# Presentation: 680866

## Earned Value Management Tutorial Module 6: Metrics, Performance Measurements and Forecasting 

**Prepared by:**

## Module 6: Metrics, Performance Measurements and Forecasting

- Welcome to Module 6. The objective of this module is to introduce you to the Metrics and Performance Measurement tools used, along with Forecasting, in Earned Value Management.
- The Topics that will be addressed in this Module include:
- Define Cost and Schedule Variances
- Define Cost and Schedule Performance Indices
- Define Estimate to Complete (ETC)
- Define Estimate at Completion (EAC) and Latest Revised Estimate (LRE)

## Review of Previous Modules

- Let’s quickly review what has been covered in the previous modules.
- There are three key components to earned value: Planned Value, Earned Value and Actual Cost.
- PV is the physical work scheduled or “what you plan to do”.
- EV is the quantification of the “worth” of the work done to date or “what you physically accomplished”.
- AC is the cost incurred for executing work on a project or “what you have spent”.
- There are numerous EV methods used for measuring progress.
- The next step is to stand back and monitor the progress against the Performance Measurement Baseline (PMB).

## What is Performance Measurement?

- Performance measurement is a common phrase used in the world of project management, but what does it mean?  Performance measurement can have different meanings for different people, but in a generic sense performance measurement is how one determines success or failure on a project. How then can performance measurement have different meanings for different people?
-  To answer this question, consider the ACME House Building project.  You have two major stakeholders on this project, the Buyer and the Builder.  Do you think they both measure success on the project identically or do you believe their definition of project success may be different?  Let’s take a look on the next page.

## What is Performance Measurement?

- It seems logical to say that they both want a home that provides security, meets building code, and keeps them warm in the winter and cool in the summer. Now let’s look at possible differences in the way they define successful performance on the project.
- Can you see how different parties or individuals can have conflicting views of what defines project success?

**Buyer**
- Home has 4 bedrooms, 3 bathrooms
- Backyard is landscaped for children to play
- Two car garage
- Walls don’t have paint streaks
- Carpeting is correct color

**Builder**
- Completed on time
- Within contract price
- Sells within first two months
- Less than 10% Post-sell maintenance

## What is Performance Measurement?

- The Stakeholders (Buyer and Builder in the ACME House Building Project) should understand how each party defines project success and what each party measures to determine that success.
- In the case of Earned Value Management, performance measurements focus on cost and schedule management.
- The Cost Management focuses on the cost performance of the project.  It looks at the relationships between the Earned Value (EV) and the Actual Cost (AC).
- The Schedule Management focuses on the schedule performance of the project.  It looks at the relationships between the Earned Value (EV) and the Planned Value (PV).
- Now let’s look at these relationships in more detail on the following pages.

## Earned Value: Metrics and Performance Measurements

- Earned value performance measurements look at the project cost and schedule performance by analyzing the cost and schedule variance along with cost and schedule efficiency.  The formulas used are as follows:
- _Variance Analyses_
- 	Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
- 	Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)
- _Performance Indices_
- 	Cost Performance Index = Earned Value (EV)/Actual Cost (AC)
- 	Schedule Performance Index = Earned Value (EV)/Planned Value (PV)
- Let's take a look at the Variance Analyses on the next page.

## Variances

- The **Cost Variance (CV)** is the difference between the earned value of work performed and the actual cost.  CV tells you the earned value of work performed for each dollar’s worth of work scheduled.

- Cost Variance (CV) = EV – AC
- If the result is POSITIVE, project is experiencing an “Underrun”
- If the result is NEGATIVE, project is experiencing an “Overrun”

## Variances: Cost Variance example

- Using the ACME Home Building project information from Module 5, let's calculate the Cost Variance (CV) for the project.
- CV = EV – AC
- CV = $33,149 - $ 32,400
- CV = $749
- What does this tell you? Look at the explanation
- on the next page.

**Notes:**
The graphics show a chart with the PV, EV and AC information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC.  There is a line graph showing the PV, EV and AC.  The graphic starts at 0 on both axis.  There is lines for PV, EV and AC.  The AC line is below the EV line and the EV line is below the PV line.

