Question 3 This question relates to Earned Value Analysis (EVA) (a) What is earn

Question

Question 3 This question relates to Earned Value Analysis (EVA) (a) What is earned value analysis as it relates to major projects? Use the diagram at Figure 3.1 to guide your answer (do not just translate the acronyms!) Planned completion Time now Forecast cost overrun EAC : Forecast cost of project BAC Original estimate of project budget BCWS Cost variance Schedule variance (cost) ACWP Forecast : project time slip Schedule variance (time) OD ATE PTPT Time Figure 3.1 [5 marks] (b)Assume that we are halfway through a year-long project that has a total budget oif £100,000. The amount budgeted through this 6-month mark is £55,000. The Actual Cost through this 6-month mark is £45,000, complete the following information Planned Value (PV)-i£ Actual Cost (AC)-£ Earned Value (EV) = £ Schedule Variance (SV) =

Explanation / Answer

(a) Earned Value Analysis refers to economic analysis of the progress of the project in terms of schedule and budget. It helps the project manager know how the project is progressing against the schedule, i.e. whether it is o schedule, behind or ahead of schedule. Schedule Variance (SV) and Schedule Performance Index (SPI) are the parameters used to assess project progress against schedule.

The budget part of the Earned Value Analysis tells whether the project is on budget, under budget or over budget. Cost Variance (CV) and Cost Performance Index (CPI) parameters are used to assess project progress against budget.

(b)

Planned Value (PV) or BCWS = 100000*0.5 = 50,000

Actual Cost (AC) or ACWP = 45,000

Earned Value (EV) or BCWP = 55,000

Schedule Variance (SV) = EV - PV = 55000 - 50000 = 5,000

Cost Variance (CV) = EV - AC = 55000 - 45000 = 10,000

Cost Performance Index (CPI) = EV/AC = 55000/45000 = 1.22

Budget At Completion, BAC = 100,000

Estimate At Completion (EAC) = AC + (BAC-EV)/CPI = 45000 + (100000 - 55000)/1.22 = 81,885

(c) SV is positive, which indicates that the project is ahead of schedule. CV is also positive, which means that the project is under budget.

(d) Major pitfalls of EVA are that it assesses the project and forecasts the future performance based on historical performance. It may not always be the correct method of forecasting the future performance. Many factors which were not present in past, may present in future and affect the performance of the project.

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