There are many tools and techniques exist in project management to improve the project planning and monitoring capabilities. Earned Value Management EVM techniqe is one of the most widely used one across all industries. Earned Value Management EVM is a project management technique used for measuring project performance and progress by combining cost and schedule measurements. Planned Value, Actual Cost and Earned Value are essential measurements of this system. Primavera P6 Earned Value Management EVM feature enables to make earned value calculations to analyze the schedule and cost performance of a project. In this article we will review the Earned Value calculations of Primavera P6 by using a sample project.
Earned Value Management EVM
Project managers and stakeholders usually ask these famous questions.
- Are we behind or ahead of schedule ?
- Are we over or under budget ?
Are the planned and actual figures enough to indicate cost and schedule performance ?. Making simple planned and actual value calculations does not give proper answers to the questions. Budgeted cost of worked performed” or BCWP is needed to recognize how well the project is performing relative to its original plans.
Simply put, Earned value management is a project control system based on planning, cost control and performance measurement practices.
Basically, this techniqe uses three key metrics: planned value, actual cost, and the Earned Value (EV). Below figure illustrates the key metrics of Earned Value.
“Planned Value (PV) ” is known as cost for the work scheduled (BCWS), “Actual Cost (AC)” is the actual cost of the accomplished work. “Earned Value (EV)” is the percent of the total budget completed at a specific point in a given time.
For better understanding, let’s analyze the sample below.
In a lighting pole project, total scope of work comprises erection of 100 lighting pole. As of today 40 of them are erected. So the progress of work is 40/100 = 40% complete. If the total budgeted cost of this work is $5 M, the Earned Value (EV) is $5 M x 0,4 = $ 2 M.
Primavera P6 Earned Value Management EVM
In this article, we will analyze the Primavera P6 Earned Value Management EVM feature by using a sample work schedule. Below figure (Figure 1) displays a pipeline schedule and the baseline.
In this schedule, Welding and NDT activities are listed under Pipeline Schedule WBS. Each welding activity represents 5000 joints in 50 km. In the same way each NDT (Non Destructive Testing) activity represents 5000 joints in 50 km. Welding of each joint has a fixed cost of $100 and NDT of each joint has a fixed cost of $30. We assigned non- labour resources to represent the total cost of each activity as shown in the Figure 2.
Now we will add below columns to review the Primavera P6 Earned Value Management EVM calculations as shown in the Figure 3.
We will update the start and finish date of activity A 1000. Let’s assume that the actual start date is 15-Apr-18 and the actual finish date is 30-Aug-18 , Figure 4.
The actual cost of this activity is $600,000.00. So there is a $100,000.00 cost overrun, Figure 5.
Now we will move the data date to 1-Sep-18 and click the schedule button, Figure 6.
As it is seen from the Figure 7, Earned Value Management EVM Calculations columns are filled after the update.
Primavera P6 Earned Value Management EVM Calculations
Primavera P6 performed the following earned value calculations for our sample project. Note that the planned value indicates the planned cost between 6-Apr-18 and 01-Sep-18.
Schedule Variance: (Earned Value – Planned Value) = $-248,888.89 Behind the schedule
Cost Variance: (Earned Value – Actual Cost) = $-100,000.00 Over Budget.
Schedule Performance Index : Earned Value / Planned Value = $ 500,000.00 / 748,888.89 = 0.67
Cost Performance Index : Earned Value / Actual Cost = $ 500,000.00 / 600,000.00 = 0.833
Performance measurement is the process of analyzing the productivity of a project at a specific point. Therefore it should be made periodically to recognize how well the project is going. Without having a proper performance measurement system in place, it will be difficult for a project manager to make decisions. In this article, we demonstrated the basics of Earned Value Management EVM and showed how to perform Earned Value calculations in Primavera P6. Planned Value, Actual Cost and Earned Value are the basic calculations of the earned value management. Schedule Variances and Cost Variances are effective tools for measuring projects cost and schedule performance. In order to perform effective Earned Value Management, WBS (Work Breakdown Structure) of the project should be well organized. Activity relationships should represent real project execution methods and resources which are allocated to the activities should represent the nature of work. A well organized project schedule is key to analyze cost and schedule performance variances.