Earned Value Analysis video is a tutorial on how to understand the earned value calculations in the PMP exam. Learn by demonstration how to calculate CPI, SPI, CV, SV, EAC, ETC, VAC and more.
Hello and welcome to my video on earned value in this video I’m going to show you how to work out the formulas for n value so that you can be ready for your project management professional exam I’m going to use an example of a construction project and here I want you to imagine that you’re the project manager for the construction of 20 miles of sidewalk and according to your plan the cost of construction will be $15,000 per mile and it’s going to take 8 weeks to complete so the whole duration is 8 weeks the scope of the work is 20 miles and the cost is going to be $15,000 per mile all right 2 weeks into the project you have spent $55,000 and completed form as a sidewalk and you want a report performance and determine how much time it costs remain alright so the first thing we need to do is figure out how much this project should have cost right and that’s called the budgeted at completion the budgeted at completion is how much this project is budgeted for by the time it’s completed meaning the budget for the project so since this was 20 miles right 20 miles times $15,000 per mile and that’s gonna give you $300,000 as a total budget next thing we need to solve is the plant value the plant value is also known as the budgeted cost of work scheduled this is what you have scheduled or this is what you you think you should have completed by now now we are two weeks into this project therefore two weeks out of eight weeks project you should have done a quarter of the work all right now there’s more than one way to do this but you know I would just figure if in 8 weeks we have to do 20 miles then in 4 weeks we would have to do so I’m just going to put 20 here this is 8 weeks all right then 10 ten months should have been done in four weeks and then five months should have been done in two weeks right I’m just splitting it so essentially I should have done five miles in two weeks all right so let me just erase these five months in two weeks let me do the math five miles is my plant value and the cost of five months because it is fifteen thousand dollars per mile it’s gonna come to seventy-five thousand dollars so what we’re saying here is that in two weeks I should have done five miles which is worth $75,000 now let’s look at the reality which is earned value how much have we actually done this is the budgeted cost of work actually performed BC WP we’ve done form as a sidewalk and the four miles that we’ve done are worth how much they’re worth $15,000 each right and therefore the former’s are worth 60,000 so we have done 60,000 worth of work and that is considered the earned value now let’s go back to solving this actual cost as you recall we’ve spent $55,000 so that’s a given all right that’s the actual cost now we do the formulas all right cost variance how much are we varying from the original plan to to solve the cost variance you solve it by doing this its current value minus actual cost okay the Earned value is the value of the work budgeted work that you actually completed in this instance we’ve completed sixty thousand worth of work and our actual cost is fifty five which is really good and we end up with a positive five thousand dollars extra right so that’s the extra so our cost variance is actually positive all right now next thing that you want to solve is the cost performance index the cost perform index is the same thing as the cost variance all right so here’s the trick this is something you want to remember it’s the same thing as the cost variance but because variance is a difference between two things and index is a ratio instead of subtracting we divide so it’s the same formula that you see here yeah the same formula that you’re seeing here right but instead of subtracting what we’re going to do is we’re going to divide all right so I’m going to do our end value divided by actual cost and that would be 60 divided by 55 and that will give me one point zero nine and what that tells you is that for every dollar that you are budgeted on this project you’re actually again a dollar and nine cents in value and if you look at the way if you look at the formula it says that I got sixty thousand dollars worth of value by spending fifty five dollars of the money and that means I got a dollar and nine cents in value for every dollar I had planned to spend or basically I accomplished a dollar and nine cents of value of work with every dollar that I invested into this one project so we’re actually doing really well for money all right so this is a similarity that you want to remember between cost variance and cost performance index all right the cost variance is it is the difference between two and so you subtract the cost performance index is the ratio so you divide alright that’s the key difference here between the two they have exactly the same items they both have the earned value and they both have the actual cost all right so now what you want to think every time you hear variants it’s something you have to subtract and every time you hear index that means divided they all start with earned value these four formulas so cost variance cost performance index schedule variance schedule performance index they all start with earned value okay so this one also starts with earned value the one that has to do what cost cost variance and cost performance index these here they finish up with actual costs okay so they have actual cost they’re the ones that have to do with planning which is schedule variance they will have the planned value so schedule variance and scheduled performance index they end up with planned value variance is minus index is divided alright so for schedule variance our earned value what we actually did here is 60 what we had planned to have done is 75 if you recall from earlier so we are behind fifteen fifteen thousand this is $15,000 worth of work and that’s the equivalent of that one mile that were behind remember in two weeks we should have done five miles because the whole project is eight weeks 420 miles four weeks would be ten miles two weeks would be five miles and but instead of doing five months we did four miles so we’re actually behind one mile and that’s the equivalent of T $15,000 that is showing here all right for the scheduled performance index it is earned value by planned value which is this and the rent value here is sixty divided by 75 and that’s gonna give you