Earned Value Management – The Effect of Level of Effort (LoE)

Introduction

Level of Effort is typically chosen where it is difficult to define the work content or scope, Management activities are a typical example here. It is important to note that there can still be a Cost Variance (CV) on LoE type activities.

LoE as defined in Earned Value terms is where the earned work is the same as the planned work (BCWP = BCWS or EV = PV), in other words the Schedule Variance (SV) will always be equal to zero and the Schedule Performance Index (SPI) will always be equal to one.

There are occasions however where this rule may be broken, and when using Level of Effort it is important to understand some potential effects that may impact on the Earned Value calculations.

This is best demonstrated in a set of diagrams:

LoE Operating as it should.

In the below example we have our baseline to date (BCWS or PV) which is shown as the BLUE block. The work achieved to date (BCWP or EV) is represented by the GREEN block and the actual spend to date is shown as the RED block.

This picture shows the data as we would expect a LoE activity to be operating, the achievement (BCWP or EV) equals the baseline to date (BCWS or PV). As expected the SV will be zero.

LoE_1

There may be occasions where the start date of an LoE activity is re-forecasted to start later than initially planned.

Re-Forecasted Start Date

Period One

As you can see from the below diagram, the baseline profile has remained the same yet the activity has now been re-forecasted to start at a later date. The work achieved (BCWP or EV) to date does not equal the baseline to date (BCWS or PV) so the SV is not zero.

LoE_P1

Period Two.

This effect continues through each period and each period that passes the Schedule Variance (SV) only increases.

LoE_P2

Period Three.

LoE_P3

Period Four.

In this period we are about to actually start the re-forecasted LoE activity, just look at the effect in the next period.

LoE_P4

Period Five.

As this is a LoE activity and as we have already described earlier this means that the SV will always equal zero and the SPI will always equal one. Now the activity has started all the total amount of the budget planned to date (BCWS or PV) will be claimed.

Only this period actuals (ACWP or AC) will be claimed as the work has started in this period. Straight away this is giving a false indication of reality, as we move through the periods the position only worsens.

LoE_P5

Period Six.

LoE_P6

Period Seven.

LoE_P7

Period Eight.

In this period it could be assumed that the work has been completed as the work achieved to date (BCWP or EV) equals the Budget At Complete (BAC), however in reality there is still several more weeks to achieve.

Looking at period 8 the data is indicating that the work has been completed and there has been an underspend for the achievement of that work. This is painting a favourable picture when in actual fact spend will still to be accrued until the activity has completed in reality.

LoE_P8

As the SPI and CPI are unreliable in this instance there would be an impact to other calculations such as IEAC1 and IEAC2. As the BCWP is not a true representation of reality the TCPI(E) and TCPI(B) would also be unreliable hindering the predictive capability of Earned Value.

For further articles on Earned Value Management and other Project Control articles please visit our blog on our website www.myxacom.com where knowledge is no weight to carry.

Earned Value Management – TCPI(E) & CPI

The power of Earned Value data lies in the forecast data that can be used to challenge and indicate the likely out turn cost of a project on completion.

TCPI(E) stands for Target Cost Performance Index (Estimate), the value derived from the TCPI(E) formula indicates the level of efficiency from the reporting period to the completion of the project that the project requires to achieve to meet the forecasted Estimate At Completion.

The formula for TCPI(E) is:

TCPI(E) = (Budget At Complete – Budgeted Cost of Work Performed)/(Estimate At Complete – Actual Cost of Work Performed)

It is important to use the TCPI(E) value in conjunction with the trend of the CPI value to assess if the TCPI(E) value is achievable given past performance. If it is considered not to be then the Estimate At Complete (EAC) may require revision.

For example if the CPI has historically trended around 0.65 and the TCPI(E) is indicating that to achieve the EAC there needs to be an increase to 1.28 from this point forward then what is the likelihood of achieving this? If this is not likely then the EAC would need to be revisited.

For further articles on Earned Value Management and other Project Control articles please visit our blog on our website www.myxacom.com where knowledge is no weight to carry.

Earned Value Management – IEAC1 & IEAC2

The power of Earned Value data lies in the forecast data that can be used to challenge and indicate the likely out turn cost of a project on completion.

Two of such indicators are Independent Estimate At Complete 1 and Independent Estimate At Complete 2, more commonly known as IEAC1 and IEAC2.

The IEAC1 formula calculates the IEAC by subtracting the performance to date from the total budgeted value at completion and dividing by the Cost Performance index (CPI). This provides a more optimistic view of the likely out-turn cost than IEAC2.

IEAC1 = Actual Cost of Work Performed + (Budget At Complete – Performance to Data)/Cost Performance Index.

The IEAC2 formula calculates the IEAC by subtracting the performance to date from the total budgeted value at completion and dividing by the Cost Performance index (CPI) multiplied by the Schedule Performance Index (SPI). This provides a more pessimistic view of the likely out-turn cost than IEAC2.

IEAC2 = Actual Cost of Work Performed + (Budget At Complete – Performance to Data)/(Cost Performance Index X Schedule Performance Index).

The IEAC values are typically used to indicate the likely out-turn cost of a project at completion based on performance to date. This can be used to assess and challenge Estimate At Complete values provided by the project teams to help ensure that a realistic out-turn cost is forecasted.

It is important to used IEAC in conjunction with EAC as the IEAC is mathematical outcome and does not take into consideration the potential savings or additional overspends that project team members are aware of.

For further articles on Earned Value Management and other Project Control articles please visit our blog on our website www.myxacom.com where knowledge is no weight to carry.

Earned Value Management – SPI & CPI – The Basics

Earned Value Provides multiple metrics based on past performance to calculate future out-turn positions. This article describes Schedule Performance Index and Cost Performance Index.

SPI – Schedule Performance Index is calculated from the baseline profile and performance achieved to date:

SPI = BCWP (EV)/BCWS (PV) or Performance/Baseline

A value of 1.00 indicates that the work is on track against the baseline or planned work. Below 1.00 would indicate that things are behind schedule and above 1.00 indicates an ahead of schedule position.

It is important to note that the SPI will always return to 1.00 on completion whether late, early or on time. Earned Schedule addresses this effect, for more information visit ‘Can You Tell the Time?’ on the Earned Schedule website.

CPI – Cost Performance Index is calculated from the work performed and the actual cost of that work.

CPI = BCWP (EV)/ACWP (AC) or Performance/Actuals

A value of 1.00 indicates that the spend is in line with the work performed, below 1.00 indicates an overspend and above 1.00 indicates an underspend. In other words for every 1.00 hour or unit of currency spent what is the return?

For example a CPI of 0.50 would indicate only 50% of the initial 1.00 invested has been returned, showing an inefficiency of 50%.

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