Here, we take a brief overview on Key Indices measuring Project Performance such as :
1) Earned Value
2) Percent Complete
3) BCWS (Budgeted Cost of Work Scheduled)
4) BCWP (Budgeted Cost of Work Performed)
5) ACWP (Actual Cost of Work Performed)
6) SV (Schedule Performance)
7) SPI (Schedule Performance Index)
8) CV (Cost Variance)
9) CPI (Cost Performance Index)
Before we explaining above indices, let us understand the fundamentals of Progress Measurement/Earned Value Analysis. When overall percent complete for a combination of unlike work tasks or for an entire project must be determined, an essential technique called the "earned value system" is used. (The terms "acheived value", "accomplished value", "Physical quanitity measurement" can also be used).
A project budget is expressed in both workhours and dollars, and earned value is keyed to the project budget. Most projects are constrianed by fixed budgets; others having floating, or variable, budgets. Earned value techniques can be applied in both situations, although difference exist in detail of application.
Earned Value Management :
Earned Value is a technique that clearly shows whether you're getting Value For Money. It is a major component of Best Practice in Project Management. It is mandated in USA and Australia and is being used more and more in the United Kingdom. The technique essentially identifies the value of the useful work done at any given point in time, in all areas and at all levels within the project. By comparison with the original plan, Earned Value can be used to identify other parameters such as time to completion, cost to completion and expected final costs. It also enables project managers to identify those areas of the project that are proceeding well, those that are in trouble and enables percentage progress and performance indices to be calculated.
Earned Value can be used in almost any project situation and in almost any project environment. It may be used on large projects, medium sized projects, tiny projects (in cut-down form), complex and simple projects and in any market sector. Some people, of course, know all about earned value, they have used it for years - but perhaps not as effectively as they could have?
Good project management will produce good Earned Value Data. Poor project management will produce poor Earned Value Data. Skillful interpretation and application of Earned Value information will make a major contribution towards ensuring project success.
What does Earned Value do for you?
It provides simple but powerful answers to many questions such as:
* How much is it really costing us to earn each unit of forecast value?
* How much is going to cost by the finish?
* When is it going to finish?
* Where are we now? Exactly!
* Where are our problem areas?
* How does this compare with other projects?
It will not however guarantee a successful project. Only people can do that.
A specific glossary for Earned Value Management can be viewed by clicking here.
The Problems Associated with Earned Value
Historically, Earned Value was developed for and used on massive projects, particularly in Defense. This has created the perception that it is hugely complicated. Common criticisms are that it is only good for large defense projects, far too complicated for us, far too costly for us. A common problem with small or non- project oriented organizations is that they do not have internal mechanisms that can collect effort and costs to individual projects or parts of projects. Other problems may be associated with the culture of the organization - not used to reporting meaningful progress information.
A WBS (Work Breakdown Structure) is developed which includes all work tasks to be used in determining project progress. Each task has got a $ value and workhour budget. A project cost breakdown structure (CBS) is created by adding to the WBS all other project accounts that have either a cost or cost administration. In other words, WBS is incorporated within the CBS.
Under an Earned Value system, a direct relationship is established between percent complete of an account and the budget for that account. The relationship is expressed by the following formula :
Earned Value = (Percent Complete) x (Budget for that account)
As can be seen from this equation, a portion of the budgeted amount is earned as a task is completed, up to the total amount in that account. One cannot earn more than has been budgeted. Since progress values in all accounts can be reduced to $ adn earned workhours, earned value provided a way to summarize multiple accounts and to calculate overall progress. The formula for doing this is :
Percent Complete = (Earned workhours or $ all accounts)/(Budgeted workhours or $ all accounts)
Cost & Schedule Performance Versus Plan
The earned value system defines these terms as follows:
- Budgeted workhours or $-to-date represent what is planned to be done. This is called as Budgeted Cost for Work Scheduled (BCWS)
- Earned Workhours or $-to-date represent what was done. This is called as Budgeted Cost for Work Performed (BCWP)
- Actual workhours or $-to-date represent what was paid for. This is called Actual Cost of Work Performed (ACWP)
Scheduled Performance is a comparision of what was planned to what was done. In other words, workhours were budgeted and earned. If the budgeted workhours are less than the earned workhours, more was done than planned, and the project is ahead of schedule. The reverse would place the project behind schedule.
Performance against budget is measured by comparing what was done to what was paid for. To do this, earned workhours are compared to actual workhours. If more was paid for than was done, the project is over budget.
The following relationships can be expressed as formulas:
- Schedule Variance (SV) = (Earned workhours or $'s)/(Budgeted workhours or $'s); Or BCWP - BCWS
- Schedule Performance Index (SPI) = (Earned workhours or $-to-date)/(Budgeted workhours or $-to-date); or BCWP/BCWS
- Cost Variance (CV) = (Earned workhours or $)/(actual workhours or $); or BCWP-ACWP
- Cost Performance Index (CPI) = (Earned workhours or $-to-date)/(Actual workhours or $-to-date); or BCWP/ACWP
A positive variance and an index of 1.0 or greater denotes favourable performance.