EARNED VALUE

Earned value is evaluating project performance via the relationships between cost and schedule. It uses three variables to evaluate performance:

• budgeted cost for work scheduled (BCWS)
• budgeted cost for work performed (BCWP)
• actual cost for work performed (ACWP).

These three variables are used to calculate cost variance (CV) and schedule variance (SV).

The cost variance is calculated using this formula:

CV = BCWP – ACWP

The schedule variance is calculated using this formula:

SV = BCWP – BCWS

A cumulative plot (see Figure 10) is generated for ACWP, BCWP, and BCWS. The differences between the plot lines for the BCWS and ACWP indicate the degree of cost variance. The differences between the plot lines for ACWP and BCWP indicate the earned value, or value of the work completed. The difference between the BCWS and the BCWP indicates the degree of schedule variance.

The schedule and cost variance can be converted into indices indicating (behind or ahead of) schedule or cost, respectively. A value greater than 1.0 indicates efficient schedule or cost performance. A value less than 1.0 indicates inefficient schedule or cost performance.

Earned value offers three benefits. One, it is a reliable tool for measuring the efficiency of a project from a cost and schedule perspective. Two, it can be generated easily through popular project-arrangement software programs. Three, it can be displayed in tabular or graphical form to show the relationship between ACWP, BCWS, and BCWP. However, earned value is not widely used, it requires some previous training or experience, and it involves self-discipline in employing consistent, valid status collection methods.

for Using Earned Value

• Establish cost and schedule baselines for a project.
• Employ consistent, reliable status collection methods.
• Regularly plot or calculate the values for ACWP, BCWS, and BCWP.
• Use earned value to determine whether corrective action or replanning is necessary.