Some organizations place significant importance on Earned Value Reporting (EVR) as part of their project management practice while others do not.I personally have yet to work for or with an organization that does not put emphasis on this aspect of PM reporting whatsoever.That's unfortunate, though it has made my reporting job easier over the years.
For the purposeof this article, we'll look at Earned Value Reporting and some of the different reporting scenarios that are used to show progress and value for the PM process and the PMO.Much of this information is coming from the book 'The Project Management Question and Answer Book” by Michael Newell and Marina Grashina.
What is an Earned Value Report?
An Earned Value Report is the preferred method for measuring progress in projects. It has the advantage of showing on one piece of paper the pertinent performance criteria for a project. From the earned value report the time-phased, planned expenditures for the project can be seen along with the actual cost of the project work that was accomplished and the amount of work that was actually completed. From this report, the cost variance and schedule variance can be calculated.
There are several factors in the earned value report that we must know in order to use it effectively. These factors are the budgeted cost of work scheduled (BCWS), the budgeted cost of work performed (BCWP), and the actual cost of work performed (ACWP). These three elements form the basis for the earned value reporting system.
PMI has seen fit to change this almost universally accepted alphabet soup. It remains to be seen whether PMI will be able to persuade the entire project management community to make the change or whether PMI will have to change back to the more widely accepted way of calling things.
There are certainly going to be some difficulties since most managers use PV to mean present value and EV to mean expected value. We shall see. In the year 2000 version of theGuide to the Project Management Body of Knowledge(PMBOK), PMI refers to these as follows:
- Budgeted Cost of Work Scheduled (BCWS) = Planned Value (PV)
- Actual Cost of Work Performed (ACWP) = Actual Cost (AC)
- Budgeted Cost of Work Performed (BCWP) = Earned Value (EV)
We will keep the traditional terms, which are still commonly accepted.
The first one of these factors is the BCWS or PV. This stands for the budgeted cost of work scheduled or the planned value. Once you catch on, you will say that it is just what it says it is. It is a plot of the budgeted cost of the project activities on a cumulative basis over a horizontal axis of time.
All project tasks have a task cost that was derived from the estimated cost of each activity and a schedule that says when the activity will take place. The BCWS is simply a plot of these values according to when in time the expenditures are expected to take place. So, this is pretty simple to see, as it is just the project plan plotted out in terms of dollars of budget showing when those dollars are expected to be spent.
This is a method of showing the project plan in an easy-to-see way on a single piece of paper. By showing it in a cumulative way we can see the total expenditures to date for the project as well as the total cost of the project all on the same piece of paper.
Notice that the shape of the curve is similar to the letterS. Nearly all of the planned value curves for projects will have this shape because projects generally start out spending money slowly and then increase the rate of expenditure, reach a peak where money is being expended at its greatest rate, and then reduce the expenditure rate until the project is ended.
Let's examine,now, the Cumulative Variance Reports before diving deeper into other EVR concepts deep reporting mechanisms.
Cumulative Variance Reporting
Sometimes in very large projects, there is a problem with representing the project plan and the other earned value factors on a cumulative basis. When the project budget is very large, the vertical scale of the report is so small that minor but important variations cannot be seen well. In this situation, a variance reporting method can be used.
To plot the earned values on a variance chart we simply plot a horizontal line and label it zero. Now, instead of plotting the actual values of the BCWS, BCWP, and ACWP we plot the differences between the BCWS and the other two earned value reporting factors.
When we do this, the vertical scale that we need is greatly reduced in size since we are concerned only with plotting the difference between the earned value factors and not the entire budget of the project.
The next one, the ACWP or AC, is pretty simple too. This stands for the actual cost of work performed. Like the BCWS it is a plot over time of expenditures. This time, instead of plotting the project's planned expenditures we are plotting the project's real expenditures over time.
At the end of each reporting period, we take the total amount of money that was spent on the project during that period and plot it as an addition to the total amount of money that had been spent as of the last reporting period.
It is important that every expenditure that is made on the project be collected and be collected in a timely way. The timing of the collection of the actual cost of work performed must match the anticipated timing of the expenditures that were planned and plotted as the BCWS.
This is terribly important since, if expenditures are collected early or late in the project in relation to the project plan, the earned value report will show a positive or negative variance when there may really be none.
The ACWP plot is a cumulative plot as well. If the project expenditures are actually what they were planned to be, then the ACWP and the BCWS lines will plot one on top of the other. If the lines do not coincide, there is something different from the plan taking place in the project. We are either spending too much or too fast or we are not spending enough or fast enough to meet our plan.
The next factor is the BCWP or EV. This is the only one that is a little tricky. BCWP stands for the budgeted cost of work performed. It is sometimes called the earned value as well. This is where we get the name of the earned value report. Like the BCWS and the ACWP, the BCWP is a plot of money over time.
If you recall, we said earlier that each of the project tasks has a budget and schedule associated with it. The BCWP is a plot of the work that was actually accomplished. If we complete a task that had a budget of $1,000, then the BCWP for that task when it is completed is $1,000. We plot this on a cumulative basis as well. It does not matter whether we spend $1,000 or $2,000 or any other amount to accomplish this task, we earn and plot only the budgeted amount in the BCWP.
Like the ACWP, the BCWP should plot right on top of the BCWS line. If the plot of the BCWP is above or below the BCWS line, it means that the number of tasks that are being completed is greater than or less than the plan.
This tells us that we are ahead of or behind schedule. If we have done all of the tasks that were supposed to be done at this point in time, the cumulative value of the BCWP will be precisely equal to the BCWS.
When we put all three of these plots together, we have the earned value report. The plots should plot right on top of one another if the project is being done on time and in accord with the budgeted amount that was in the project plan.
Suppose a project is in progress and as of today the planned expenditures for the project were to have been $500,000. Suppose also that there were five tasks and the tasks had budgets of $30,000, $100,000, $250,000, $100,000, and $20,000, respectively. The actual cost of each of the tasks that were worked on was $11,000, $120,000, $230,000, $105,000, and $20,000. Tasks 1, 2, 3, and 4 are complete.
What are the BCWS, ACWP, and BCWP (PV, AC, and EV)?
- BCWS is $500,000
- ACWP is $486,000
- BCWP is $480,000
From these figures, we can see that the accomplishments of the project as of today are somewhat less than what was planned for. This is the difference between the earned value and the planned value to date. The planned value is the BCWS and the earned value is the BCWP. This means that we are $20,000 behind schedule.
We can also see that the actual cost is $14,000 less than the planned expenditures to date. This means that we are somewhat under budget. Unfortunately, we are $14,000 under budget but also $20,000 behind schedule.
If we add the $20,000 of work that should have been completed but was not, we find ourselves projecting a $6,000 over budget condition. It could be that things are actually worse than they appear at first glance. If the performance to date continues, the amount over budget will probably be even higher at the end of the project. This is usually considered a bad situation.