## Variances: Cost Variance example

- A Cost Variance of $749 tells you that the project is “Underrun” or under budget.
- Please note that the cost variance, along with all other performance analyses tools, can be computed (or assessed) in terms of cumulative and current. Since we are in the first status period in our example, the cumulative and current are the same.

- Using the graph to right, you can see that on 1/31 the EV line (green) is above the AC line (red).  This means that it cost less to accomplish the work then was budgeted, thus a positive cost variance.
- Let's look at another Cost Variance calculation on the next page.

**Notes:**
The graphic shows a line graph showing the PV, EV and AC.  The graphic starts at 0 on both axis.  There is lines for PV, EV and AC.  The AC line is below the EV line and the EV line is below the PV line.

## Variances: Cost Variance example

- Another calculation for reviewing Cost Variance (CV) Percentage is CV%.
- Using our example, what is the CV%?
- CV = EV – AC				CV% = CV/EV
- CV = $33,149 - $32,400			CV% = $749/$33,149
- CV = $749				CV% = .023 or 2.3%
- To date the project has a Cost Variance of $749 or 2.3%

- Cost Variance (CV)% = CV/EV
**Tells you what percentage cost varies from what has been earned to date.**

## Variances

- The **Schedule Variance (SV)** is the difference between the earned value of work performed and the work scheduled.  SV tells you the value of work performed less value of work scheduled.

- Schedule Variance (SV) = EV – PV
- If the result is POSITIVE, project is on schedule or exceeding the schedule
- If the result is NEGATIVE, project is behind schedule

## Variances: Schedule Variance example

- Using the ACME Home Building project information from Module 5, let's calculate the Schedule Variance (SV) for the project.
- SV = EV – PV
- SV = $33,149 - $38,269
- SV = -$5,120
- What does this tell you? Look at the explanation
- on the next page.

**Notes:**
The graphics show a chart with the PV, EV and AC information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC.  There is a line graph showing the PV, EV and AC.  The graphic starts at 0 on both axis.  There is lines for PV, EV and AC.  The AC line is below the EV line and the EV line is below the PV line.

## Variances: Schedule Variance example

- A Schedule Variance of -$5,120 tells you that the project is “Behind” schedule.

- Using the graph to right, you can see that on 1/31 the EV line (green) is below the PV line (blue).  This means that what was earned to date is less then what was planned to be accomplished.
- Now consider on the following page what schedule variance does and does not address.

**Notes:**
The graphic shows a line graph showing the PV, EV and AC.  The graphic starts at 0 on both axis.  There is lines for PV, EV and AC.  The AC line is below the EV line and the EV line is below the PV line.

## Variances: Schedule Variance 

- Schedule Variance status _**does**_:
- indicate the dollar value difference between work that is ahead or behind the plan
- reflect a given measurement method
- Schedule Variance status _**does not**_:
- address impact of work sequence
- address importance of work
- reflect critical path assessment
- indicate amount of time it will slip
- identify source (labor & material) of difference
- indicate the time ahead/behind (or regain) schedule
- indicate the cost needed to regain schedule
- Let's look at another Schedule Variance calculation on the next page.

## Variances: Schedule Variance example

- Another calculation for reviewing Schedule Variance (SV) is SV%.
- Using our example, what is the SV%?
- SV = EV – PV				SV% = SV/PV
- SV = $33,149 - $38,269			SV% = -$5,120/$38,269
- SV = -$5,120				SV% = -.134 or -13.4%
- To date the project has a Schedule Variance of -$5,120 or -13.4%

- Schedule Variance (SV)% = SV/PV
**Tells you what percentage schedule varies from what has been planned to date.**

## Variances: Review

- You should have a solid understanding of the cost and schedule variance calculations and what they mean. Let's review them now.
- Using these variance calculations, our project information is as follows.
- Now let's look at the performance indices on the following pages.

