In my previous article, we looked at earned value management and the breakdown between cost variance and schedule variance. In this article, I want to dig deeper into earned value and look at earned value analysis.
We all know that earned value can keep you on budget and help you identify problems in the early phases of project management. In fact, most problems can be caught as early as 15 to 20 percent of the way into the project. If you're over budget or behind schedule in the early phases, you'll probably continue this down the same road which can lead you straight to project failure.
So, in this article, we will focus on what constitutes earned value. We will break down the three key values or roots of earned value analysis.
Earned value analysis can be broken down into three main components:
- Budgeted cost of work scheduled (BCWS)
- Actual cost of work performed (ACWP
- Budgeted cost of work performed (BCWP)
The BCWS is a way to track progress objectively. Budgeted cost of work scheduled is the amount that you want to spend for an assigned task. Ideally you want a certain amount of tasks done within your specified time period or status date. The project manager chooses the status date, and the earned value analysis is specific to that individual status date. Tasks have both a beginning and an end. There should be a time period for the work to both begin and end.
Next up is BCWP and like BCWS, tells you how much you want done in a certain period of time. BCWP calculates how much you want to spend during that time period. This is the planned cost of the entire project. Budgeted cost of work performed calculates how much of the budget should have been spent based on the actual length of the task.
Third and final is ACWP. Initially you budgeted how much you wanted to spend on specific tasks, but what exactly did you spend? ACWP is a calculation of your actual cost. This amount is what you have spent to finish all or part of a task, up to your project's current status.
These three components combined shows your actual earned value. Earned value analysis helps project managers predict and understand the real value of the work that was performed on a project. Project managers can plainly see whether or not their team is meeting its goals way before the project is due. With earned value analysis you can cut down on the instances of overdue and over-budget projects, which is a win-win situation for everyone.
For additional information on earned value management, please read Control Project Schedules and Budgets Through Earned Value Management.