Earned value management example – 1
Let’s imagine we are building a wind power plant. The project is set to be completed in 10
months with an estimated cost of $500,000. The project has been running for 5 months now,
the team has spent $220,000 and completed an amount of work worth $255,000.
This is how such a project would look on a Gantt chart:
Gantt chart on Teamhood
And now, let’s analyze this Earned Value Management example from the point of metrics:
PV = $250,000. 50% of the project time has passed, so we calculate 50% of the total project
value.
EV = $255,000. This is equal to the estimated value for the work that has been completed.
AC = $220,000. This is equal to the amount of money the team has spent so far.
From here, we can take the analysis further and calculate secondary metrics. For the sake of
this example, let’s pick CPI and SPI. In the case of these metrics, less than 1, means we are
over budget or behind schedule. Anything above 1 means we are under the budget and ahead
of schedule. So, let’s see what we have for this project.
CPI = 1.16 (CPI = EV / AC), which means we are under budget for the project and likely to
complete it for a lower cost than expected.
SPI = 1.02 (SPI = EV / PV) which shows we are slightly ahead of the schedule and likely to
complete the project on time or a little earlier.
Some project management timeline tools provide the above calculations for their users. Here
is a shot of the Portfolio Overview you can find in Teamhood outlining the same metrics:
Budget = Estimated value of the entire project
SPI is calculated automatically
EV is calculated automatically
Progress represents the percentage of work completed so far.
So, in the case of our first example, everything is going even better than planned. However,
this is rarely the case with most projects, so let’s look at some more examples.
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Earned value management example – 2
For the second Earned Value Management example, we are building a solar power plant. The
project is divided into 5 stages, each worth $20,000 and estimated to last for 1 month. 2
months have passed, and 3 of the project stages have been completed for the cost of $80,000.
This is the same project on a Gantt chart:
Gantt chart on Teamhood
In this case, our metrics stand like this:
PV = $40,000. 2 Months into the project, we should have completed 2 stages, each worth
$20,000.
EV = $60,000. We have actually completed 3 stages of the project.
AC = $80,000. The actual cost of completed phases.
Here are the same numbers in Portfolio Overview (which is focused on the schedule):
Portfolio overview
From both the Gantt and the Portfolio overviews, it seems that the project is going fine.
However, you can probably already spot the issue with the project. Let’s confirm with further
calculations. In terms of SPI = 1.5, we are doing great. However, just looking at this number
would give us a false view of the project. As we look into the CPI = 0.75, there is a clear
picture, the project is way over the initial budget. If the team continues working this way,
there are two outcomes that can be expected: the project will finish early and at a far higher
cost.
To have a more precise understanding of the project situation, we should additionally track
the AC of each project phase. Here is a reviewed Gantt chart with additional information.
Earned value management example
You could do further calculations to estimate the final cost and end date of the project with
other earned value management formulas.
If you want to automate the process, consider using Gantt chart software with custom fields
that perform the needed calculations for you.
Earned value management example – 3
For the third earned value management example, let’s imagine a hydroelectric power plant.
This project is divided into 2 phases, each lasting 1 year. The first phase of the project is
valued at $100,000 and the second phase at $50,000. At the current state, 1 year of the project
has passed and 90% of phase 1 has been completed. The project team has completed work
worth $80,000.
This is the Gantt view we would get with this scenario:
Earned value management example
The current situation of the project is as follows:
PV = $100,000. After 1 year, the first phase of the project, valued at $100,000, should have
been completed.
EV = $90,000. The team has actually completed 90% of Phase 1.
AC = $80,000. This actual cost to date.
CPI = 1.125 and SPI = 0.9. From these metrics, it is clear that the project is both – under
budget and behind schedule. However, the budget is not reflected in Gantt or Portfolio
Overview.