- Schedule Variance (SV) = EV – PV
- If the result is POSITIVE  “On Schedule”
- If the result is NEGATIVE  “Behind Schedule”

- Cost Variance (CV) = EV – AC
- If the result is POSITIVE “Underrun”
- If the result is NEGATIVE “Overrun”

**Notes:**
The graphics show a chart with the PV, EV and AC information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC.  The  chart also shows the schedule variance and cost variance for the project.  The Cost Variance is $748 and the Schedule Variance is -$5,121.

## Performance Indices

- The **Cost Performance Index (CPI)** is a measure of Cost Efficiency.  The CPI measures the value of work performed against the actual cost.

- Cost Performance Index (CPI) = EV/AC
- If the result is less than 1.0, cost is GREATER than budgeted
- If the result is greater than 1.0, cost is LESS than budgeted

- Example 1:
- PV = $950
- EV = $1000
- AC = $ 900
- CPI =  _$1000_   = 1**.**11** **
-              $900

- Example 2:
- PV = $1100
- EV = $1000
- AC = $1200
- CPI =  _$1000_   =  .83
-            $1200

## Performance Indices: Cost Performance Index example

- Using the ACME Home Building project information, let's calculate the Cost Performance Index (CPI) for the project.
- CPI = EV/AC
- CPI= $33,149/$32,400
- CPI = 1.02
- What does this tell you? Look at the explanation
- on the next page.

**Notes:**
The graphics show a chart with the PV, EV and AC information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC.  There is a line graph showing the PV, EV and AC.  The graphic starts at 0 on both axis.  There is lines for PV, EV and AC.  The AC line is below the EV line and the EV line is below the PV line.

## Performance Indices: Cost Performance Index example

- A Cost Performance Index (CPI) of 1.02 tells you that your actual costs are less then what was budgeted.
***You are getting $1.02 worth of work for every $1.00 spent.***
- Now let's look at some causes of favorable and unfavorable cost performance.

**Notes:**
The graphic shows a graph with the CPI of 1.02 noted with a point description.

## Performance Indices: Cost Performance Index example

**Potential Causes of Unfavorable (-) Cost Performance**
- Work more complex than anticipated
- Design review comments extensive
- Rework
- Unclear Requirements
- Scope Creep
- Unfavorable Market Fluctuations in the Cost Labor or Material
- Overhead Rate Increases

**Potential Causes of Favorable (+) Cost Performance**
- Efficiencies being realized
- Work less complex than anticipated
- Fewer revisions and rework
- Favorable Market Fluctuations in the Cost of Labor or Material
- Overhead Rate Decreases

## Performance Indices

- The **Schedule Performance Index (SPI)** is a measure of Schedule Efficiency.  The SPI measures the value of work performed against the work scheduled.

- Schedule Performance Index (SPI) = EV/PV
- If result is less than 1.0, project is “BEHIND” schedule
- If the result greater than 1.0, project is “AHEAD of schedule

- Example 1:
- PV = $950
- EV = $1000
- AC = $ 900
- SPI =  _$1000_   = 1.05
-             $950

- Example 2:
- PV = $1100
- EV = $1000
- AC = $1200
- SPI =  _$1000_   =  .91
-            $1100

## Performance Indices: Schedule Performance Index example

- Using the ACME Home Building project information, let's calculate the Schedule Performance Index (SPI) for the project.
- SPI = EV/PV
- SPI = $33,149/$38,269
- SPI = .87
- What does this tell you? Look at the explanation
- on the next page.

**Notes:**
The graphics show a chart with the PV, EV and AC information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV and $32,400 for AC.  There is a line graph showing the PV, EV and AC.  The graphic starts at 0 on both axis.  There is lines for PV, EV and AC.  The AC line is below the EV line and the EV line is below the PV line.

## Performance Indices: Schedule Performance Index example

- A Schedule Performance Index (SPI) of .87 tells you that you are behind schedule.  It can be defined in two ways:
***You are 13% behind schedule***
***Or***
***You are working at an 87% efficiency***
- Now let's look at some causes of favorable and unfavorable schedule performance on the following page.

**Notes:**
The graphic shows a graph with the CPI of 1.02 noted with a point description and the SPI of .87 noted with a point description.

