Project management is about guiding projects from inception to completion on time and on budget. It involves scheduling, budgeting, supervising team members and providing progress reports to clients and senior management. Earned value analysis (EV) is a project performance measurement tool that provides insight into project risk areas, such as schedule slippage. The schedule performance index (SPI) indicates a project's rate of progress and is the ratio of the budgeted work accomplished to the work planned, expressed as a percentage.
Get the budgeted cost of work scheduled (BCWS), also known as planned value (PV). It is the estimated value of the work scheduled in a particular period. This information is usually in the project planning documents. For example, if the planned values for the first three months of the year are $1 million, $2 million and $3.5 million, then the PV for the first quarter is $6.5 million ($1 million + $2 million + $3.5 million).
Record the budgeted cost of work performed (BCWP). Also known as earned value (EV), it is the budgeted value of the work completed in a particular period. In the example, if the earned values for the first three months are $0.8 million, $1.2 million and $2.5 million, then the EV for the first quarter is $4.5 million ($0.8 million + $1.2 million + $2.5 million). Note that the budgeted cost of work performed is not the same as the actual cost of work performed. Actual costs may be different from budgeted costs due to various factors, such as higher or lower raw material and labor costs.
Calculate the SPI. It equals the earned value divided by the planned value, or EV divided by PV. To conclude the example, the SPI for the first quarter is about 0.69 ($4.5 million / $6.5 million). This means that the project is about 69 percent (0.69 X 100 to convert to percentage) on its budgeted schedule, or about 31 percent behind. Management can examine the reasons for this lag and take steps, such as allocating additional personnel and implementing tighter management controls, to get the project back on track.
Based in Ottawa, Canada, Chirantan Basu has been writing since 1995. His work has appeared in various publications and he has performed financial editing at a Wall Street firm. Basu holds a Bachelor of Engineering from Memorial University of Newfoundland, a Master of Business Administration from the University of Ottawa and holds the Canadian Investment Manager designation from the Canadian Securities Institute.