This document discusses how Earned Value Analysis (EVA) can help project managers track project progress and costs to avoid cost overruns. EVA compares planned work, actual work completed, and actual costs to calculate variances. It uses three values - Planned Value (PV), Earned Value (EV), and Actual Costs (AC) - along with formulas to determine Schedule Variance, Cost Variance, and other metrics. Regular EVA reporting prevents projects from going significantly over budget or behind schedule without the project team's knowledge. The author argues that waiting until milestones to evaluate progress can be too late to course-correct struggling projects.

1. How Your Projects May Be
Robbing You Blind
Ed Kozak
expenditures). It also lets the project
One former client once remarked in a manager compute Percentage
Completion of the project as well as
workshop I was giving about Earned
Value Analysis “This is powerful stuff if forecast what the final cost of the project
applied correctly. I know our IT would be if spending rates continued at
department sure would benefit big time their current pace. The ability to
by using EVA. I personally believe they correctly use EVA rests on the ability to
intentionally do not want folks to correctly understand three variables, PV,
measure the earned value of their EV, and AC (referred to as BCWS,
projects for fear that top management BCWP, and ACWP in older texts) that
will crack down on them. What they do the project manager has to derive. All
not finish by year end is simply carried other numbers are calculated from these
over to the next year. They basically three variables using very simple
have an unlimited budget.” formulas.
This is a powerful statement and, Planned Value, or PV, simply is the
unfortunately, it isn’t rare to hear estimated cost of all of the work
something of this nature. Many scheduled to have been done by a
organizations are unaware of the fact it’s specific date, known as Status Date. For
possible to track and control costs example, if the project manager is
frequently and on a regular basis during preparing a monthly report to submit to a
a project and not have to wait until some client the Status Date would coincide
major milestone is reached months into with the most recent date reports were
the project to see how the budget is generated with the accounting system.
faring. As that person mentioned to in Planned Value is obtained from the
the quote above, that process is known budget estimate for the project that was
as Earned Value Analysis. created and agreed to (i.e. Baselined)
before the project began. This number it
never changes unless the scope changes
Earned Value Analysis and a new budget estimate is created and
baselined. In Earned Value Analysis,
Earned Value Analysis, or EVA, is a your original, baselined estimate is
method that lets a project manager called the BAC, short for Budget At
compare progress (work scheduled to be Completion.
done versus work actually done) and
costs (budget estimates versus actual It is understood that there are probably
going to be differences between what

2. you had set out to do by a certain date Status Date than you actually have done.
and what has actually been done. This If SV is positive this means that PV is
leads us to our second variable, called less than EV, meaning that you’ve done
Earned Value, or EV. EV represents the more work than you had planned to do
estimated cost of the work that has been by the Status Date. If your cost variance
done, with that estimate obtained from is negative this means that AC exceeds
the baselined budget. It is very EV, meaning that you have expended
important that you have a good more costs to perform the work you have
understanding of this distinction. EV done than you had originally estimated.
does not represent the actual cost of If CV is positive, then AC is less than
that work that was done but rather EV and the work you performed has cost
how much we assumed it would cost you less than you had originally
when the budget estimate was first estimated. Obviously, if SV or CV is
crafted. zero then your project is right on track
with your schedule estimate or your cost
The last value needing to be derived is estimate, respectively. It is very
the most straightforward. This variable important to make note of one thing
is AC, representing the Actual Costs, and regarding SV. The units of EV and PV
can be obtained from whatever cost are dollars since they both represent cost
accounting system is being used to track values, not units of time, so the number
project expenditures (note: project derived to represent the variance in
expenditures can even be tracked using schedule is not in time units, but rather,
certain project management software in dollars. How then does this represent
packages). AC represents the actual a schedule variance? Simply put, if
cumulative costs per date expended in negative, SV represents the dollar value
the project since it started. of work that should have been done by
the Status Date that hasn’t been done. If
The remainder of the variables, which I positive, it represents the dollar value of
refer to as the formulaic variables, are additional work that was performed that
given by the following formulas: hadn’t been planned to be done by the
Status Date.