## Performance Indices: Schedule Performance Index example

**Potential Causes of Unfavorable (-) Schedule Performance**
- Manpower shortage
- Revised Execution Plan
- Supporting organizations behind schedule
- Late Vendor delivery
- Delayed customer feedback/direction
- Rework
- Work more complex than anticipated
- Design review comments extensive
- Unclear requirements
- Scope creep

**Potential Causes of Favorable (+) Schedule Performance**
- Efficiencies being realized
- Work less complex than anticipated
- Fewer revisions and rework
- Favorable Market Fluctuations in the Cost of Labor or Material
- Subcontractor ahead of schedule

## Review of Variance and Performance Indices

- Below is a summary of the ACME Home Building project.
- What conclusions can be inferred as to the cost and schedule performance of this project?
- Let’s take a look on the next page**.**

**Notes:**
The graphics show a chart with the PV, EV, AC, SV, CV, SPI, and CPI information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV, $32,400 for AC, -$5,121 for SV, $748 for CV, .87 for SPI, and 1.02 for CPI.  

## Review of Variance and Performance Indices

- The ACME Home Building Project is 13% behind schedule (SPI = .87) but is ahead on cost by 2% (CPI = 1.02).  In review of the activities, Installation of the Stairway and Framing the Exterior Walls are the activity causing the project to be behind (SPI = .50 and .76) schedule.  On the cost side, the Installation of the Patio is costing less then budgeted (CV =$966) and is the main reason for the project underrunning its budget.
- What is the standard reporting variance threshold for a project? Find out on the next page.

**Notes:**
The graphics show a chart with the PV, EV, AC, SV, CV, SPI, and CPI information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV, $32,400 for AC, -$5,121 for SV, $748 for CV, .87 for SPI, and 1.02 for CPI.  

## Reporting Variances

- The size and complexity of the project determines the reporting needed.  Different industries and government agencies will set variance thresholds at different levels, but most set the variance level between + or -  7% to 10%.  This means that a SPI or CPI of .90 to 1.1 will require an official variance analysis to explain what is happening on the project.  Note that you need to explain positive variances as well as negative variances.

## Review of Variance and Performance Indices

- So far we have only looked at how to analyze what has happened on a project (CV,SV, CPI, SPI). Take some time to review the formulas below.

**Schedule Variance (SV) = EV – PV**
- If the result is POSITIVE  “On Schedule”
- If the result is NEGATIVE  “Behind Schedule”

**Cost Variance (CV) = EV – AC**
- If the result is POSITIVE “Underrun”
- If the result is NEGATIVE “Overrun”

**Cost Variance (CV)% = CV/EV**
- Tells you what percentage cost varies from what has been earned to date.

**Schedule Variance (SV)% = SV/PV**
- Tells you what percentage schedule varies from what has been planned to date.

**Schedule Performance Index (SPI) = EV/PV**
- If result is less than 1.0, project is
- “BEHIND” schedule
- If the result greater than 1.0, project is
- “AHEAD of schedule

**Cost Performance Index (CPI) = EV/AC**
- If result is less than 1.0, cost is GREATER than budgeted
- If the result greater than 1.0, cost is
- LESS than budgeted

## Estimate at Completion

- Now it is time to learn how to analyze the future or what is expected to happen on a project given the progress measurements reported to date.  Anticipating future progress requires determining when the project will be completed and how much it will cost to complete it.
- To complete our analysis, we will look at the Estimate at Completion (EAC) and the Budget at Completion (BAC).
- The Estimate at Completion (EAC), which was defined in Module 5, is the actual cost to date plus an objective estimate of costs for remaining authorized work.  The objective in preparing an EAC is to provide an accurate projection of cost at the completion of the project.
- The Budget at Completion (BAC) is the sum of all budgets allocated to a project scope. The Project BAC must always equal the Project Total PV.  If they are not equal, your earned value calculations and analysis will be inaccurate.
- The chart on the following page lists the parameters of the BAC and EAC along with the other EVM items we have covered.

