the information in this discussion on percent complete and percent spent.

What is percent complete?

Percent complete is a simple calculation. It is simply the amount of work that has been completed divided by the budget at completion.

% complete = BCWP / BAC

Notice that the percent complete can never be greater than 100. This is because the BAC is the sum of the budget in the project. The individual values of the budgets in each of the project’s activities, the BCWS, are the same as the individual BCWP for each activity. Since the only difference between the BCWS and The BCWP for an activity is whether or not the activity has been completed, at the end of the project the sum of all of the budgets must equal the sum of all the BCWP. If an activity has not claimed its BCWP, the project is not yet completed. As soon as all of the activities in the project have claimed their BCWP, the project is said to be completed.

What is percent spent?

Percent spent is another simple calculation. It is the amount of the budget that has been spent. It is calculated by dividing the actual cost of work performed by the budget at completion.

% spent = ACWP / BAC

Summary

Now that we’ve concluded this review of the various Earned Value Reporting methods as presented by Newell and Grashina in their book “The Project Management Question and Answer Book,” I’d like to hear your ideas on earned value and how much experience you have with using it in your organization. Has it been useful? Has it helped you to better manage your projects? Has it been helpful to your customers? Please feel free to share this information in comments below so all readers can share in this information…thanks.

Establishing Objects and Gaining Conceptual Agreement with the Client

I’m taking a little turn from purely project management concepts and thinking more in terms of the IT Consultant in general. Afterall, many of us working as project managers are at any given time part of a professional services organization that thinks of us basically as consultants to THEIR clients.

Establishing objectives is the starting point of any consulting project. It’s impossible to do anything else until and unless you know the desired ending point. Below are some specific questions to discuss with the client in order to elicit some outcome-based business objectives. Take them with you whenever you sit down with a client or potential client as you work through that initial meeting both selling your services and diving deeper into their need and expected results.

• How would conditions ideally improve as a result of this project?
• Ideally, what would you (the client) like to accomplish?
• What would be the difference in the organization if the project is successful?
• How would your customer (the client’s customer) be better served by this project?
• What is the impact you seek on return on investment/equity/sales/assets?
• What is the impact you seek on shareholder value?
• What is the market share/profitability/productivity improvement expected?
• How will you (the client) be evaluated in terms of the results of the project?
• How would your (the client’s) boss recognize the improvement?
• How would employees notice the difference?
• What precise aspects are most troubling to you – what keeps you up at night?
• What are the top three priorities to be accomplished?

In establishing conceptual agreement about the objectives of the project you are about to undertake together, you – as the consultant – are trying to ensure the following:

• The client is not expecting anything that you cannot deliver to them.
• The client is not expecting anything that is unreasonable under the circumstances and is not within the culture and environment that the project will be performed in.
• There will be no misunderstanding later about why additional work wasn’t performed. The limits and goals of the project will be understood and agreed upon.
• The client is maximizing your contribution and talents on the project so that the project is as effective as possible for the client and as lucrative as possible for you.

If you begin with carefully constructed objectives, you can then create a framework within which the project can be launched. From that, the project can progress toward the agreed upon goals and final solution and draw to a close. Boundaries can be derived from clear objectives. While it seems that a never-ending project is lucrative for you, it actually is not. If the end is never reached, then success is possibly never really understood and realized. Setting clear goals and reaching them is what leads to future work with the same client, not a seemingly ongoing project that drains their financial resources.

Earned Value Reporting – To Complete Schedule Performance Index

In this article on Earned Value Reporting we’ll look at something similar to the To Complete Cost Performance Index – the To Complete Schedule Performance Index, or TCSPI. The To Complete Schedule Performance Index tells us the required schedule performance index that will be needed to meet the schedule.

The book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina is the source for much of this overview.

What is the to complete schedule performance index?

The to complete schedule performance index, or TCSPI, is similar to the TCCPI except that it calculates a required schedule performance index that will be necessary to meet the project schedule. This measure is rarely used. It is included here for completeness. It has the same problems as the TCCPI and is even more abstract and difficult for people to understand.

The calculation for the TCSPI is done by dividing the work remaining by the remaining schedule.

TCSPI = (BAC – BCWP) / (BAC – BCWS)

It can be seen that as a project’s schedule performance index moves below one, the TCSPI will increase and become greater than one. Although called an “index”, this is not really accurate since all indexes indicate something bad when they fall below one and this index indicates something bad when it is greater than one.

There is a mathematical difficulty with this term as well. If a project is over budget toward the end, it is possible for the BAC and the BCWS to be equal. This produces a division by zero and a point of discontinuity.

Under normal conditions it results in a value that indicates the required performance that the project must have from now until the end of the project.

Example:

Suppose a project is somewhere near 50 percent complete:

BCWS = $100,000

BCWP = $95,000

ACWP = $97,000

BAC = $200,000

SV = BCWP – BCWS

SV = -$5,000

What is the TCSPI?

TCSPI = (BAC – BCWP) / (BAC – BCWS)

TCSPI = (200,000 – 95,000) / (200,000 – 100,000)

TCSPI = 1.05

Notice that if the schedule variance remains the same as the end of the project approaches, the TCSPI increases rapidly. Suppose we have the following when the project is approximately 95 percent complete:

BCWS = $195,000

BCWP = $190,000

ACWP = $192,000

BAC = $200,000

SV = BCWP – BCWS

SV = -$5,000

What is the TCSPI?