zero point eight essentially telling you that you’re running at eighty percent speed alright and that makes sense because we’ve done forma instead of five months and that’s 80% of the speed all right let’s roll this up a little bit and then solve the rest of the formula we have estimated completion you gotta remember all the numbers that we’ve done so far all right estimated completion this is a forecast essentially EAC is a forecast of how much you think this project is going to cost mind you this project was budgeted at three hundred thousand right now our cost performance index is one point zero nine it’s actually good we are getting a dollar and nine cents worth of value for every dollar that we had estimated all right or that we are budgeted for this one project and for you to solve the estimated completion what you have to do is take the original budget three hundred thousand three hundred thousand dollars we divided by the current CPI which is one point zero nine and we get we get our around two hundred and seventy five thousand dollars so you can do this on a calculator you get roughly two hundred seventy five thousand dollars now this is the forecast that you’ll give management so you say instead of three hundred thousand dollars we are now looking to spend only two hundred seventy five thousand dollars imagine if your CPI was two what would happen if your right to here if that’s your CPI then your estimate at completion right will be three hundred divided by two and it’ll give you a hundred fifty thousand and that would make sense if for the four miles you spent instead of spending sixty thousand you spent thirty thousand that means you’re spending half the money and you’re getting the job done so basically a three hundred thousand dollar job would finish at one hundred and fifty thousand dollars all right so this is why you put the CPI in the bottom this is why needs to be in the bottom now if all we’re gonna spend is $275,000 then how much more money do we need for this one project you do the math the estimate to complete which is this one here says that we are now four casting 275,000 we have spent $55,000 already so we’re looking to spend another two hundred and twenty thousand dollars that’s the remaining money we need to finish the project and based on this one forecast of $275,000 our variance at completion of the project is going to be three hundred thousand the original budget – the two hundred and seventy-five thousand that we’re now forecasting and that’s gonna give us roughly a 25 thousand dollar variance and that’s how much more money would be left at the end hope it’s making sense up to this point there’s one more thing we need to complete here which is the to complete performance index alright to complete performance index this is a bit complicated and what the to complete performance index talks about is what kind of cost performance index we need for the remainder of the project for us to be able to meet a certain number so you see here I have two examples the first one here would be the tcpi based on the budget at completion the original budget at completion is 300 thousand all right if all if there is no intention to save money and if the if management just wants me to finish the project at three hundred thousand dollars that’s going to leave me with how much money so and that’s how much more work do I have left remember tcpi is trying to figure out what should be your CPI for the remainder of the projects is it to complete performance index alright to complete essentially is to complete cost performance index and to solve cost performance index you actually have to solve earned value by actual cost and since we’re trying to solve the to complete means it means we you need to figure out they took the to complete earned value the original budget or the original amount of work is three hundred thousand and the earned value so far is 60 that’s how much we’ve completed the four miles and so the remaining earned value in this instance is 240,000 now we have to look at the actual cost that we can spend for the rest of the project if management’s willing to let us spend the whole three hundred thousand that they had budgeted then the and we have already spent fifty five then the remaining money is two hundred and forty five thousand right and so when you divide these you’ll get something like 0.99 or something like that all right that means you can underperform going forward because you know on your CPI which is earned value of actual cost why because management is okay for you to spend two three hundred thousand and that’s why we were saying this was tcpi based on the BAC on the budget at completion now there’s another scenario where the CCP I would be based on let’s say the estimated completion remember we had estimated two management that we would finish the project for two hundred seventy five thousand right in this instance if all the money we’re going to spend is two hundred seventy five thousand then that number changes in the bottom and it says the actual cost for all the work going forward can only be the estimate which is 275 minus 255 we already spent but the actual work which is the earned value does not change right we still out three thousand worth of work we’ve done 60 out of it we still have 240 left but the money remaining here because they only want us to spend the estimated amount which is 275 275 minus minus 55 is gonna give me instead of 245 will give me to 20 right and so when you divide 240 by 220 you get one point zero nine funny enough that it came to one point zero nine why is it one point zero nine well because the estimated completion was actually based on the CPI of 1 point zero nine so essentially if you want to finish the project at the estimated month of 275 then continue with the current CPI of 1.09 does that make sense well that brings us to the very end of earned value hope this was off value to you hopefully you earned some value out of this if you have any questions put the questions in the comments below if you like the video please please give me a thumbs up and if you think others would benefit from it share with them if you’d like to have a template a cheat sheet that shows you all of what we’ve covered above all of these things in a nice fashion I am going to show you a link right now just follow this link to download this one template down and/or the cheat sheet to download it down and this will go nicely with this video and that’s all for now and if you haven’t 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