## Estimate at Completion

- Another term you may hear is Latest Revised Estimate (LRE).  The LRE is equal to the EAC.
**Estimate At Completion = Latest Revised Estimate**
- For the remainder of the Modules, we will refer to Estimate at Completion as “EAC”.

**Notes:**
The graphic shows a list of the EV items with the questions they answer

## Estimate at Completion

- The EAC is the best estimate of the total cost at the completion of the project.  The EAC is a periodic evaluation of the project status, usually on a monthly  basis or when a significant change happens to the project.
- EACs are developed with varying degrees of detail and supporting documents. A comprehensive EAC is usually prepared annually or if there are any major changes in the project.  The EAC should be reviewed on a monthly basis by the Control Account Manager (CAM) or those responsible.  The EAC is developed for projects as well as Control Accounts and Work Packages.  There are multiple ways to develop an EAC.  The technique selected is based upon the dollar value of the project, the risk, accounting system available and the accuracy of the estimates.
- Let's take a look on the following pages at the most frequently used EAC formulas.

## Calculating Estimate at Completion

- The first EAC calculation we will look at is Estimate to Complete:
**EAC = Actual Cost (AC) + Estimate to Complete (ETC)**
- The Estimate to Complete (ETC) is the estimated cost of completing the authorized remaining work.  A detailed ETC will include a description of the work remaining and any revisions to the estimated resources or cost for completing the project. This formula assumes that all remaining work is independent of the burn-rate incurred to date.
- Now let's look use the EAC formula for our ACME Home Building project. Take a look on the next page.

## Calculating Estimate at Completion

- Earlier in this module, we determined the actual cost (AC) for January to be $32,400. Now we need to determine the Estimate to Complete (ETC) for all activities.  For the two activities that are 100% complete, their actual cost replaces their ETC (see chart below). For the two activities current being worked, we will assume that they will be completed as budgeted even though they have current cost variances (see ETC adjustments below).  It will also be assumed that all other activities will have no adjustments to their ETC.

- By reviewing the chart to the left you can see that our new Estimate at Completion (EAC) is $164,957.
- Now lets look at the same example with some additional changes to the ETC.

**Notes:**
The graphic shows a chart with the actuals for January and the ETC for the months of February, March, and April. The January actuals equal $32,400 and the ETC for February, March and April are $132,557.

## Calculating Estimate at Completion

- As the project manager you are reviewing your ETC and you get a call from the carpeting contractor.  He tells you that the original budget for installing the carpet ($2,250) is no longer correct because the price of the carpet increased.  The project manager asks for a new estimate and the carpeting contractor tells him that it will now cost $3,100. Additionally, your superintendent tells you that the current ETCs for Framing the Exterior Walls and Pour Stairway are good, thus the current cost underrun ($358) for Framing and the cost overrun ($120) for Stairway will be realized at the completion of each activity.
- With this information, lets take a look at the EAC.

## Calculating Estimate at Completion

**EAC = Actual Cost (AC) + New Estimate to Complete**
- The new ETC total is $133,169 ($84,850 + $43,663 + $4,656)
- The new EAC total is $165,569 ($32,400 (AC) + $133,169 (ETC)).
- When using this formula to calculate EAC, you can also include expert opinion, project and industry trends and other forms of objective analysis.

**Notes:**
The graphic shows a chart with the actuals for January and the ETC for the months of February, March, and April. The January actuals equal $32,400 and the ETC for February, March and April are $132,169.

## Calculating Estimate at Completion

- Now that we have the EAC, what does it tell us?
- As mentioned earlier, EAC is the best estimate of the total cost at the completion of the project. It is also used to determine the Variance at Completion (VAC) for the project. The VAC is calculated as follows:
**VAC = BAC – EAC**
- If the result is POSITIVE, project is projecting an “Underrun”
- If the result is NEGATIVE, project is projecting an “Overrun”
- Now let's determine the VAC for our project as shown on the next page.

