Describing earned value analysis and three methods used to estimate percent completion

Submit a short paper describing earned value analysis and three methods used to estimate percent completion. Complete problems 1 and 2 from Chapter 10 in the textbook as examples.

Please see attached for pages from the text book and problems 1 &2.

The monitoring of performance for the entire project is also crucial because performance is the raison d’être of the project. Individual task performance must be monitored carefully because the timing and coordination betweenindividual tasks is important. But overall project performance is the crux of the matter and must not be overlooked. One way of measuring overall performance is by using an aggregate performance measure called earned value.As we said, estimating the “percent completion” of each task (or work package) is nontrivial. If the task is to write a piece of software, percent completion can be estimated as the number of lines of code written divided by the total number of lines to be written— given that the latter has been estimated. But what if the task is to test the software? We have run a known number of tests, but how many remain to be run? There are several conventions used to aid in estimating percent completion: • The 50–50 rule. Fifty percent completion is assumed when the task is begun, and the remaining 50 percent when the work is complete. This seems to be the most popular rule, probably because it is relatively fair and doesn’t require the effort of attempting to estimate task progress. Since it gives credit for half the task as soon as it has begun, it is excessively generous at the beginning of tasks, but then doesn’t give credit for the other half until the task is finally complete, so is excessively conservative toward the end of tasks, thereby tending to balance out on an overall basis.

• The 0–100 percent rule. This rule allows no credit for work until the task is complete. With this highly conservative rule, the project always seems to be running late, until the very end of the project when it appears to suddenly catch up. Consequently, the earned value line will always lag the planned value line on the graph.

• Critical input use rule. This rule assigns task progress according to the amount of a critical input that has been used. Obviously, the rule is more accurate if the task uses this input in direct proportion to the true progress being made. For example, when building a house, the task of building the foundation could be measured by the cubic yards (or meters) of concrete poured, the task of framing the house could relate to the linear feet (meters) of lumber used, the roofing task could relate to the sheets of 4 X 8 foot plywood used, and the task of installing cabinets might be measured by the hours of skilled cabinet labor expended.

 The proportionality rule. This commonly used rule is also based on proportionalities, but uses time (or cost) as the critical input. It thus divides actual task time-to-date by the scheduled time for the task [or actual task cost-to-date by total budgeted task cost] to calculate percent complete. If desirable, this rule can be subdivided according to the subactivities within the task. For example, suppose progress on a task is dependent on purchasing (or building) a large, expensive machine to do a long and difficult task, but the machine itself does not make any substantial task progress. We could create a table or graph of the use of money (or time, if the machine had to be built) relative to task progress which would show a large amount of money (or time) being expended up front for the machine, but with little (or no) progress per se being made. This would then be followed by a continuing expenditure of a smaller stream of money (or time) to run the machine and finish the job, perhaps in direct proportion to the progress. These rough guides to “percent completion” are not meant to be applied to the project as a whole, though sometimes they are, but rather to individual activities. For projects with few activities, rough measures can be misleading. For projects with a fairly large number of activi- ties, however, the error caused by percent completion rules is such a small part of the total project time/cost that the errors are insignificant. More serious is the tendency to speak of an entire project as being “73 percent complete.”

In most cases this has no real meaning—certainly not what is implied by the overly exact number. Some authors assume that making estimates of percent completion is simple (Brandon, 1998, p. 12, col. 2, for instance). The estimation task is difficult and arbitrary at best, which is why the 50–50 and other rules have been adopted. A graph illustrating the concept of earned value such as that shown in Figure 10-5 can be constructed using the above rules and provides a basis for evaluating cost and scope to date. If the total value of the work accomplished is in balance with the planned (baseline)cost (i.e., minimal scheduling variance), as well as its actual cost (minimal cost variance), then top management has no particular need for a detailed analysis of individual tasks. Thus the concept of earned value combines cost reporting and aggregate scope reporting into one comprehensive chart. The baseline cost to completion is indicated on the chart and referred to as the budget at completion (BAC). The actual cost to date can also be projected to comple- tion, as will be shown further on, and is referred to as the estimated cost at completion (EAC).We identify several variances on the earned value chart following two primaryguidelines: (1) A negative variance is “bad,” and (2) the cost and schedule variances are calculated as the earned value minus some other measure.Specifically, the cost (or sometimes the spending) variance (CV) is the difference between the amount of money we budgeted for the work that has been performed to date, that is, the earned value, EV, and the actual cost of that work(AC). The schedule variance (SV) is the difference between the EV and the costof the work we scheduled to be performed to date, or the planned value (PV). The time variance is the differ- ence in the time scheduled for the work that has been performed (ST) and the actual time used to perform it (AT).

1. Find the schedule and cost variances for a project that has an actual cost at month 22 of $540,000, a scheduled cost of $523,000, and an earned value of $535,000.

2. 2. A sales project at month 5 had an actual cost of $34,000, a planned cost of $42,000, and a value completed of $39,000. Find the cost and schedule variances and the CPI and SPI.

Meredith, J. R. (08/2011). Project Management: A Managerial Approach, 8th

Edition. [Bookshelf Online]. Retrieved from https://bookshelf.vitalsource.com/#/books/9781118214800/

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