Question

What is earned value management? What are the four main earned value management forecasting formulas? Please describe them with equations

Please give answer in more than 200 words and prefer to paste from word or excel or type as plain text.

Answer 1

• Earned value management is a  project management technique for measuring project performance and progress in an objective manner. Earned Value Management (EVM) helps project managers to measure project performance. It is a systematic project management process used to find variances in projects based on the comparison of worked performed and work planned.
• EVM is used on the cost and schedule control and can be very useful in project forecasting. The project baseline is an essential component of EVM and serves as a reference point for all EVM related activities. EVM provides quantitative data for project decision making.
• Earned Value Management contains four calculations are as below.

1. Estimate to Complete (ETC)
2. Estimate at Completion (EAC)
3. Variance at Completion (VAC)
4. To Complete Performance Index (TCPI)

Estimate to Complete (ETC)

• ETC represents the expected cost required to complete the project. It measures only the future budget needed to complete the project, not the entire budget. It allows the project manager to compare the funding needs to finish the project with funding available. There are two ways to calculate ETC.

1) Based on past project performance:

ETC = (BAC – EV) / CPI

Since each of the input variables (right side of the equation) has been determined prior to this step, the ETC can be calculated either for each task or directly for the whole project.

2) Based on a new estimate

This is called a management etc. This means that a new estimate of the remaining tasks in the project is performed.

Estimate at Completion (EAC)

It can be calculated on a task by task basis or once for the entire project.

1)Future performance will be based on the budgeted cost

This method does not assume the project finishes on budget. Rather it takes into account the one time event and adjusts the whole project plan upward or downward to estimate the final result.

EAC = AC + (BAC – EV)

2)Future cost performance will be based on past cost performance
If you think the past performance is not unusual and the past performance is a good indicator of the future, you would use this formula.

EAC = AC + [(BAC – EV) / CPI]

3)Future cost performance will be influenced by past schedule performance

Since schedule and cost performance are usually related, there could be a reason to adjust the cost performance based on the schedule performance. In the following formula an average of the CPI and SPI are used to extrapolate the final project cost.

EAC = AC + [(BAC -EV) / (CPI x SPI)]

4)A new estimate is produced
In this case a Management ETC can be added to the to-date cost (AC) to determine the final EAC.

EAC = AC + ETC

Variance at Completion (VAC)

The VAC is a forecast of what the variance, specifically the Cost Variance (CV), will be upon the completion of the project.

In many situations the project manager must request additional funding as early as possible, or at least report the potential for an overrun. The VAC represents the size of this request.

The formula is:

VAC = BAC – EAC
= Old Budget – New Budget

To Complete Performance Index (TCPI)

The TCPI represents the efficiency level, specifically the CPI, that will make the project finish on time. It can be a powerful indicator because it is generally easy to ascertain.There are two ways to calculate the TCPI.

1. To achieve the original budget
   If the goal is to achieve the original project budget, that is, the overrun or underrun has not resulted in a change to the project schedule and/or budget, the following formula applies:

   TCPI = (BAC – EV) / (BAC – AC)

2. To achieve the EAC
   If the goal is to achieve the project’s EAC, that is, a change has been made to the project and the EAC is the new project budget, use this formula. If additional funds covering the cost overrun have been requested and approved by the project sponsor, the EAC becomes the target of the project, and this scenario applies.

   TCPI = (BAC – EV) / (EAC – AC)