PART I – INITIAL SET-UP – CALENDARS, TASKS AND MILESTONES

As project managers, we all are aware of Earned Value Management to help control
costs. The PMBOK has a good fundamental description in Earned Value. Using this
concept to track a real time project is extremely useful and gives an instant feel about
the performance of the project. Earned Value Management can be effectively used with
the help of MS Project 2007.
In this article, I have used the Earned Value concepts in tracking a project using MS
Project 2007 (Professional edition).

Before I start, let me clarify certain assumptions.

The project I considered is a software development project that I took from the MS
Project templates and then modified it by changing the timings, constraints, Costs etc to
help better visualise the Earned Value concepts.
This article can be used especially by MS Project 2007 beginners or even professionals
who don’t get the chance to load resources/costs into their projects due to organisation
policies or constraints.
However, this is not an article to explain how to use MS Project; but, if I came across
any useful pointers and tips, I have added them as we move along.

1) CALENDARS
Standard Calendar - is of duration from 9 to 6 PM with Monday to Friday as working
days. Saturdays and Sundays are holidays. (This can be set-up from Tools – Change
Working Time).

Project Calendar - is of duration from 9 to 6 PM with Monday to Friday as working

days. Saturday and Sundays are holidays. This has an exception of 5 PM to 6 PM every
Friday of non-working hours where all teams are engaged in taking backups and
thereby, technical tasks cannot be executed. (This can be easily set-up from the Project
Guide Feature or from Tools -> Change Working Time)

Resource Calendar – is based on the Project Calendar for each resource taking into
considerations each individual’s timings/holidays etc.
2) TASKS – All Tasks are based on Fixed - Unit – i.e., Task durations are inversely
proportional to no. of resources and are resource or effort driven. This can be set-up
from the Options dialog, Schedule – Tab as shown below.
However, if an individual task is not effort driven, this can be applied at the individual
task level in the Task Information dialog by unselecting the Effort Driven check box as
shown below:

However, one can also use Fixed - Duration - Task where the task will take same time
irrespective of no. of resources.

3) MILESTONES

Milestones have been set-up as follows:

Tasks with zero duration OR a task that has been marked as milestones in Task
information -Advanced tab

PART II – INITIAL SET-UP – RESOURCES

4 - RESOURCES

An important area in the initial planning phase is how to allocate resources across the
project.

MATERIAL RESOURCES — are items that are consumed while working on a project.
Material resources use materials such as gasoline or wood — as opposed to time.
When you assign a material resource to a task, you specify the amount of the material
resource that you intend to use in units that are appropriate for the material resource.

WORK RESOURCES — are people or equipment that consumes time when working on
a task.

GENERIC RESOURCES — resources (as defined by you) that aren't specific people,
equipment, or materials, but rather descriptions of the skills that you need for a task
when you don't know what specific resources are available

COST RESOURCE - Using a cost resource, you can add a fixed cost to a task without
making the cost depend on work performed. If one or more tasks in your project require
that you rent a storage unit during part of the project, you can set up the storage unit as
a cost resource that you can assign to tasks during the appropriate periods to account
for the cost of the storage unit as part of the task. Or, suppose that a resource needs to
fly from Salt Lake City to Chicago to complete a task; you can set up the airline tickets
as a cost resource and add them to the task.

You also can set-up a budget resource. Budget resources give you the opportunity to
specify how work or costs will be allocated during the project. Suppose, for example,
that you want to budget for the cost of a storage unit required during the life of your
project. You would create a resource for the storage unit, setting its type as Cost, and
then check the Budget check box on the General tab of the Resource Information dialog
box to make it a budget resource.

If you set up a cost resource as a budget resource, you can use it to budget for your
project.

MS Project doesn't allow you to enter any cost information for a budget resource on the
Resource Sheet. To assign a value to the budget resource, you first assign it to the
project summary task — and Project won't let you assign a value as you assign the
budget resource. Then, you supply a value by adding the Budget Cost field to the table
in the Task Usage view or the Resource Usage view.

Here, I have set-up 15 PCs for the project team and 2 laptops for the project manager
and analyst as budget resources.

FIXED COST - Some tasks are fixed-cost tasks, that is, you know that the cost of a
particular task stays the same regardless of the duration of the task or the work
performed by any resources on the task.

