REPORTS AND COMPARISON METRICS

Reviewing, the four basic measurements are (1) TV or BAC, (2) PV or BCWS, (3) EV or BCWP, and (4) AC or ACWP. Other major reporting metrics that are derived from these basic measures are cost and schedule variances and their related ratios. The latter metrics also are used in computing estimates of future performance.

Variances are designed to portray the absolute difference, in currency, between planned and actual project performance. The ratios built from variance inputs are relative metrics that can be compared across projects.

Variances

The cost variance (CV) is the difference between the budgeted cost of work actually performed (EV) and the actual cost of that work (AC). The formula for the cost variance is EV – AC or BCWP – ACWP. The CV’s related ratio is the cost performance index (CPI). The formula is .

The schedule variance (SV) is the difference between the (expected or forecasted) cost of the work that was actually completed (the earned value) and the budgeted cost of work scheduled for completion (the planned value). The formula for schedule variance is EV – PV or BCWP – BCWS. The SV’s related ratio is the schedule performance index (SPI). The formula is .

An analogy to earned value analysis is found in a standard cost system. The bar or triangle approach to calculating variances in a standard cost system can also be applied to compute earned value variances, as shown in Figure 2-1.

The variance formulas are designed so that a positive amount represents favorable performance and a negative amount signals unfavorable performance. However, it is important to pay attention to how an index metric was formulated before deciding if it represents a desirable or an undesirable situation.

People performing project activities (tasks) focus on work completion and time required to complete tasks. As in manufacturing and service industries, metrics built from currency amounts are not meaningful for people completing the work. An emerging practice in EV uses an additional measurement called earned schedule (ES) that describes how early or late the project is likely to be.

Ratios

The cost and schedule variances are absolute amounts that are influenced by the size of the project and thus are difficult to compare with performance on other projects. Converting the variances into schedule and cost ratios standardizes them and often provides more meaningful information for comparison with past or best-practice experience.

FIGURE 2-1
Standard Cost System and EV Triangle Approaches

The SPI is the result of dividing the earned value (at the top of the EV triangle in Figure 2-1) by the planned value (bottom right of the EV portion of Figure 2-1); the CPI is the result of dividing the earned value by actual costs (Figure 2-2). SPI and CPI are absolute measures that enable comparisons across projects, regardless of project size, or with performance on completed projects at the same point of completion. These two ratios can be included in formulas used to produce other metrics that provide optimistic, pessimistic, and most likely estimates of total cost at completion. They also are used in a ratio that measures additional effort required to complete the project and can be used to compare performance on many different projects.

The SPI, therefore, shows schedule completion (the earned value) on the measurement date relative to planned completion by that date. A ratio of 1 would indicate that EV and PV are identical. Any amount greater than 1 indicates a favorable performance (more “value” was earned than was planned) and less than 1 indicates unfavorable performance (more “value” was planned to have been accomplished than was achieved).

FIGURE 2-2
Cost and Schedule Ratios

The CPI indicates the cost performance that should have been achieved for the project portion completed. That is, “What is the earned value relative to the actual costs incurred as of the status date?” A ratio calculation resulting in a number greater than 1 indicates favorable performance (costs were less than the planned baseline budget for the amount of work completed), whereas a ratio less than 1 means that actual costs are higher than were originally expected for the work completed.

In EV, comparisons are never made across the bottom of the triangle, ACWP and BCWS (actual cost and planned value). Although this variance makes sense in certain environments, such as in standard cost systems where the standard costs applied during the period are computed for work completed, it is uninformative and can be misleading for projects. This total variance merely indicates that actual costs do not equal the amounts budgeted as of the time elapsed since the project started; it is meaningless without knowing how much of the project’s physical work has been completed. This metric becomes meaningful only when all project work has been completed.