Earned Value Analysis - Example 2
Suppose you are managing a software development project. The project is expected to be completed in 8 months at a cost of $10,000 per month. After 2 months, you realize that the project is 30 percent completed at a cost of $40,000. You need to determine whether the project is on-time and on-budget after 2 months.
Step 1: Calculate the Planned Value (PV) and Earned Value (EV)
From the scenario,
- Budget at Completion (BAC) = $10,000 * 8 = $80,000
- Actual Cost (AC) = $40,000
- Planned Completion = 2/8 = 25%
- Actual Completion = 30%
- Planned Value = Planned Completion (%) * BAC = 25% * $ 80,000 = $ 20,000
- Earned Value = Actual Completion (%) * BAC = 30% * $ 80,000 = $ 24,000
Step 2: Compute the Cost Performance Index (CPI) and Schedule Performance Index (SPI)
Cost Performance Index (CPI) = EV / AC = $24,000 / $40,000 = 0.6
Schedule Performance Index (SPI) = EV / PV = $24,000 / $20,000 = 1.2
Interpretation: Since Cost Performance Index (CPI) is less than one, this means the project is over budget. For every dollar spent we are getting 60 cents' worth of performance. Since Schedule Performance Index (SPI) is more than one, the project is ahead of schedule. However, this has come at a cost of going over budget. If work is continued at this rate, the project will be delivered ahead of schedule and over budget. Therefore, corrective action should be taken.
Apart from computing the Cost Performance Index (CPI index) and Schedule Performance Index (SPI index), you can calculate the earned value cost and schedule variance. In addition, you can use earned value forecasting formulae.