5) RESOURCE USAGE

After the plan is complete and the resources loaded, you would normally find that
resources would be over allocated primarily due to parallel tasks, or sequential tasks
with leads/lags. The first thing to do is to check if resources can be re-allocated, or
utilised in a different way. I checked for this and found many situations where certain
resources were being used simultaneously in various tasks. The resource usage view
gives a convenient way of identifying such situations that are not so easily visible.
Next, check if certain tasks can be completed at a comparatively lesser time. Another
option is to check for free slack- i.e., free float existing in each task, then to check if it
can be done by relatively giving less duration per day.
However, if the budget and customer deadline is stringent, then one will have to opt for
resource over time (to a realistic level).
In this project, I have considered a situation where the project deadline is stringent. And
that over allocation of resources was inevitable especially during the development
phase.
To achieve this, go to the Tracking Gantt Entry table view. Use Windows Split option
and opt for Resource Work view.
As you move from one task to another, you can clearly see the resources allocated
along with the time duration. You will get the option to put Ovt. Work (Overtime work). I
have attached a sample view below for better clarity.

Resource levelling should be the last option since it will move the project schedule date
to the right and cause delay in the project completion date.

PART III – DEALING WITH BASELINES

6) BASELINES

Some projects, particularly shorter ones that run only a few weeks or even a couple of
months, may have one baseline set at the outset and may proceed close enough to
your estimates that they can run their course against that single baseline. Other
projects, especially longer ones, may require you to set several baselines along the
way, particularly if the original estimate is so out of line with what has transpired in the
project that the original is no longer useful. You can modify the entire baseline if
changes are drastic and occur early in the project, or you can modify the base-line
estimates only going forward from a particular point in the project.
When we set a baseline, MS Project automatically baselines the Costs involved as the
Baseline Budget i.e., Cost Performance Baseline or Performance Measurement
Baseline or also referred as Budget at Completion (BAC). Make a note of this as this will
be useful in later sections when we discuss Earned Value Management.
Note: You can create your own custom views in the Entry View of Tracking Gant like the
one I have set above.

Costs can change a baseline, too. For example, what if you save a baseline that is set
to fit within a $100,000 budget and, before you start work, cost-cutting measures hit
your company and your budget is cut to $75,000? It is wiser to make the changes to
your resources and costs, and then reset your baseline before starting the project itself.

Setting interim baselines keeps your projects from varying wildly from your estimates
when mitigating circumstances come into play. When you're ready, you can use the Set
Baseline dialog box to save up to 11 baselines and 11 interim plans for your project.
Each baseline is a picture of your project at the time that you save it, and each baseline
that you set includes information about tasks, resources, and assignments. For tasks,
Project saves duration, start and finish dates, work, time phased work, cost, and time
phased cost. For resources, Project saves work, time phased work, cost, time phased
cost, budget work, time phased budget work, budget cost, and time phased budget cost
information with the baseline. For assignments, Project saves start and finish dates,
work, time phased work, costs, and time phased costs.

When you save interim plans, Project saves a set of task start and finish dates that you
can compare with another interim plan or with a baseline plan, thus helping you to keep
an eye on progress or slippage. Saving baselines and interim plans can help you
compare current information (found in the start and finish fields) with baseline
information (found in the baseline fields). The distinction between baselines and interim
plans in Project is the amount and type of information that Project saves.

PART IV- EARNED VALUE CONCEPTS

7) TRACKING

Tracking Gantt view helps to show actual progress vs. projections.

Before we actually start tracking and updating the actual of the project, let us relook at
the Earned Value Concepts.

EARNED VALUE CONCEPTS

Budget at Completion (BAC) = Performance Measurement Baseline = Cost

Performance Baseline = Project Budget (including Contingency reserves). This
excludes Management Reserve which is reserves for unplanned risks/changes. Project
Manager can spend the project Budget including the contingency reserve for planned
risks/delays. However for spending Management reserves he needs to take specific
prior approval from Senior Management.
Planned Value (PV) = Budgeted Cost of Work Scheduled = BCWS = PV/BAC

Earned Value (EV) = Budgeted Cost of Work Performed = BCWP = (% of work

complete) x BAC = EV/BAC

Actual Cost (AC) = Actual Cost of Work Performed = ACWP = AC/BAC

Schedule Variance = SV = EV – PV. If > 0, means Ahead of Schedule

Cost Variance = CV = EV – AC. If > 0, means Under Budget

Schedule Performance Index = SPI = EV/PV, If > 1, means Ahead of Schedule

Cost Performance Index = CPI = EV/AC, If > 1, means under budget

Estimate at Completion (EAC) = BAC/CPI = AC + (BAC-EV) = AC + (BAC-EV)/ (CPI x

SPI)

To complete Performance Index = TCPI initial = Work remaining/ funds remaining =

(BAC-EV)/ (BAC-AC). Higher value means tighter budget. This you can easily infer from
the formula itself.
TCPI (later) after revised EAC = Work remaining/ funds remaining = (BAC-EV)/ (EAC-
AC). Higher value means tighter budget

PART V- TRACKING

Now let us see how these concepts can be used in MS Project 2007.

