The budgeted cost of work performed is the sum of the allocated funds for work packages in construction projects. The BCWP determines if costs fit within the confines of the project budget. Earned value analysis also uses it to calculate other cost-related ratios, including the cost performance index, schedule performance index, and cost and schedule variance ratios. When planning a construction project, the BCWP can be used to keep you on target and on budget.
Calculate the budgeted cost of work scheduled by adding the sum of all scheduled construction costs that you expect to complete by a designated deadline. Determine your project's BCWS by adding your labor costs to your material costs. Use the following example: If you have an $8,000 budget for materials and a labor cost of $20 for 80 hours of work, your formula will be $8,000 + (20 x 80) = BCWS, or $9,600.
Allow for delays due to unexpected weather or other circumstances, such as 50 hours of actual labor instead of the 80 allotted hours. When this happens, expect your scheduled progress to be less, for instance 40 percent or 60 percent off schedule. Estimate the schedule performance index (SPI) by comparing the amount of work that was accomplished by the amount of work planned.
Multiply the schedule performance index by the budgeted cost of work scheduled to reveal the earned value, or budgeted cost of work performed. With an SPI of 40 percent, the BCWP would be 40 precent x $9,600 = $3,840. With an SPI of 60 precent, the BCWP would be 60 percent x $9,600 = $5,760.
Use the budgeted cost of work performed to locate the actual cost of work performed and the cost variance to determine whether there will be any cost overruns.