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The Significance of Earned Value Analysis, Forecasting & To-Complete Performance Index

written by: Fahad Usmani • edited by: Carly Stockwell • updated: 6/5/2012

Part of your job as Project Manager is to keep concerned stakeholders up to date on the progress of your project. This is where Earned Value Analysis comes in. Become familiar with these definitions and processes.

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    About the Author: Fahad Usmani, PMP, PMI-RMP is a blogger on Project Management topics. He writes on his blog PM Study Circle to help professionals with PMP Certification Exam Preparation. Visit his blog at pmstudycircle.com to learn more about Earned Value Management, Forecasting (EAC & BAC) and TCPI.

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    Answering Questions & Staying Informed

    Meeting Are you prepared to answer these questions about the status of your project?

    • What is the current status of the project?
    • How far have you progressed?
    • How much it will cost us to finish the project?

    You'd better be -- these are questions regularly asked by your sponsors and management. It’s part of your job to provide them information on regular basis.

    The Project Management Body of Knowledge (PMBOK) Guide answers these questions in three terms:

    • Earned Value Management
    • Forecasting &
    • To-Complete Performance Index.

    These are very important concepts that all the main stakeholders for your project will be interested in it. You as a Project Manager have a responsibility to keep track of every movement of the project and inform the concerned stakeholders as required.

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    Earned Value Management

    Earned Value Management answers the questions:

    • How much have we have spent?
    • How much have we earned?
    • How much should we get as per the schedule?

    Once we get this information, we move into determining Cost Variance, Schedule Variance, and the Cost Performance Index and the Schedule Performance Index.

    Cost Variance analysis shows the status of the project in dollar terms; i.e. whether our expense is under budget or over budget. Schedule Variance tells us if we are ahead of or behind the schedule in dollar term. In the same way, Cost Performance Index provides us information that if we are under budget or over budget. Schedule Performance Index tells us that if we lagging the schedule or ahead of it.

    You may be wondering why indexes are required if we are getting the same information from the variances. Isn’t that duplication of information?

    No, the information is not duplicated. Although the interpretation of them may look similar but they serve different purposes. In variances we get the value in dollar terms and this value may be huge or small depending on the project. On the other hand, Indexes provide ratios. These ratios help us to assess and measure the performance of different projects, which is not possible with variance analysis.

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    Forecasting

    Under forecasting, two things are determined. First one is Estimate at Completion, which gives the expected value of money that will be spent to complete the project. The other is Estimate to Complete, which is the expected value of money that will be spent to complete the remaining work.
    For example, let's say you’ve completed 40% of the project and 60% is yet to be completed. In this case Estimate To Complete will be the value of money that you will spend to complete this 60% of remaining work.

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    To-Complete Performance Index

    To-Complete Performance Index (TCPI) is a relatively new invention of the PMI. It is the estimate of cost performance for the project to meet the budget goal. It can be calculated by dividing the work remaining with Budget Remaining. The following points should be noted that about TCPI:

    • If TCPI is greater than one, you have to work hard with better cost performance to meet the goal.
    • If it is less than one, it means you can relax.

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