Earned Value Method, created and spread by PMI, has basically two types of parameters: Cost parameters (AC, CV and CPI) and Time parameters (PV,SV and SPI); these rates can help us to determine the performance of any Project regarding both fields. This paper thinks over accuracy of Time parameters, developing new indicators that reflect, in a more detailed analysis, the exact estimated Project’s deadline.
Introduction
Earned Value Method is currently the most accepted for tracking and controlling a Project, developed by PMI offers big advantages: it is simple and effective to compare performed with planned. This method narrows down the costs of a Project to a group of parameters that give an idea about how aligned to original plan is performed work. Moreover these indicators help us to track where the variations are, and to analize why they happened in order to correct or enhance them.
Earned Value Method is very accurate in costs topics, but they are not too developed in time topics, there is an empty space that even PMI admits while describing SPI (Schedule Performance Index) in PMBOK Fourth edition. It comments about applying SPI to the critical path too; but PMBOK neither goes deeper nor explains how to do it, leaving the door open to a method aimed to be for Schedule as Earned Value is for Budget. That is why this paper proposes this new method, called, reminding PMI, Earned Time Method.
Earned Time Method Parameters
Earned Time Method applies to measure Project’s performance from a Time point of view, not from Cost point of view, by creating, if possible, equivalent parameters to those stated in Earned Value Method.
Earned Value of Critical Path (EVCP) is the value of work, belonging to critical path, performed to control date and expressed in monetary units according to Project Budget.
Planned Value of Critical Path (PVCP) is the value of work, belonging to critical path, originally planned to control date and expressed in monetary units according to Project Budget.
Schedule At Complete (SAC) is the duration planned for the Project and expressed in time units.
Performance Indicators
Schedule Performance Index of Critical Path (SPICP) defines in which percentage critical path planned goals were achieved to the control date. The SPICP is obtained by dividing EVCP over PVCP:
Critical Path Estimated Duration
The Critical Limit (CL) is defined as maximum total float from which an activity is considered critical and expressed in time units. In other words, if CL is X days so every activity with a total float equal or less than X is a critical activity. As wide as CL is, the deadline analysis gets more accurate but longer to calculate.
The Analysis Limit (AL) is the scope of the analysis according to the chosen CL. The AL is equal to SAC minus CL and expressed in time units.
From above-mentioned, a Project can have several critical paths, which will be more if we increase CL value. So it is possible to refer to critical paths using the next terminology: Critical Path 1 (CP1) which has a total float equal to 0; Critical Path 2 (CP2) which is the next in total float magnitude (could be equal to 0 too); and so on until Critical Path n (CPn) which is the last critical path inside CL rank.
So Critical Path Duration (CPD) is defined as follows: CPD1 is Critical Path 1 duration, which is not necessarily Project duration; CPD2 is Critical Path 2 duration; and so on until CPDn or duration of Critical Path n.
The next step is calculate SPI on each analized critical path. It means, SPICP1 will be schedule performance index on Critical Path 1; SPICP2 will be schedule performance index on Critical Path 2; and so on until SPICPn or schedule performance index on Critical Path n.
Finally to obtain the Estimated Time at Complete of Critical Paths (ETACCPn), each duration (CPDn) must be divided by each corresponding schedule performance index (SPICPn):
ETACCPn is expressed in time units and depicts Critical Path n duration forecast, assuming the same SPICPn to the end.
Critical Path Variance
Schedule Variance of Critical Path (SVCPn) is expressed in time units and is used to measure diferences between planned and estimated durations for each critical path (ETACCPn). The SVCPn is obtained from CPDn minus ETACCPn:
SV is determined on each analized critical path, as follows: SVCP1 is Critical Path 1 variance; SVCP2 is Critical Path 2 variance; and so on until SVCPn which is variance on Critical Path n.
If SVCPn is more than 0, Critical Path n should be finishing before originally planned; if SVCPn is less than 0, Critical Path n should be finishing after originally planned.
Estimated Project Duration
To calculate estimated Project duration it is necessary to compare analized critical path estimated durations and determine which of them imposes on others.
In order to those estimations, we define Total Float (TFCPn) on each analized critical path, keeping the same terminology, it means TFCP1 is total float on Critical Path 1 and equal to 0; TFCP2 is total float on Critical Path 2; and so on until TFCPn or total float on Critical Path n.
Estimated Schedule at Complete of Critical Path n (ESACCPn) is obtained substracting SVCPn and TFCPn from SAC.
ESACCPn is an estimated Project duration based only on Critical Path n performance. It means ESACCP1 is estimated duration of Project but based only on Critical Path 1 performance; ESACCP2 is estimated duration of Project but based only on Critical Path 2 performance; and so on.
Finally estimated duration of Project or Estimated Schedule at Complete (ESAC) will be the highest value of AL and each ESACCPn.
Scheduled Variance (SV) of Project is the difference between SAC and ESAC and is expressed in time units:
If SV is more than 1, Project is ahead of schedule; if SV is less than 1, Project is behind of schedule.
Estimated Cost of Project
Cost of Project based on schedule performance is related to indirect costs and reward/penalty, but they are not related to direct cost. Direct Cost are only related to efficiency or changes on scope, not to time topics.
Indirect Cost at Complete (ICAC) is the indirect cost amount inicially assigned in budget to the Project end and is expressed in monetary units.
Indirect Cost Time Rate (ICTR) which is expressed in monetary units and obtained by dividing ICAC over SAC.
It is also necessary to determine Estimated indirect Costs at Complete (EICAC), which is a new indirect cost amount assigned according to the estimated duration of the Project. EICAC is obtained multiplying ESAC by ICTR.