You can record actual information for a project by filling in the following fields for each
task that tracks the progress of your project:
Actual start date

Actual finish date

Actual duration

Remaining duration

Percentage complete

Note: The fields mentioned above are one possible set of fields that you can use to
record actual information; there are other alternatives. For example, some people focus
on updating only Actual Work and Remaining Work.

OPTION I - Set Actual Start Date and Actual Duration (If Actual Start Date is not set,
MS Project will automatically take Actual Start Date as the Baseline Start Date)

This will automatically calculate the % complete, remaining duration, Actual Cost and
remaining cost till then for that task.
If you set an actual duration that is greater than the planned duration, Project assumes
that the task is finished but that it took longer than expected to complete. Project adjusts
the planned duration to match the actual duration and changes the Percent Complete
field to 100% and the Remaining Duration field to 0%.

As an example, if Actual Duration is filled say, 3d where as total duration is 4d. And say,
the work is completed before time. In that case, enter remaining days as zero. The task
will be automatically marked as 100% complete. The Actual Finish Date will be one day
before. Also, the actual cost involved only for 3 days will be added. Then, the project will
be ahead of schedule and under budget.

OR

OPTION II - Set Percent Complete

(If Actual Start Date is not set, MS Project will automatically take Actual Start Date as
the Baseline Start Date)

Setting the % complete will automatically calculate the Actual Duration, Remaining
duration, Actual Cost and remaining cost till then for that task.

If you set your options to update resources when you update tasks, Project also
calculates the Actual Cost and Actual Work values. If you enter 100 in the Percent
Complete column, Project assigns the planned finish date to the Actual Finish Date
column. If this value is not correct, don't enter a Percent Complete value; instead, enter
an Actual Finish Date.
OPTION III - Set Actual Work and Remaining Work

Sometimes, you must schedule tasks based on the availability of certain resources. In
these cases, tracking progress on a task is easiest if you update the Actual work
completed. Updating this value also updates the work that each resource is performing.
Use the Tracking Table view to enter information into the Act. Work (Actual Work)
column, but start in the Task Usage view so that you can enter actual work performed
for specific resources. Choose View -> Task Usage, right-click the Select All button, and
choose Tracking from the short-cut menu that appears. Then, update the Act. Work
column.

This also helps in putting the actual work done by the resource. For example, the Actual
duration might be 2 days but actual work completed might be ONLY 4 hrs. By making
this more explicit, you can set the remaining Actual Work to 12 hrs. So MS Project
knows that the project is running behind schedule and will increase the actual cost. We
will look at this kind of scenario and its affect on the EVM later.

PART VI – USING EARNED VALUE IN TRACKING

EARNED VALUE

Project can use the % complete method or the Physical % complete method to
calculate earned value. Unless you specify otherwise, Project uses the % complete
method. I have used % complete method here, i.e., using default setting of MS Project.

Whenever we update the actual, MS Project calculates the Actual Costs based on the
resources assigned to each task. If due to some reason, the cost involved is more than
the calculated MS Project cost, you can manually override it in the Actual Cost column.
This can be done by de-selecting the check box in Tools – Options – Calculation Tab.
Earned Value calculation can be viewed from the various default views provided in MS
Project.

The various views available in MS Project for viewing Earned Value Measurements are:

1) Earned Value

2) Earned Value Cost Indicators

3) Earned Value Schedule Indicators

PART VII – APPRECIATING EARNED VALUE

REPORTING

MS Project 2007 has a Visual Report feature to show a graphical trend of PV, EV and
AC, including Cumulative Actual Cost.

In fact, the visual reports can be exported to Excel or Visio. Excel reports have
associated Pivot charts. The default charts can be changed as per your convenience by
adding/removing any of the fields in pivot OR by modifying the trend lines, look and feel
of the charts.

You can show the actual progress made so far day wise, while the tasks yet to start can
be shown in a weekly scale and can be expanded as you actually reach there.

To appreciate the EVM better, I have discussed a couple of cases.

For this, let us look at the EVM values. Go to Tools -> Tracking -> Update Project.
Update work as complete through 6-Sep-10.

While tracking the project till 6-Sep-10, it seems to have started on an optimistic note.

Here, the task Secure Cost resources was completed prior to the completion date and
the next task conduct needs analysis also started earlier. Hence the Earned Value is
higher. Also, the Actual Cost is lower than the scheduled budget. So, the SV and CV
are greater than zero and SPI and CPI are greater than one.

Now let us see what happens after the project has progressed for one more week.

Though the task ‘Conduct needs Analysis’ started before the scheduled baseline start
date, it ended much later than the Actual Finish Date. The baseline duration was 3
days, but the task took 4 days (Actual Work = 24 hrs). However, the baseline Finish
Date was 8-Sep-10, and since the activity started a day before, so the Actual Finish
Date was 8-Sep-10. Phew! Saved !!
However, the succeeding task ‘Draft Preliminary software Specifications’ also took 3
days instead of the baseline 2 days. However, the tasks have been completed almost
well on schedule, because some of the previous tasks were completed prior to their
scheduled completion date.

