EARNED VALUE (EV) TECHNIQUE

Introduction• The Malaysians Auditor General 2008 report suggests thecost overruns significantly affect the viability of constructionprojects in Malaysia.• The clients and the contractors suffer great financial loss

and it causes disputes which turn down the overall projectprogress.

• For example, the audit report revealed that delay in projectcompletion of Electrified Double Track Project betweenRawang and Ipoh resulted in a cost overrun of RM 1.43billion [1].

• A delay in carrying out the project activities causesdeviation from the approved time and cost baselines.

Electrified Double Tracking Rawang–Ipoh and Sentul–Batu Caves

• The project was built by UEM Edgenta

Project Brief

• 180-kilometre railway line between Rawangand Ipoh, which will facilitate plans for anextension of KTMB’s commuter services upto Tanjung Malim; and the 7.5 kilometrerailway line between Sentul and Batu Caves.

• The traditional method of project cost monitoringis based on simple parameters using two datasources that is the budget (or planned) spendingand the actual spending.

• The comparison of budget versus actual spendingmerely tells what was planned to be spent versuswhat was actually spent at any given time.

• Besides, it does not relate any currentperformance trend to forecast futureperformance.

Project Cost Monitoring

1) S-Curve• The basic element in EV technique• S-Curve examine the progress of the project and

forecast expenditure• During the budgeting process, all these costs are sum

up to develop a cost baseline.• A cost baseline is defined as a cumulative time-phased

budget that will be used to measure and monitor thecurrent and future project cost performance.

• It is graphically represented in the form of S-curve andit is an important cost monitoring tool.

2) Earned Value Analysis• As a tool facilitating project progress control

which integrates cost, schedule and technical performance.

• It is used for determining a project’s status (is it behind or ahead of schedule? is it over or under budget?) and the scale of current variances from the plan.

• It allows a project manager to make inferences on the final effect of the project in terms of cost or duration.

Terms1. BCWS (Budgeted Cost of Works Scheduled)

– the baseline for the analysis, cumulated planned costs related to time of their incurrence;

- The value of work done that should have been done at a given point in time.

2. BCWP (Budgeted Cost of Work Performed )

– a measure of physical progress of works expressed by cumulated planned cost of works actually done related to time, it is also called Earned Value (like the method it is used by);

- The value of the work done at a point in time.

3. ACWP (Actual Cost of Work Performed)

– cumulated amount payable for works done related to time;

- The actual cost of the work done

4. BAC (Budget at Completion)

– total planned cost of the whole project, it equals BCWS at the planned finish;

5. T – planned duration of the project.

6. EVA (Earned Value Analysis)

- Compares the value of work done with the value of work that should

7. Schedule Variance (SV)- The value of the work done minus the value of the

work that should be done= (BCWP-BCWS)- A negative number implies that work is

BEHIND SCHEDULE

8. Cost Variance (CV)- The budgeted cost of the work done to date minus

the actual cost of the work done to date= (BCWP- ACWP)- A negative number implies a current

BUDGET OVERRUN

9. Cost Performance Index (CPI)

- Compares the planned and actual value of works done

- If value less than 1, it indicates that the project has consumed MORE MONEY than PLAN,

- If greater than 1, there have been SAVINGS

CPI = BCWP / ACWP

10. Schedule Performance Index (SPI)

- Compares the planned cost of works done with planned cost of works planned

- If less than 1, it indicates a DELAY

SPI = BCWP/BCWS

Work Example

• A project has an original budget of RM 600,000 and after the first 4 months of a 12 months planned project time, the schedule costs, actual costs and earned values are as follows

M1 M2 M3 M4

Schedule Cost

32,000 60,000 150,000 240,000

Actual Cost 35,000 70,000 160,000 250,000

Earned Value (BCWP)

30,000 50,000 140,000 230,000

Questions

1) Draw the three curves, Schedule, Actual and Earned Value2) Calculate the Cost Variance for month 43) Calculate the Schedule Variance for month 44) Calculate the CPI for month 45) Calculate the SPI for month 46) Justify on the project status based

SolutionsAnswer 1

2. Cost variance for M4

= EV- Actual

= 230,000 – 250,000

= - 20,000

3. Schedule variance for M4

= EV- Schedule

= 230,000 – 240,000

= -10,000

4. Cost Performance Index (CPI) for M4

= EV/ Actual

= 230,000/ 250,000

= 0.92

5. Schedule Performance Index (SPI) for M4

= EV/Schedule

= 230,000/ 240,000

= 0.96

6. Project Status- Cost and time- In term of cost , CPI if greater than 1, there have

been SAVINGS . However the value obtained < than 1 (0.92) – COST OVERRUN

- In term of time, SPI if less than 1, it indicates a DELAY. However the value obtained < than 1 (0.96) - DELAY