This document discusses best practices for managing earned value in project schedules. It begins by defining key earned value metrics like planned value, actual cost, and earned value. It then discusses how earned value measurements can be leveraged throughout a project to analyze metrics and assess cost risk. Challenges in analyzing earned value are also covered. The document concludes by outlining steps to use Microsoft Project to effectively track earned value, including loading resources, creating baselines, updating progress, and revising baselines when needed.

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Best Practices of Managing Earned
Value in Project Schedule
Senthil Kumar Ramachandran PMP
Director – Engineering
Aricent Technologies
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Contents
1 Abstract..............................................................................................................................4
2 Structure of this paper........................................................................................................5
3 Introduction........................................................................................................................5
4 Leverage earned value measurement and analysis.............................................................6
5 Challenges in analysing earned value ...............................................................................9
6 How to use Microsoft Project to track earned value?......................................................10
1.1.1 Resource loading and associate billing cost............................................................12
1.1.2 Baseline plan in alignment with project schedule, efforts and costs.......................12
1.1.3 Update progress of tasks, actual start and actual finish dates.................................12
1.1.4 Revision of baselines...............................................................................................12
7 Conclusion........................................................................................................................15
8 References........................................................................................................................15
9 Author’s Profile................................................................................................................16
............................................................................................................................................16
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1 Abstract
In IT industry till recent times, the organization process guidelines encourage
individual project managers to frequently perform measurement and analysis of
efforts/schedule variance and defect rate against the total volume of the delivery.
But the individual project cost against revenues is not consistently analysed even
though the revenue verses cost performance analysis performed at the program
level (for group of projects) by key stakeholders above project managers. But the
well-proven earned value management technique should be practiced at projects
level, if required, at sub-project or task level. Definitely it would enable the project
manager to take adequate proactive steps for project success.
Though the project managers appreciate the real value of earned value
management theory, most of them think that performing earned value
measurement and analysis is time consuming and hard. Our experience is that
the effective use of available tools like Microsoft Project would help project
managers to measure earned value parameters easily with least effort.
This paper begins with the discussion of how the critical earned value
parameters could be leveraged to take timely corrective action. Subsequently,
illustrates the steps involved in preparing and maintaining the project schedule
using Microsoft Project (MS Project) to track the earned value parameters.
Key benefits of managing the earned value in project schedule are:
• Near zero effort to manage the earned value results
• Ability to measure earned value at the individual project work package or
sub-project level
• Integrated view of project cost performance based on earned value and
efforts
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2 Structure of this paper
Table 1 brief how the paper has been structured for the benefit of the readers.
Section Name Purpose of the section
Introduction Simple explanation of the earned value formulas
Leverage earned value Throughout the life cycle of a project how earned value measurements
measurement and could be leveraged to analyse software life cycle metrics and assessment
analysis the cost risk. Based on the triggers of earned value goals deviation, the
recommended analysis and potential corrective actions on software life
cycle metrics and cost risk assessment are discussed.
Challenges in analysing How the project environment challenges the project team to analyse
earned value earned value in the project execution phase?
How to Use Microsoft The step-by-step procedures to track earned value parameters using
project (MS project) to Microsoft project. In the live presentation session, the near life Microsoft
track earned value? project schedules will be shown for the benefit of the audience to
understand the tracking earned value in MS project.
Table 1 : Structure of this paper
3 Introduction
The earned value parameters are critical for IT project manager to determine the
past, present and future cost performance at any point in time of a project. Let us
understand the earned value parameters from IT project management
perspective.
Budgeted Cost of Work Scheduled or Planned Value (BCWS or PV)
BCWS (or PV) is the planned cost to accomplish work to complete the task or set
of tasks to achieve the desired results. In Microsoft project (MS project) terms,
BCWS are the latest baseline cost up to the project status reporting date.
Actual Cost of Work Performed or Actual Cost (ACWP or AC)
ACWP (or AC) is the actual cost incurred on accomplished work on the task or
set of tasks to achieve the desired result. In MS project terms, ACWP are the
actual cost up to the project status reporting date.
Budgeted Cost of Work Performed or Earned Value (BCWP or EV)
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BCWP (or EV) is the cost originally planned on the accomplished work on the
tasks or set of tasks at particular point in time. In MS project terms, BCWP are
the earned value (cost budgeted) of the tasks or subprojects up to the project
status reporting date.
Based on the above three cost parameters, the following critical performance
measures are derived
Cost Performance Index (CPI) = BCWP/ACWP
Schedule Performance Index (SPI) = BCWP/BCWS
Estimate at completion = BAC/CPI
Variance at Completion = BAC - VAC
4 Leverage earned value measurement and
analysis
The periodic project status reporting guides the management and key project
stakeholder to obtain the past, present and future performance. At any reporting
period the earned value indicators – CPI, EAC and VAC should be tracked to
monitor the cost performance in the past, present and future. Remarkably the
earned value indicator should act as a trigger to analyze software delivery
metrics results as well as mitigation (or implementation of contingency) of cost
risk.
