Steve,

If we just drop the term "EV", since it serves no real purpose and conveys zero or ambiguous meaning, and still do the analysis anyway, because we can and the numbers exist, and if "T" was substituted for "W", we would have (somewhat) meaningful variances and ratios which can tell us something about performance, but I am never sure what that is or how to get any practical use out of it. Of course, how meaningful it is, and what it tells us and how useful it is, is still subject to a lot of cautionary qualification.

Since I am inventing terminology, I’ll call "EV" "variances and ratios" or V&R.

We start with some perfectly innocent numbers that come directly from either the baseline plan or the invoices and timesheets ie, readily obtainable and unambiguous facts, but by the time the arithmetic is done and the conclusions and deductions are made, about cause and effect etc, we are back in the fog.

Everything that people take to be implied by the variances and the ratios, mainly about whether we are working (ie achieving Tasks) too fast or too slow, or spending money too fast or too slow, is usually a very long stretch, a very tenuous connection between the start of the analysis and where it leads to.

We may as well sacrifice a chicken and read the entrails.

It doesn’t give any idea about what to do about fixing the situation. SPI=X, CPI=Y. So what? Do what?

It doesn’t measure directly how good the planning or the plan was in the first place or or well we are working to it and meeting its goals.

It might be more useful to observe trends of SPI and CPI, but the results are always very late hindsight.

Defence departments like to say that they have the research to show that the "V&R" numbers that surface early in the project pretty much point to the final outcomes. SPI and CPI go to something between 0.8 and 1.2 real early and don’t change much, so it does have some predictive value.

It all gets more ambiguous/less meaningful later in the project, especially as SPI starts to equal 1 near the end of the project no matter how late or over-budget the project is. There is a movement now towards "Earned Schedule" as a response to this. Great idea, but isn’t it a bit like moving on to make another mess before cleaning up the one you already have?

V&R don’t say anything helpful about the critical path or the relative priority or "value" of the Tasks.

So called "value" can be so-called "earned" by doing the wrong Tasks. EV, as we know it, seems to reward poor planning and execution.

Each Task has its own individual V&R position but most people just aglomerate them all into the overall numbers. How anyone expects that you can boil down all of the complexities in any typical project to a handful of numbers which still mean something is beyond me.

But we know that in board rooms and progress meetings right now people are throwing up powerpoint slides with these numbers on them, and other people are deriving gawd-knows-what from them.

Surely, the "value" of the project for the owner/client is in the eventual "ROI". As (I think) you say in your book, ROI can be maximised or eroded by delivery on time or otherwise.

If we have a fixed price contract to build an orange juice factory for, say, price=$10M and cost=$8M, the owner/client will make that $10M back over a period of, say, 10 years, from the sale of orange juice after the factory is in business. His bank wouldn’t lend him $10M if there was not apparently a market for orange juice for 10 years.

But for the contractor, his cash flow and profit position are determined by his planning, execution, progress and performance over the, say, 12 month period of the construction project.

3 months late and/or $1M over-budget hurts both of them? Or which part hurts who the most? Who should be concerned over which aspect?

There is another recent thread in PP Forums with complaint about MSP and how and why it doesn’t do "EV" in hours etc.
As if it wasn’t ambiguous enough already.

Stephen,
EV may be applied not only to cost but also to some other activity parameters (materials, workload, anything). You can define some artificial Value parameter. And we can suppose that Earned Value and Planned Value is applied to this Value parameter. What I don’t understand - why AC and not Actual Value? [joke]

Hemanth Kumar, your succinct definitions are almost very accurate, but let’s distinguish the cost of the project to the contractor from whatever he might get from the client.
All EV numbers are about cost, not price.
They are primarily useful to the contractor but may never be seen by the client.

The system of price and progress payments may be based on cost, but not necessarily.

In a fixed price contract where the contractor takes on the risk, there should, theoretically, be no automatic right of the client to know what the contractor’s costs are, so no automatic access to the EV numbers.

As well as taking on the risk of bad luck or bad management, a contractor should be able to have the benefit of any good luck or good management which saves costs, and not have to pass them on to the client.

Where EV numbers are to be made available to the client, and quite often the client mandates EV reporting, and where price and progress payments are based EV, then this implies some sort of transparent "cost-re-imbursable" or "cost plus" contract, which is quite rare.

The EV vocabulary is rather awkward. I have always thought that it would be better if the EV numbers were expressed in Tasks rather than "work":

ACTP = Actual Cost of Tasks Performed
BCTS - Budgeted Cost of Tasks Scheduled
BCTP - Budgeted Cost of Tasks Performed

Perhaps there could be some new numbers such as:

APTS - agreed price for Tasks scheduled
APTP - agreed price for Tasks performed

Dear Moutaz

Yes, setting BCWP to 0 is a conservative method of reporting progress and will give a slightly worse picture of progress than has been achieved. Many "bosses" prefer this to balance the positive view of progress held by many project managers.

If the activities in the project plan are of a reasonably short duration then the "error" introduced by using this earned value method is small.

Less conservative earned value methods include setting BCWP to 100% of budget upon starting an activity and the judgemental method, wehre the project manager determines the percentage of budget earned for an activity. I think the only people who use such methods as those who are either trying to disguise the fact they are behind schedule or who are getting paid for work on uncompleted activities.

Probably the most accurate earned value method to use is where the physical progress can be measured. For example, the BCWP for an activity to install 100 light fittings would be set to 33% of budget if 33 of the fittings had been installed at the time of the report.

But even this approach is not always easy to apply,
take an activity to cut 2,000 cubic metres of earth. After having cut 1,000 cubic metres are we sure we’ve completed 50% of the work? What happens if the first 1,000 cubic metres is loose soil and the second 1,000 very compacted?

Also, it takes a lot of work to collect progress data at this level so most people compromise on one of the not-started/started/completed formula such as 0%/25%/100%.

There are a number of different "policies" for calculating BCWP. A typical and conservative method is:

1. Activities not completed: BCWP = 0
2. Activities completed: BCWP = 100% of Budgeted Costs

Another common not quite so conservative method is

1. Activities not started: BCWP = 0
2. Activities in progress: BCWP = 50% of Budget
3. Activities completed: BCWP = 100% of Budget

You may want to check the options that are set for calculating BCWP on the project sample.

Hi Dear This Is It

BCWS : What The Contractor Should Have Received From The Client On This Day If Everything Went As Per Plan !!!
BCWP : What The Contractor Will Get For The Works Performed Till Date (EV)
ACWP : What The Contractor Spent So Far
Hemant