Every project you manage starts with a deadline and a plan. Your plan can include production details and intermediate deadlines, but you can’t prepare for things outside of your control.
Almost no project goes perfectly as planned, but that’s to be expected. What you need to know is how far your progress from your plan is.
Metrics such as Schedule Performance Index and Schedule Variance help you tell whether your project is on track to meet your original commitments, and when it’s time to take corrective actions or change your timeline and notify stakeholders.
The Importance of Tracking Metrics in Project Management
Project management refers to the tasks involved in planning and managing your resources to achieve an end goal (or project), such as an event or delivery, or product.
Engineering, construction, and IT development regularly hire project managers to oversee planning and delivery.
Project managers create the schedule, delegate tasks, and remove obstacles to employee productivity. The project manager must also update stakeholders on progress and adjust the budget or the schedule when necessary. So, project managers need to measure the health of their projects so they can make changes to a project that’s in danger of falling behind schedule.
Earned Value Management Techniques
Every project manager has access to a variety of tools and techniques for measuring and forecasting. Many of these techniques are listed in the Project Management Body of Knowledge (PMBOK Guide).
We’ll discuss a few metrics used in Earned Value Management.
Earned Value Management (EVM) techniques (also known as Earned Value Analysis) give managers and organizations tools to measure the current status of a project and determine future progress.
EVM helps to answer questions like:
- Are we using resources efficiently?
- Are we using time efficiently?
- How long will the project take to complete?
- Has our total cost estimate changed?
- Where are we experiencing problems?
Managers who use EVM techniques calculate project performance using three variables: time, cost, and scope (or work).
You’ll use these variables for assessing current project status and forecasting future progress.
Assumptions for EVM
Before going any further, you need to make sure your project meets the following assumptions.
- The scope (work to be done) of the project can be fully defined.
- The project’s phases will be executed sequentially.
As long as the two above conditions are met, you can use EVM analysis for a wide variety of projects in various industries.
Parameters for EVM Analysis
You begin EVM analysis by creating your project cost baseline.
To create your baseline, review your project schedule and estimate the time and cost required to complete the work needed.
Projects are broken down into several work packages. A work package is a group of related tasks within a project. Work packages serve as the building blocks for your total project.
When you create your full baseline schedule, you’ll calculate the total budget intended for the project, which is referred to as the Budget at Completion (BAC).
After establishing your baseline, you’ll use the following parameters to perform EVM analysis on any work package or at any stage during the project.
- Planned Value (PV) - The budget allocated towards a specific work package in the project. Also called Budgeted Cost of Work Scheduled (BCWS).
- Earned Value (EV) - The actual amount of work completed at the time (or by a specific date). Also called Budgeted Cost of Work Performed (BCWP).
- Actual Cost (AC) - Actual cost or amount of resources used to complete the work project. Also called Actual Cost of Work Performed (ACWP).
Here are the formulas for Planned Value and Earned Value.
PV = Planned Progress % x Budget at Completion
EV = Actual Progress % x Budget at Completion
Actual Cost is simply the amount of money you’ve spent at the time of your analysis.
EVM analysis uses the project baseline and the three parameters above to calculate several metrics.
In this guide, we’re going to focus specifically on Schedule Performance Index and Schedule Variance.
Calculating Schedule Performance Index
Schedule Performance Index (SPI) is a measure of the efficiency of your schedule. It tells you how well you’re sticking to your schedule and how efficiently you’re using your time.
The Schedule Performance Index Formula
Schedule Performance Index is the ratio of your Earned Value to your Planned Value.
You can calculate SPI using the formula:
SPI = EV / PV
Let’s say you have the following information one month into your two-month project.
Total Planned Budget: $10,000
Planned % at 30 Days: 50%
Actual % at 30 Days: 33.50%
Actual Cost at 30 Days: $4,250
In this case, your Earned Value is $3,350 (0.335 x $10,000) and your Planned Value is $5,000 (0.5 x $10,000).
So, your SPI would be $3,350/$5,000 or 0.67.
How to Interpret SPI Values
You have your SPI measurement, now what does it mean?
An SPI of one tells you that you are exactly on schedule and using your time as you predicted. An SPI below one means your team is working slower than planned, and an SPI above one means your team is working faster than expected. A good SPI is equal to or above 1, meaning you are on or ahead of schedule.
In the above example, we calculated an SPI of 0.67, which indicates that the work is behind schedule. An SPI of 0.67 means that the project team only completes 0.67 hours worth of work for every hour of planned work.
Schedule Performance vs Schedule Variance
While Schedule Performance measures the ratio of work completed compared to plan, Schedule Variance (SV) compares the difference between Earned Value (EV) and Planned Value (PV). Schedule Variance is a measure of how much you’ve earned at this point in the project timeline. It can help you understand a project’s current completion status (or the status of your project at any previous time frame you choose).
For example, Schedule Variance can show you how much of the project cost you haven’t technically made yet if you’re behind schedule. On the flipside, if you’re ahead of schedule, you’ll see that too—in which case you might consider taking on new projects or clients.
Schedule Performance and Schedule Variance offer different frames to look at similar metrics, and it’s important to consider both. Sometimes the ratio measured by Schedule Performance may seem big if you’re working with small numbers, which is why tracking Schedule Variance offers additional context.
If you’re constantly monitoring these metrics, you can determine your availability, and your clients will be happy if you come in under budget and ahead of time.
The Schedule Variance Formula
Schedule Variance is calculated as the difference between your Planned Value and your Earned Value.
SV = EV - PV
If we use the same example as before, we have an EV of $4,000 and a PV of $5,000.
So, our SV = $4,000 - $5,000. We have a Schedule Variance of -$1,000.
How To Interpret Schedule Variance
With Schedule Variance, a negative value means you’re behind schedule, while a positive value means you’re ahead of schedule.
An SV of $0 indicates you are right on schedule.
If you want to get a sense of how far off schedule you are, then you can calculate Schedule Variance percentage as:
SV% = SV / PV
Using the values in our example, we would calculate SV% as -$1,000/$5,000 = -0.2.
Written as a percentage, you can see that the project is 20% behind schedule.
What about Cost Performance Index (CPI)?
If you want to track whether or not you are on budget, you can use Cost Performance Index (CPI).
Measuring CPI in a project tells you your financial efficiency or effectiveness. It is the ratio of your Earned Value (EV) to your Actual Cost (AC).
In more detailed terms, CPI measures the amount of work completed for every dollar (or other monetary unit) spent. A CPI of 1.0 indicates the plan is on budget. Values lower than one tell you that the project is over budget, and values higher than one tell you that you are under budget.
Let's say for this example, our Earned Value (EV) is $3,315 and our Actual Cost (AC) is $4,250, the calculation would be as follows:
CPI = EV/AC
So that would mean we'd divide $3,315/$4,250 to get a CPI of 0.78.
A CPI of 0.78 indicates that you are over budget. Specifically, you have spent about 22% more than planned at the point of calculation.
In contrast, if you calculate a CPI of 2.0, this means that you’ve only spent half of the money you planned to spend at this point.
Let’s Wrap It Up: How To Use Schedule Performance Index and Schedule Variance
Keeping a project on schedule is essential to keeping your business running and your stakeholders happy.
If delays arise, you need to notify your stakeholders ahead of time. That’s why measuring progress and efficiency are essential skills for any project manager.
Schedule Performance Index and Schedule Variance give you a snapshot of your current progress and let you know if you’re using your time efficiently.
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