Earned value analysis triggers
In a typical software project, no clear relationship is drawn between software
delivery metrics and earned value measurements even though the project
management practitioner monitors software life cycle metrics and updates risk
management plan on a periodic basis. In fact, the corrective actions based on
reported metrics and risk response planning are performed independent of
earned value analysis.
As a continuous process in a software project life cycle, the earned value
analysis should trigger the software life cycle metrics analysis and assessment of
cost risks. Subsequently, metrics results should leads to corrective actions
whereas the assessment of project cost risks should determine the risk response
planning.
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Figure 1 shows the pictorial representation of how measurement and analysis of
earned value should play the integral part of software project life cycle. It
represent EV measurement is a continuous process it triggers analysis of
software life cycle metrics as well as reassessment of cost risks to identify new
risks. The flow chart in the Figure 1 shows the cyclic activities triggered for
earned value measurement and analysis. The earned value goals mentioned in
the flow chart are examples.
Figure 1 : Earned Value Analysis in a software project life cycle
Analysis and necessary corrective actions on software life cycle metrics
The IT organization guidelines might define the cost variance goals. However the
characteristics of the project like working model (offshore or onsite), pricing
agreement etc., determines the project specific earned value goals.
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Project Earned Value Goals
CPI should not be lesser than 0.95 (CPI >= 0.95)
EAC should not exceed 5% of the latest baseline cost or BAC (EAC <= BAC+(5% of Baseline cost)
VAC should not be higher than 5% of the latest baseline cost or BAC (VAC <= 5% of baseline cost)
Figure 2 : Project Earned value goals
Typically earned value measurement and analysis at any project status reporting
period should meet the goals as in Figure 2 : Project Earned value goals.
The time-phased analysis and subsequent corrective actions should have to be
put in place throughout the project life cycle. The recommended analysis and
potential corrective actions during various stages (life cycle phases) of the
project are highlighted in the Table 2 : Recommended analysis and potential
corrective actions to bring the earned value back into control.
Life Cycle Recommended analysis Potential Corrective Actions
Phases (If analysis results are below defined goals or
affecting earned value goals)
Requirement Clarity of use cases and Assess requirement priorities against ambiguities
Analysis (RA) unambiguous articulation
Co-operation of customer Management or steering committee escalation on
counter-parts and end users Idle efforts and locking of resources
High level Evaluate review efficiency or Reduce fagan reviews cycle time whereas increase
design effectiveness peer review cycle time
Analyze requirement volatility • Reduction of review-to-correction lead time
• Define implementation priorities
• Assess cost risk
Low level Measure open issues and • Define drop dead lines to address dependencies
design dependencies • Access scope risk
Coding and Measure CUT productivity • Resource shuffling
Unit Testing • Increase unit testing tools usage
Measure code review efficiency Increase review effectiveness and review correction
lead time
Integration Measure pre-delivery defect Shorten testing cycle by increasing test execution
and System density cycle and reporting
testing
Analyse Defect removal • Re-plan on testing location – onsite/offshore
efficiency • Assess schedule risk
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User Measure delivered defect Measure reproducible and non-producible defect
Acceptance density ratios and re-plan for resource deployment proportion
(onsite verses offshore)
Measure defect rework efforts Re-plan for re-testing and assess rework cost
Post Measure problem reporting and • Reproduce-able/non-reproduce-able defect ratios
Acceptance turnaround time and re-plan for resource deployment proportion
Support • Reduce Idle time on closure of defects
Table 2 : Recommended analysis and potential corrective actions
Assessment of project cost risk
As discussed earlier, the earned value indicators should trigger re-assessment of
risk. The Figure 3 shows the outcome of the root cause analysis performed to
re-assess the risk as the deviation from earned value goals has occurred in one
of our project during the coding and unit testing phase.
Figure 3: Cost risk re-assessment
The root causes highlighted in pink has emerged as potential risk. It helps the
project manager to mitigate or implement contingency.
5 Challenges in analysing earned value
During the project planning phase the following aspects are known
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1. Effort estimates for the scope of work as per statement of work or approved
contracts agreements
2. Original project cost based on effort estimates
3. Work breakdown structure
4. Defined milestones for software life cycle phases
5. Planned project duration and start/end date of the project
Therefore, it will be easy to measure the earned value parameters during the
planning phase and early stages of execution phase. But tracking will be difficult
gradually as changes are inevitable in any project.
The following factors in execution make earned value analysis exercises
cumbersome and time consuming
• Changes in team size
• Revision in efforts and cost
• Changes in cost recovery model due to relocation of teams
• Resource cost changes due to change in job levels or revision of resource
cost
• Addition of missed or unknown tasks in later stage of the project
• Deletion of redundant tasks in later stage of the project
• Necessity of re-planning schedule due to cost overruns
• Necessity of re-planning schedule due to change of resources
6 How to use Microsoft Project to track
earned value?
Above challenges will be addressed if the project manager and project lead could
do a good job on preparation and tracking of MS project driven schedules, cost
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and resources deployment. In the Figure 4: Earned Value Tracking – BCWS,
BCWP, ACWP, CPI and EAC the live schedule shows the earned value
parameters – BCWS, BCWP, ACWP, CPI and EAC tracked on a periodic basis
(say weekly).