TCSPI = (BAC – BCWP) / (BAC – BCWS)

TCSPI = (200,000 – 190,000) / (200,000 – 195,000)

TCSPI = 2.00

As we approach the end of the project, the schedule variance has not changed, but the TCSPI has changed from 1.05 to 2.00. This means that the work that must be accomplished from now to the end of the project must take place at a rate that is twice as fast as was originally planned.

Earned Value Reporting – To Complete Cost Performance Index

In this article on Earned Value Reporting we’ll examine the To Complete Cost Performance Index. In a nutshell, the To Complete Cost Performance Index tells us the cost performance that is required to complete a given project for it’s original budget based on how it is performing right now.

The book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina is the source for much of this overview.

What is the to complete cost performance index?

The to complete cost performance index, TCCPI, tells us the required cost performance that is necessary to complete the project for the original budget based on the performance of the project as of today.

The to complete cost performance index is a seldom-used indicator, and there are some difficulties in its use. The TCCPI is calculated by dividing the work remaining by the money remaining in the budget to do it. The remaining work in a project is simply the difference between the work already accomplished, the BCWP, and the total work of the project, the BAC. You will recall that when the project is completed, the BCWP must exactly equal the BAC. Mathematically it is impossible for this not to happen since the BAC is equal to the sum of the BCWP and is also equal to the sum of the BCWS. The remaining budget for the project is simply the difference between the total budget for the project, again the BAC, and the amount of money that has been spent to date, the ACWP.

TCCPI = (BAC – BCWP) / (BAC – ACWP)

It can be seen that as a project’s cost performance index moves below one, the TCCPI will increase and become greater than 1. Although called an “index”, this is not really accurate since all indexes indicate something bad when they fall below one and this index indicates something bad when it is greater than one.

The TCCPI gives us a rough estimate of the performance that is required for the remaining portion of the project in order for the project to be completed for the original budget. A TCCPI of 1.33 indicates that the project team must perform with a CPI of 1.33 from now until the project is completed in order for the project to be completed at the original budget.

There is a mathematical difficulty with this term as well. If a project is over budget toward the end of the project, it is possible for the BAC and the ACWP to be equal. This produces a division by zero and a point of discontinuity.

Under normal conditions it results in a value that indicates the required performance that the project must have from now until the end of the project.

Example:

Suppose a project is somewhere near 50 percent complete:

BCWS = $100,000

BCWP = $95,000

ACWP = $97,000

BAC = $200,000

CV = BCWP – ACWP

CV = -$2,000

What is the TCCPI?

TCCPI = (BAC – BCWP) / (BAC – ACWP)

TCCPI = (200,000 – 95,000) / (200,000 – 97,000)

TCCPI = 1.02

In this example the project would be required to do all of the remaining work at a 2 percent higher cost performance than was originally planned. This may be particularly difficult since the cost performance index to date is only 98 percent. We will be asking the project team to improve their cost performance by some 4 percent.

Notice that if the cost variance remains the same as the end of the project approaches, the TCCPI increases rapidly. Suppose we have the following when the project is approximately 95 percent complete:

BCWS = $195,000

BCWP = $190,000

ACWP = $192,000

BAC = $200,000

CV = BCWP – ACWP

CV = -$2,000

What is the TCCPI?

TCCPI = (BAC – BCWP) / (BAC – ACWP)

TCCPI = (200,000 – 190,000) / (200,000 – 192,000)

TCCPI = 1..25

As we approach the end of the project, the cost variance has not changed, but the TCCPI has changed from 1.02 to 1.25. This is an indicator that the cost variance will be much more difficult to recover now than it was earlier in the project.

Earned Value Reporting – Other Ways of Calculating EAC

In this article on Earned Value Reporting we’ll at other ways of calculating Estimate at Completion. Again, the Estimate at Completion tells us the forecast value of the project when the project has been completed.

The book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina is the source for much of this discussion.

Other ways of calculating EAC

Taking the actual cost of work performed and adding it to the remaining work to be done can describe a somewhat more optimistic view of the EAC. This says that the project’s estimate at completion will be the sum of the remaining work to be done at the originally estimated budgets for that work plus the actual accumulated cost of the work already completed. The actual cost of the work already completed is nothing more than the ACWP, and the cost of the remaining work to be done, based on original estimates, is just the difference between the budget at completion and the work that is already completed.

EAC = ACWP + (BAC – BCWP)

Of course, the most optimistic calculation of the EAC is the one that is usually imposed on project managers. It says that in spite of the problems that have occurred on this project to date, the project is not only going to complete all the remaining tasks according to the original plans and estimates but is going to recover the budget overruns already spent. The calculation of EAC is quite simple.

EAC = BAC

While it may seem pessimistic to calculate the EAC by dividing the BAC by the CPI, it turns out that there have been a number of studies that have been done in this area.

Quentin Fleming states: “The cumulative CPI is a particularly reliable index to watch because it has been proven to be an accurate and reliable forecasting device. The cumulative CPI has been shown to be stable from as early as 15 to 20 percent in the project’s percentage complete point”.

From David Christensen: “Researchers found that the cumulative CPI does not change by more than ten percent once a contract is twenty percent complete; in most cases, the cumulative CPI only worsens as a contract proceeds to completion”.

What this is telling us is that the project managers who report that although bad things have happened early in the project, they expect to recover and finish the project within the originally planned budget are not very realistic. Unless they have good reason to defend this position, it should be accepted very reluctantly. The more probable outcome of the project is that the CPI will remain the same or get worse as the project progresses.

It is even rational to think this way. If a project cannot follow the project plan early in the project when the tasks planned were relatively close to the time the planning was done, then how likely is it that the tasks that were planned further in the future will have been estimated more accurately?