Filed Under: Program Management
In project management the past is always a great indication of future performance. For this reason a strong earned value system is a valuable tool when forecasting a project to completion. Two of the most critical points of analysis are the impact performance has on cost and schedule. To first analyze these basic metrics can be calculated for cost and schedule variance as follows:
Schedule Variance: SV=BCWP-BCWS
Schedule Variance – Earned value of work performed minus the budgeted cost of work scheduled.
Cost Variance: CV = BCWP-ACWP
Cost Variance – Earned value of work performed minus the actual cost of work performed:
These variances provide a status at a point in time, but do not give a full picture of whether a project will overrun or underrun its budget. For this reason industry standard indexes are calculated to provide contextual predictions on spending. Two of the most commonly used efficiency metrics are the Schedule Performance Index and Cost Performance Index, or SPI and CPI. They are calculated and defined as the following:
Schedule Performance Index: SPI = BCWP/BCWS
SPI (Schedule Performance Index/Schedule Efficiency) Less than 1.0 is unfavorable schedule performance to plan. Greater than 1.0 is better than plan. 1.0 is perfectly according to plan.
Cost Performance Index: CPI = BCWP/ACWP
CPI (Cost Performance Index/Cost Efficiency) Less than 1.0 is unfavorable schedule performance to plan. Greater than 1.0 is better than plan. 1.0 is perfectly according to plan.
Once strong indexes are determined it provides numerous methods for projecting future performance. In forecasting a key simulation is using earned value to provide a Calculated Estimate at Completion, or CEAC. The CEAC is a metric to project total cost using the performance to date of the project. This can then be compared by management to the existing EAC or BAC. Below are 4 examples of different types of calculations that are possible:
1. Remaining Work – CEAC = ACWP + BAC - BCWP.
2. Simple CPI – CEAC = BAC / (BCWP / ACWP)
3. Cost and Schedule – CEAC = ACWP + ( (BAC - BCWP) / (CPI * SPI) )
4. Weighting of SPI and CPI – CEAC = ACWP + ((BAC - BCWP) / (((BCWP/BCWS) * SPI Weight) + ((BCWP/ACWP) * CPI Weight)))
*Note SPI Weight + SPI Weight = 100%
Written by Ryan Euler