The ratio Reward/Penalty for Project Finishing (RPPF), is expressed in monetary units over time units and refers to additional income for finishing Project before deadline or penalties for finishing Project after deadline. If owner of Project is an external, this rate is defined in the contract; if Project is inside the organization, we should calculate opportunity cost related instead of rewards/penalties.
Budget at Complete (BAC) is total direct cost assigned to the Project and expressed in monetary units.
Budget at Complete (BAC) is total direct cost assigned to the Project and expressed in monetary units.
Finally, Estimated Total Budget at Complete (ETBAC) or estimated total cost to the end of Project is expressed in monetary units and obtained from BAC plus EICAC minus RPPF multiplied by SV.
Example 1: Project ahead of schedule
We have the following information:
SAC = 100 days
BAC = $ 10 000.00
ICAC = $ 2000.00
RPPF = $ 100.00/day
CL = 10% SAC = 10 days
CPD1 = 95 days
EVCP1 = $ 500.00
PVCP1 = $ 200.00
TFCP1 = 0 days
CPD2 = 90 days
EVCP2 = $ 300.00
PVCP2 = $ 100.00
TFCP2 = 7 days
So Applying Earned Time Method:
SPICP1 = EVCP1 / PVCP1 = 500/200 =2.50
SPICP2 = EVCP2 / PVCP2 = 300/100 =3.00
AL = SAC – CL = 100 – 10 = 90 days
ETACCP1 = CPD1 / SPICP1 = 95/2.50 = 38 days
ETACCP2 = CPD2 / SPICP2 = 90/3.00 = 30 days
SVCP1 = CPD1 - ETACCP1 = 95 – 38 = 57 days
SVCP2 = CPD2 - ETACCP2 = 90 - 30 = 60 days
ESACCP1 = SAC - SVCP1 - TFCP1 = 100 – 57 – 0 = 43 days
ESACCP2 = SAC - SVCP2 - TFCP2 = 100 – 60 – 7 = 33 days
ESAC = MAX(AL, ESACCP1, ESACCP2) = MAX (90,43,33) = 90 days
SV = SAC – ESAC = 100 – 90 = 10 days
ICTR = ICAC / SAC = 2000/100 = $ 20/day
EICAC = ESAC x ICTR = 90 x 20 = $ 1800.00
ETBAC = BAC + EICAC – RPPF x SV = 10 000.00 + 1800.00 – 100x10 = $ 10 800.00
Finally this Project should last 90 days (ESAC) and cost $ 10 800.00 (ETBAC)
Example 2: Project behind schedule
Conclusions
Profit regarding time performance can only be estimated on Indirect Cost Level, not on Direct Cost Level. In other words, if your Peoject is planned to be completed in four years and you finish it in three years, your time good performance profit is 1 year of Indirect Costs and extra rewards stated in contract.
Dividing Indirect Cost into Fixed Indirect Costs and Time Variable Indirect Cost could output more accurate results.
Reccommendations
Planning softwares like MS Project and Primavera Project Planner don't have any option to input Indirect Costs and therefore you can't include them in the costs calculation. These Indirect Costs added to PMI's Earned Value, which is into softwares, could give us the most accurate information about Project performance regarding Time, Cost and both together.
This method could not be accurate if there is some time constrains in analized critical paths, it is always useful comparing with software results.
We have the following information:
SAC = 100 days
BAC = $ 10 000.00
ICAC = $ 2000.00
RPPF = $ 100.00/day
CL = 10% SAC = 10 days
CPD1 = 95 days
EVCP1 = $ 1000.00
PVCP1 = $ 200.00
TFCP1 = 0 days
CPD2 = 90 days
EVCP2 = $ 100.00
PVCP2 = $ 300.00
TFCP2 = 7 days
So Applying Earned Time Method:
SPICP1 = EVCP1 / PVCP1 = 1000/200 = 5.00
SPICP2 = EVCP2 / PVCP2 = 100/300 = 0.33
AL = SAC – CL = 100 – 10 = 90 days
ETACCP1 = CPD1 / SPICP1 = 95/5.00 = 19 days
ETACCP2 = CPD2 / SPICP2 = 90/0.33 = 270 days
SVCP1 = CPD1 - ETACCP1 = 95 – 19 = 76 days
SVCP2 = CPD2 - ETACCP2 = 90 - 270 = -180 days
ESACCP1 = SAC - SVCP1 - TFCP1 = 100 – 76 – 0 = 24 days
ESACCP2 = SAC - SVCP2 - TFCP2 = 100 – (-180) – 7 = 273 days
ESAC = MAX(AL, ESACCP1, ESACCP2) = MAX (90,24,273) = 273 days
SV = SAC – ESAC = 100 – 273 = -173 days
ICTR = ICAC / SAC = 2000/100 = $ 20/day
EICAC = ESAC x ICTR = 273 x 20 = $ 5460.00
ETBAC = BAC + EICAC – RPPF x SV = 10 000.00 + 5460.00 – 100x(-173) = $ 32 760.00
Finally this Project should last 273 days (ESAC) because of performance on Critical Path 2 and cost $ 32 760.00 (ETBAC)
Conclusions
Profit regarding time performance can only be estimated on Indirect Cost Level, not on Direct Cost Level. In other words, if your Peoject is planned to be completed in four years and you finish it in three years, your time good performance profit is 1 year of Indirect Costs and extra rewards stated in contract.
Dividing Indirect Cost into Fixed Indirect Costs and Time Variable Indirect Cost could output more accurate results.
Reccommendations
Planning softwares like MS Project and Primavera Project Planner don't have any option to input Indirect Costs and therefore you can't include them in the costs calculation. These Indirect Costs added to PMI's Earned Value, which is into softwares, could give us the most accurate information about Project performance regarding Time, Cost and both together.
This method could not be accurate if there is some time constrains in analized critical paths, it is always useful comparing with software results.
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