## Calculating Estimate at Completion

- The VAC for our project is determined as follows:
**      ****BAC    –       EAC       =     VAC**
**$ 165,467  –   $165,569    =   - $102**
- In other words, the project is now forecasted to overrun by $102 using this form of EAC. Remember, this is only one method of forecasting the performance of the project. Several other methods can be used. Let’s consider those on the following pages.
- As you examine the remaining Estimate at Completion (EAC) formulas, keep in mind that they are subjective analyses.  These calculations use performance-to-date data to help calculate the EAC.  Sometimes these forms of EAC Calculations are called Independent Estimate at Completion (IEAC).

## Calculating Estimate at Completion

- The second EAC formula is as follows:
**EAC = AC/EV x BAC**
- This calculation uses the Actual cost, Earned value and Budget at Completion for the project.
- This formula is the easiest to use, but it assumes that the “burn-rate” will be the same for the remainder of the project.
- Let's use our ACME Home Building project to calculate the EAC using this formula. Take a look on the next page.

## Calculating Estimate at Completion

- EAC = AC/EV x BAC
- EAC = $32,400/$33,149 x $165,467
- EAC = .98 x $165,467
- EAC = $162,158
- VAC = BAC – EAC
- VAC = $165,467 - $162,158
- VAC = 3,309
- Using this EAC calculation, our project is projected to underrun by $3,309.
- Now let's look at the next EAC formula on the next page.

**Notes:**
The graphic shows a chart with the PV, EV, AC and BAC for the project.  The PV is equal to $37,297, the EV is equal to $33,148, the AC is equal to $32,400 and the BAC is equal to $165,467.

## Calculating Estimate at Completion

- The third EAC formula is as follows:
**EAC = BAC/CPI**
- This calculation uses the Budget at Completion (BAC) and the Cost Performance (CPI) Index to calculate EAC.
- This formula is also easy to use and assumes that the “burn-rate” remains constant for the remainder of the project.
- This formula is derived from the previous formula and thus should result in the same EAC figure. Note that with this formula you need additional information than the previous formula.
- Let's use our ACME Home Building project and calculate the EAC using this formula. Take a look on the next page.

## Calculating Estimate at Completion

- EAC = BAC/CPI
- EAC = $165,467/1.02
- EAC = $162,222
- VAC = BAC – EAC
- VAC = $165,467 - $162,222
- VAC = 3,245
- Using this EAC calculation, our project is projected to underrun by $3,245.
- Why is this answer different then the previous calculation when it was mentioned that the two formulas are derived from each other?
- Rounding to the second decimal is the reason for the $64 difference.

**Notes:**
The graphic shows two charts the first chart shows actuals for January and the ETC for the months of February, March, and April. The January actuals equal $32,400 and the ETC for February, March and April are $132,557. The second graphic shows a chart with the PV, EV, AC, SV, CV, SPI, and CPI information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV, $32,400 for AC, -$5,121 for SV, $748 for CV, .87 for SPI, and 1.02 for CPI.  

## Calculating Estimate at Completion

- The fourth EAC formula is as follows:
- This calculation uses the Actual cost, Earned value, the value of work completed and in process and the cost of work not yet begun.
- This formula assumes that the work not yet begun will be completed as planned.
- Let's use our ACME Home Building project and calculate the EAC using this formula. Take a look on the next page.

## Calculating Estimate at Completion

- You need the chart to the left to determine the first part of the formula (actual cost and earned value).
- AC/EV = $32,400/$33,149
- AC/EV = .98
- To obtain the remaining two parts, you will also need to use the chart, but some calculations will be needed.
- Let's take a look on the next page at the final two part of this formula.

**Notes:**
The graphic shows a chart with the PV, EV, AC and BAC for the project.  The PV is equal to $37,297, the EV is equal to $33,148, the AC is equal to $32,400 and the BAC is equal to $165,467.

## Calculating Estimate at Completion

- The project has 4 activities that are completed and in progress (Foundation, Patio, Frame exterior walls and stairway).  The value of these activities is obtained by using the BAC column.  The total for Work Completed and in Progress is $52,003.
- The final part is the cost of work not yet begun. The value for this section is the sum of the activities not yet begun.  The total Cost of work not yet begun is $113,464.
- Now let's calculate our EAC. Check it out on the next page.

