Earn Value Analysis (EVA) Technique for Project Management

 Earn Value Analysis is a project control technique that helps top management level to make appropriate decision. Basically, EVA is Decision Support Tool embedded in project management system/software. 

Terminologies used in Earn Value Analysis:

Planned Value (P.V) - It is time depended variable. Planned Value is actually expected amount of resources to be consumed at the point of evaluation in respect of time. Suppose a project (Linear curve: y=x) with B.A.C $12000 is scheduled to completed in 12 months, then the planned value at Month 1 is $1000. 

In fact construction stage follows S-Curve, thus to be precised system calculated planned value by 

P(x) = B.A.C (1/(1+exp(-kx))^a 

where,  P(x) = planned value at the time

x = time of evaluation

k = parameter that defines S-Curve

a = parameter that defines shape of S-Curve

B.A.C = Budget at Completion

 Actual Cost (A.C) - It is amount of resources consumed till the time of evaluation. Suppose, $1200 is spent at the end of month 1, then A.C is $1200. 

Earned Value (E.V) - It is actually the progress achieved in the project. E.V is related with the quantity of work completed or the milestone is achieved. Suppose at the Month 1, 20% of the work progress is made, E.V is 20% of B.A.C. 

Cost Variance (C.V) - Variation of cost as per plan

• C.V > 1 - under budget
• C.V = 1 - on budget
• C.V < 1 - above budget
   

Schedule Variance (S.V) - Variation of schedule as per plan

• S.V > 1 - ahead of schedule
• S.V = 1 -  on schedule
• S.V < 1 - behind schedule
   

Lets workout with a numerical example:

A road construction project is budgeted to be $12000 and was planned to be completed in 12 months. At the 2nd month, evaluation team reported that only 20% of the work was completed and the financial department reports that $2500 was already spent. As a planning engineer, how will you evaluate the project and report to project manager.

Given that, 

Budget at Completion (B.A.C) = $12000

Project Duration = 12 Months

Evaluation time = 2 months,

Assuming Linear Relationship, Planned Value (P.V) = $12000 x 2/12 = $2000

Actual Cost (A.C) = $2500

Project Progress = 20% 

Earned Value (E.V) = Progress x B.A.C = 20% of $12000 = $2400

Cost Variance (C.V) = E.V - A.C = $2400 - $2500 = $-100

Schedule Variance (S.V) = E.V - P.V = $2400 - $2000 = $400

Cost Performance Index (C.P.I) = E.V/A.C = 0.96 [ C.P.I < 1, over budget]

Schedule Performance Index (S.P.I) = E.V/P.V = 1.2 [S.P.I > 1, ahead of schedule]

Expected Time on Completion = Total Duration / S.P.I = 12/1.2 = 10 months

Expected Cost on Completion = Total Budget / C.P.I = 12000/0.96 = $12500

Thus, if this scenario persists, work will be completed 2 month before the schedule with $500 additional expenses. Necessary action shall be taken to reduce the cost.