Figure 4: Earned Value Tracking – BCWS, BCWP, ACWP, CPI and EAC
Note to the readers: In the live presentation session, the near live MS project
schedules will be shown for the benefit of the audience to understand the tracking
earned value in MS project with the help of the steps described below.
Table 3 shows the steps involved in preparing and tracking the project schedule
using MS project to measure earned value parameters effectively
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Step Description Frequency Project Phase
1 Sequence the work breakdowns against each life 1 Planning
cycle phases
2 1.1.1 Resource loading and associate billing 1 Pre-execution
cost
3 1.1.2 Baseline plan in alignment with project 1 Pre-execution
schedule, efforts and costs
4 1.1.3 Update progress of tasks, actual start and Weekly On execution
actual finish dates
5 1.1.4 Revision of baselines On need basis On execution
Table 3: Steps to prepare and track earned value
Step 1: Sequence the work breakdown against each life cycle phases
The live MS project schedule in the Figure 5: Work Break Down and the
constraints shows how the work breakdowns and its relationships are tracked at
a granular level. Also note the constraints or dependencies are identified as
milestones (highlighted in pink) in order to have better control on dependencies.
Figure 5: Work Break Down and the constraints
Step 2: Resource loading and associate billing cost
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As the earned value indicators are cost related, the billing cost of resources
should be associated in the resource sheet. Refer the live MS project schedule in
the Figure 6 : Resource Sheet shows the resource names and assigned billing
cost. The navigation of View  Resource Sheet in MS project shows the
resource details and the cost per hour. The standard rate as well as the overtime
rates should be associated if any special rates are agreed with customers on
expert resources or hours worked beyond normal working hours.
Figure 6 : Resource Sheet
Step 3: Baseline plan in alignment with project schedule, efforts and costs
The schedule should be aligned with project efforts and cost as per the agreed
contract or Statement of work and then it should be base lined. The live MS
project schedule in the Figure 7 : Baseline of schedule, efforts and cost shows
the baseline work (refers to the effort) whereas baseline cost refers to the project
cost. The EV indicator – BCWS refers to the baseline cost.
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Figure 7 : Baseline of schedule, efforts and cost
Step 4: Update progress of tasks, actual start and actual finish dates
The periodic and accurate updates of tasks should be performed to effectively
measure earned value parameter. The live MS project schedule shown in the
Figure 8 : Progress updates, the % complete column shows the percentage of
accomplished work and it proves that the earned value parameters – BCWP,
ACWP, CPI and EAC are current and up-to-date. As a result, it will guide the
project manager to take necessary course of actions based on the analysis of
reported software life cycle metrics and assessment of cost risks.
Figure 8 : Progress updates
Step 5: Revision of baselines
The revision of baselines possibly occurs in the following situations
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• Change of team members
• Revision in efforts, cost and efforts due to internal or external change request
• Resource cost changes according to job levels/experience
• Organization initiated change in resource cost
But the revision of baseline is allowed for maximum of 10 times in microsoft
project in addition there are options to remove baselines. The live MS project
schedule shown in the Figure 8 has the Baseline 1 Cost column. It implies the 1st
time revision of the baseline has occurred. However the BCWS will reflect the
latest baseline1 cost.
7 Conclusion
The best practices discussed in this paper should encourage PM practitioners to
perform the earned value measurement and analysis throughout the project as it
is critical to have project cost in control. The schedule variance and SPI are
excluded in the discussion as earned value is more accurate and appropriate for
cost measurement and predication rather than schedule.
8 References
[1] Project Management Body of Knowledge
[2] Microsoft office project version 2003
[3] Senthil Kumar Ramachandran,”COTS implementation risk
assessment for Communication Service Providers” presented in PML 2005,
Bangalore
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9 Author’s Profile
As a leader in execution, Senthil Kumar Ramachandran constantly look
forward to delivering value to customers by engaging and developing
global teams focused on IT solution delivery by leveraging the 19 years
of experience spans across technology domains in software services
industry. Currently, Senthil is a Director – Engineering in Aricent
Technologies. He is leading project delivery teams comprise of 150+
direct and indirect reporting globally. Prior to joining Aricent, Senthil has 6
years stint with Hewlett Packard. He was part of Wipro Technologies and
GEC Alsthom in India too. He has Bachelor of Computer Engineering
degree (Distinction) from Madurai Kamaraj University. He has served as
one of a Honorary Director to develop the profession of Project
Management in the PMI Bangalore Chapter for two years since August
2007.
Senthil’s key professional associations and contributions in recent years:
• Paper titled COTS implementation risk assessment for
Communication Service Providers has been selected for presentation
in International Project Management Conference – PML 2005 held in
Bangalore
• Published a paper on Order Management Core Processes and Pain
areas in Tele-management Forum, USA on August 2003
Previously lead HP India Center PM Forum – Project/Program
management forum for learning and sharing
• Delivered PM Practitioners case study presentation in PMI Chapters
senthilkumar.ramachandran@aricent.com
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