• Schedule Variance (SV) = EV – PV
• Cost Variance (CV) = EV – AC The two performance indices are SPI
• Schedule Performance Index (SPI) = and CPI and can be viewed as efficiency
EV/PV ratings, that is, how efficiently the
• Cost Performance Index (CPI) = project team is moving through the
EV/AC schedule (i.e. getting work done) and
• % Completion = 100*BAC/EV how efficiently the team is spending
• Estimate at Completion (EAC) = your money. A value of 1.0 for SPI
BAC/CPI means that EV = PV and so the team is
completing the project as planned. If
Let’s look at the two variances for the SPI is less than 1.0 then EV is less than
moment, SV and CV. If your schedule PV, meaning that the project team is
variance is negative this means that PV behind schedule and things are being
exceeds EV, meaning that you had completed at a slower pace than had
planned to perform more work by your been planned. If SPI is greater than 1.0,
Are Your Projects Robbing You Blind? 2
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the expressed written consent of the author.

3. then EV exceeds PV and the team is development, having more confidence in
completing things at a faster pace than the project estimate leads to a more
had been planned. confident estimate of ROI for strategic
purposes and project selection. Even if
Perhaps a better way to look at SPI and that isn’t the case, if the estimate is
CPI is as types of returns on investment. grossly high, an organization will be
SPI can be viewed as a return on forced to allocate and lock up dollars for
invested time in the project. If SPI is a project that won’t be used—dollars
less than 1.0 then you as the client are that could have been invested elsewhere.
getting a fraction of an hour’s worth of Although a poor estimate might work
work for every hour spent on the project. out in our favor this time and we end up
For example, if SPI = .85 then you’re using less schedule time or less dollars
getting 85% of an hour, or 51 minutes to complete a project, as evidenced by an
worth of work for every hour spent SPI or CPI much greater than one, the
working on the project. Similarly, CPI next time that poor estimate might not
can be viewed as a financial ROI. If CPI work out in our favor. Do we
is less than 1.0 then you’re getting that continually want to risk it?
fraction of a dollar’s worth of work for
every dollar you invest in the project and There is a tendency among
if CPI is greater than 1.0, you’re getting inexperienced project managers to ask
more than one dollar’s worth of work for team members during status meetings to
every project dollar invested. give an opinion regarding how complete
each feels the tasks they’re responsible
Should we want SPI and CPI to be for are. At best this is an educated
greater than one? By all means, but too guess. At worst, it’s simply pulling a
much of a good thing isn’t good either. number out of the air. Regardless, it’s
An SPI or CPI or 1.05 or 1.1 is fine but very subjective and the error associated
what about an SPI or CPI of 1.5 or 2.0? with it makes the number altogether
One should be concerned with either worthless. Looking at some other metric
variable being greater than 1.1 because such as hours spent to date divided by
this implies that something is wrong total hours allocated to the project yields
with either the respective schedule a better estimate but not the optimal one.
estimate or the cost estimate. We want What happens if twice as many hours
to be able to have confidence in our were spent on a specific task than
schedule estimates whether we’re originally estimated? This metric
submitting a proposal to a client or wouldn’t take that into account. On the
developing a product to bring to market. contrary, those additional hours would
Similarly, we want to be able to have make it seem that more progress has
confidence in our cost estimates. If been made on the project and it’s closer
we’re writing a proposal to a prospective to being 100% complete. One could
client, we need to walk that fine line argue to use dollars spent to date divided
between earning a profit and being by the budget for the project to
competitive and an error in our estimates overcome that issue. Perhaps this might,
could jeopardize both. If we’re perhaps this might not. What were to
financing an internal project, whether it happen if, on a $750,000 project,
be a software implementation or product $250,000 worth of equipment must be
Are Your Projects Robbing You Blind? 3
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4. bought within the first week? If we budgeted costs not one month after a
simply looked at dollars spent to date as project has begun but many months
our metric for percent completion then after? In that time span the project could
we would be 25% complete after the end have veered so far off budget or off
of week 1! An exaggeration, certainly, schedule that it would be moot to try to
but the point is well-made. The solution get it to finish within its original
offered by EVA is not subjective and estimates. This is why EVA should be
compares work accomplished to date performed on a regular monthly
against the complete project in order to schedule.
get its value, that is, it is a function of
both time and cost.