Now, let us look at the EVM values. Go to Tools -> Tracking -> Update Project. Update
work as complete through 10-Sep-10.

Now, go to the ‘Earned Value’ view. The Scheduled Variance (SV) is greater than zero,
but the value has reduced compared to the last week. The Cost Variance (CV) has now
become negative.

This clearly shows that the project is ahead of schedule but over budget.

‘The Earned Value Cost indicator’ view further reconfirms this. The overall TCPI has
gone up to 1.01 (i.e., greater than 1). But this is not a huge deviation and the project can
be brought under control reasonably with less efforts.

‘The Earned Value Schedule indicator’ view reconfirms the progress related to
Schedule. Though the SV is greater than zero, the progress has been relatively less as
compared to last week.

To re-plot the S – Curve showing Planned Value, Earned Value, Actual Cost and
Cumulative Cost based on Actual Cost, go to Reports -> Visual Reports.
Redraw the pivots as per your convenience. I have pivoted the PV, EV, AC and
Cumulative Cost against the dates, where the 1st 12 days of the project has been
plotted against each day while the rest has been calculated against weeks.

The chart changes as you keep making changes to the pivot table to reflect the latest
view of the pivot table. You can change the appearance of the chart to present it the
way you want e.g., you can change the thickness and the presentation of the data
points in the chart.

To show the PV, EV and AC more clearly, I have recreated the charts after excluding
the Cumulative Cost from the pivot table.
Analyze project performance with earned
value analysis
Earned value analysis is a method for measuring project performance. It indicates how much of
the budget should have been spent, in view of the amount of work done so far and the baseline
cost for the task, assignment, or resources.

Learn about earned value analysis

Three key values are at the root of earned value analysis:

 The budgeted cost of individual tasks as they are scheduled in the project plan, based on
the costs of the resources that are assigned to those tasks, plus any fixed costs that are
associated with the tasks. This is the budgeted cost of work scheduled (BCWS). BCWS is
the baseline cost up to the status date that you choose. Budgeted cost values are stored in
the baseline fields, or, if you saved multiple baselines, in the Baseline1 through
Baseline10 fields.
 The actual cost that is required to complete all or some portion of the tasks, up to the
status date. This is the actual cost of work performed (ACWP). Normally, Microsoft
Office Project 2007 correlates the actual costs with the actual work.
  The value of the work that is performed by the status date, measured in currency. This is
literally the value earned by the work performed and is called the budgeted cost of work
performed (BCWP). This value is calculated for each individual task, but is analyzed at
an aggregate level (typically at the project level).

Earned value analysis is always specific to a status date that you choose. This can be the current
date or any date before the current date.

Top of Page

Calculate and review earned value

1. On the Tools menu, click Options, and then click the Calculation tab.
2. Click Earned Value.
3. In the Default task Earned Value method box, click the calculation method that you
want Office Project 2007 to use when it calculates the BCWP.

Note Changing this setting affects only the tasks that are added to the task list after the
setting is changed. It has no effect on the existing tasks. To change the earned value
method for the existing tasks, select the tasks whose earned value method you want to

change, click Task Information , and then click the Advanced tab. In the
Earned value method box, click the calculation method that you want.

4. In the Baseline for Earned Value calculations box, select the specific set of baseline
values that you want Office Project 2007 to use when it calculates the earned value totals,
and then click Close.
5. To see project and task-level earned value totals in tables, on the View menu, click More
Views.
6. In the Views list, click Task Sheet, and then click Apply.
7. On the View menu, point to Table, and then click More Tables.
8. In the Tables list, click Earned Value, Earned Value Cost Indicators, or Earned
Value Schedule Indicators, and then click Apply.

Note To see detailed information about each Earned Value field, point to the field
heading.

9. To see a breakdown of the earned value of tasks by period, so you can determine the
exact date that your project will run out of money, on the View menu, click Task Usage.
10. On the Format menu, click Detail Styles, and then click the Usage Details tab.
11. In the Available fields list, select the Earned Value fields that you want to display, click
Show, and then click OK.

Note

 Use the Earned Value Over Time report to view a chart that plots AC (actual cost of work
performed), planned value (budgeted cost of work scheduled), and earned value
(budgeted cost of work performed) over time. To generate this report, on the Report
menu, click Visual Reports. Click Earned Value Over Time and then click View.
 If you want to see the values in the Earned Value fields calculated up through and
including a date that you specify rather than the current date, click Project Information
on the Project menu. In the Status date box, type or select the date that you want Office
Project 2007 to use as a status date.