If you aren’t an Earned Value (EV) guru, taking the time to understand it is probably like starting an exercise program or adopting a healthier diet in that you know you should do it, but you fear it will be difficult. But it really can provide you with a great perspective on your project. EV gives you a new angle on whether your project is on track with your original plan.

This short introduction to EV and how you can use it with Microsoft Project will illustrate how it’ll help you better understand how your project is doing.

Let’s start with the three basic metrics of Earned Value.

Budgeted Cost of Work Scheduled (BCWS)
Budgeted Cost of Work Scheduled is the cost of the work that is scheduled to be done in a certain time period if everything goes exactly to plan. For example, if you have a two-day task that is scheduled to cost $50 per day, the BCWS for that task after the first day is $50; after the second day, it is $100. This measure tells you how much should have been spent up to a certain date according to your plan.

Budget Cost of Work Performed (BCWP)
The Budget Cost of Work Performed number is the budgeted cost of the work that has been done up to a certain point. This tells you how much the work you have actually done up to a certain date should have cost, if the costs went according to plan. If this number is less than BCWS, it means that work is being done slower than planned.

Actual Cost of Work Performed (ACWP)
The Actual Cost of Work Performed is the actual cost of the work that is represented in BCWP. If this number is higher than BCWP, it means that work is costing more money than originally planned.

The term “certain date” is used in each of these examples because all of the measures described above are calculated up to a specified date. In Microsoft Project, this date is called the Project Status Date. It is up to this date that the above metrics are calculated.

Figure A

Figure A shows a sample task that is 10 days in duration with one resource assigned. This resource’s rate is $100 per hour for a total of 80 hours on the task. This makes the total cost of the task $8,000. The current status date, April 3, is shown on the Gantt chart as a red line. Based on this status date, the BCWS is $3,200. This means that the schedule called for $3,200 worth of work to be completed by April 4. If the Status Date was moved to April 7, the BCWS would be $1,600 higher than in Figure A since $1,600 is $100/hr for 16 hours and April 7 is two working days later than April 4.

From BCWS, BCWP, and ACWP, you can derive two variance metrics: Cost Variance (CV) and Schedule Variance (SV). The equation for Schedule Variance is SV = BCWP – BCWS. Here’s how we can interpret this metric:

  • If SV = 0, the task or project is going exactly to schedule.
  • If SV < 0, the task or project is behind schedule.
  • If SV > 0, the task or project is ahead of schedule.

This metric tells you how far behind or ahead the task or project is, according to the schedule. The SV for the task in Figure A would be $3,200: While the schedule called for $3,200 worth of work to be completed by April 4, there was, as of that date, no work actually done on the task.

The equation for Cost Variance (CV) is CV = BCWP – ACWP.

  • If CV = 0, the task is right on track with the budget.
  • If CV < 0, the task is over budget.
  • If CV > 0, the task is under budget.

CV shows how far over or under budget the task or project is, according to the schedule. Figure B shows the task from Figure A that has had actual work applied up to the Project Status date of April 3.

Figure B

We can see from the SV that there has been exactly the scheduled amount of work done on the task that was planed in the baseline schedule. However, from the CV, we can see that doing that work cost $300 more than planned. If the work had cost the budgeted amount, the CV would have been $0.

In this example, the reason for the $300 overrun is the use of overtime work to keep on schedule. Figure C shows the Resource Usage View of this project. It shows how the task only had two of its scheduled eight hours of work performed on the first day of work.

Figure C

The project manager in this case felt it was more important to stay on schedule than to stay on budget so the resource worked two hours of overtime for the next three days to make up the six hours. Since the resource’s overtime rate is $150 per hour, this caused the cost of doing the work to be higher by $50 per hour for those six hours, for a total overrun of $300.

Sound interesting?
Now you have the basic theory behind the usefulness of Earned Value, but how can you start using it? Here are a few things to keep in mind when you start using Earned Value in Microsoft Project.

Your resources must have a resource rate
Earned Value is based on cost. If your resources do not have rates, the cost for tasks will be $0, making Earned Value impossible. If you do not use resource rates for your projects, just enter a $1 rate for each of your resources. This will allow Earned Value metrics to be calculated for your projects.

You must save a baseline
All of the metrics discussed in this article are calculated by comparing the current state of a project with the baseline, which is a detailed snapshot of your project taken just prior to the project starting. You save it by clicking Tools | Tracking | Save Baseline and then clicking OK. Without a baselinesaved, the Earned Value fields above will not be calculated. You must have a baseline saved to use Earned Value.

Collecting status in a time scaled way
Earned Value also depends on you collecting your resource status in a time scaled way. This means that you would need to collect how much work each resource did in a given time period rather than just collecting % Complete. Whether this is collected using paper timesheets that the project manager transfers into Project via one of the Usage Views or by using a timesheet system such as Project Server doesn’t matter, so long as the status gets into the system. Earned Value cannot be useful unless the system knows how much work was done by each resource in each time period.