**Notes:**
The graphic shows a chart with the PV, EV, AC and BAC for the project.  The PV is equal to $37,297, the EV is equal to $33,148, the AC is equal to $32,400 and the BAC is equal to $165,467. 

## Calculating Estimate at Completion

- EAC = (.98 x $52,003) + $113,464
- EAC = $164,427
- Now let's calculate the Variance at Completion (VAC).
- VAC = BAC – EAC
- VAC = $165,467 - $164,427
- VAC = 1,040
- Using this EAC calculation, our project is projected to underrun by $1,040.
- Now let's look on the next page at our final EAC formula.

## Calculating Estimate at Completion

- The final EAC formula is as follows:
**EAC = AC + [1/CPI (BAC-EV)]**
- This calculation uses the Actual Cost (AC) Budget at Completion (BAC), Earned Value (EV) and the Cost Performance (CPI) Index to calculate EAC.
- This formula is a very subjective way of calculating EAC.
- Let's use our ACME Home Building project and calculate the EAC using this formula. Check it out on the next page.

## Calculating Estimate at Completion

- EAC = AC + [1/CPI (BAC-EV)]
- EAC = $32,400 + [1/1.02 ($165,467 – $33,149)]
- EAC = $32,400 + [.98 ($132,319)
- EAC = $32,400 + $129,726
- EAC = $162,073
- VAC = BAC – EAC
- VAC = $165,467 - $162,073
- VAC = 3,394
- Using this EAC calculation, our project
- is projected to underrun by $3,394.

**Notes:**
The graphic shows two charts the first chart shows actuals for January and the ETC for the months of February, March, and April. The January actuals equal $32,400 and the ETC for February, March and April are $132,557. The second graphic shows a chart with the PV, EV, AC, SV, CV, SPI, and CPI information as of January 31th, 2002.  The Project totals are $38,269 for PV, $33,148 for EV, $32,400 for AC, -$5,121 for SV, $748 for CV, .87 for SPI, and 1.02 for CPI.  

## Calculating Estimate at Completion

- The outcomes of the various methods for computing EAC are shown in the table below:
- In reviewing the EAC formulas, be aware that the formula you use impacts your project’s EAC.  Though all the EAC calculations are correct, choosing the appropriate formula for your project is important.  The EAC formula you choose should be determined by the specifics of the project.
- If you need to review these techniques, please pay close attention to the assumptions of each.

**Notes:**
The chart shows a summary of all the EAC formulas used.

## Review Module 6

-  At this point, you have covered all of the content in Module 6. Take some time now to review the major items:
- Performance measurement defines how success or failure is determined on a project. In the case of Earned Value Management, performance measurements focus on cost and schedule management.
- Earned value performance measurements look at the project cost and schedule performance by analyzing the cost and schedule variance along with cost and schedule efficiency.
**Cost Variance (CV)** is the difference between the earned value of work performed and the actual cost.  CV tells you the earned value of work performed for each dollars worth of work scheduled.
**Schedule Variance (SV)** is the difference between the earned value of work performed and the work scheduled.  SV tells you the value of work performed less value of work scheduled.
**Cost Performance Index (CPI)** is a measure of Cost Efficiency.  The CPI measures the value of work performed against the actual cost.
**Schedule Performance Index (SPI)** is a measure of Schedule Efficiency.  The SPI measures the value of work performed against the work scheduled.

## Review Module 6 cont.

- The **Estimate at Completion (EAC)** is the actual cost to date plus an objective estimate of costs for remaining authorized work.  The objective in preparing an EAC is to provide an accurate projection of cost at the completion of the project.
- There are multiple methods for determining EAC.  Each project needs to be evaluated to determine which EAC formula best fits the project’s size and complexity.

## Summary of Module 6

- At this point* *we have examined the basic metrics and performance measures used in EVMS. In the next module you will examine the concepts of Integrated Baseline Review (IBR), Rebaselining, and Change Control.
- If you have a firm grasp of the concepts covered in this module, feel free to progress to the next module. Otherwise, review this module to ensure you have a solid understanding of the basics metrics and performance measures used in EVMS.
- This concludes Module 6.