The last variable listed is Estimate At
In summary, hopefully it is now clear
why one shouldn’t to wait until hitting a
Completion, or EAC. This number gives major milestone, like the completion of a
the project manager a re-estimation of prototype or assembly, to reach a point
the project budget and tells the project in the project where a schedule and/or
manager what the total project would financial measurement can be made.
cost if progress and spending continued The completion of a milestone is not a
at the pace it’s currently going. If one logical point in a project to compare
wants to know how much the remainder project actuals against estimates. Quite
of the project would cost, taking into the contrary, unless these measurements
account what has already been spent and are being made on a regular (e.g.
the current spending and progress rates, monthly) basis, your projects could be
one simply has to subtract AC from trending way off schedule and budget
EAC. The EAC is recalculated each (and possibly quality) and by the time
reporting period and is essential for use this is realized it might be too late either
in controlling the project. to take some type of meaningful
corrective action or the cost of that
corrective action that you’re forced to
Project Managers Are Not Simply take might be excessive. Your projects
Messengers shouldn’t be managed blindly and
shouldn’t rob you blind. Consistent
A project manager’s job simply isn’t to monitoring using Earned Value Analysis
compute these values and communicate prevents this from happening.
them to the client (or Management if this
is a project being funded internally).
The takeaway from this, however, is that About the Author
there must be an expectation that the
project manager and team, now in Ed Kozak, M.S., M.B.A., PMP is the
possession of this forecast, will identify President and CEO of Successful
and implement some corrective action to Projects For Leaders, international
bring the project back in line with the experts in project management process
original budget. Corrective action is improvement. The staff of Successful
performed in small, discrete steps at best Projects For Leaders work with
so what effect could it possibly have if companies along three main points of
actual costs were first compared against focus. First, they help companies
Are Your Projects Robbing You Blind? 4
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the expressed written consent of the author.

5. improve their profitability by cutting these two groups occurs, allowing
wasteful project costs (upwards to 50% Management to determine if efforts are
or more) and improve their overall efficient and effective, if projects are
management of projects in order to still the best ones to support strategic
reduce risk, schedule slippage, and objectives, whether there are
unnecessary spending on product performance issues associated with
rework. As a result their clients are able meeting objectives.
to exert more control over their projects;
improve target schedule performance; Ed is an accomplished professional with
monitor and control cost performance has over twenty-three years experience
better; increase their success at hitting as a consultant, manager, executive,
budget estimates; improve quality and facilitator, and instructor that includes
satisfaction; and recognize the project/program manager experience in
substantial financial benefits that come the private and Government sectors
along with that. managing multi-year, multi-million
dollar programs for his clients in fields
Second, Successful Projects For Leaders such as IT, healthcare, research,
is hired as project turnaround experts development, and manufacturing. He
and is brought in on critical projects that brings his expertise to management
are in the midst of schedule, budget, teams in strategic planning, process re-
and/or quality issues or projects that are engineering, program management
having continual setbacks. They analyze offices, and project management and is a
the problems, set a new budget and frequent conference speaker.
schedule, and work with the incumbent
project management team to bring them
to completion.
A third benefit that Successful Projects
For Leaders offers is their availability to
be out-sourced by Organizations to serve
as the Chief Projects Officer. In this
role, Successful Projects For Leaders
only develops standards and practices
directed at the effective execution of
projects and the attainment of schedule,
cost, scope, and quality objectives, but
also communicates enterprise-level
objectives to the respective project
groups in the most-appropriate way for
them to follow and communicates
project information to Management.
This overcomes the problem common to
many organizations that no connection
between Operations and project groups
exists and no structured, consistent, and
meaningful flow of information between
Are Your Projects Robbing You Blind? 5
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the expressed written consent of the author.