The Project Management Expert

Time is money. Money provides the key insights into your project in Earned Value Management. However not all Project Managers are given their projects budget and this puts them at a disadvantage in managing their project most effectively. Until now. Earned Schedule is a branch of Earned Value that focuses on schedule and effort instead of money. However, it too may seem complex at first and that is why focusing on the single value of ‘Burn Rate PMP’ is the key to unlocking both Earned Schedule and Earned Value Management. Thankfully you don’t need to buy complex software or configure Excel to get the insights into your project, just head over to the Earned Value, Earned Schedule Calculator to work out your project Burn Rate (PMP) in seconds.

Definitions

Definition of Earned Value

Earned Value Management is a technique to help you forecast the cost, schedule, and scope of your project. It can provide you with clear indications of how well your project is going. The formula for the EVM is as follows:

Earned Value = Cost of the project / Revenue from the project

Cost of the project: The cost for a project is the total amount of money invested in the buying, planning, and creating a product or service. This includes money spent on materials and labor but does not include taxes.

Revenue from the project: Revenue from a product or service is determined by how much people will pay for it.

Earned Value can be graphed over time, based on weeks or milestones. From this you can see the Planned Value (PV) that you thought that you could recognise, versus the Actual Cost (AV) that you have spent so far, along with the Earned Value (EV) that you can actually account for. This is one of the reasons why milestones are so important. Rather than PV & AV running in parallel, you can actually start to see any deviation (Schedule Variance (SV)) if you are overspending & not hitting your targets.

Definition of Earned Schedule

Earned Schedule is a branch of Earned Value Management (EVM) that focuses on time rather than money.

Every project has a start and finish date. This can be mapped from 0% to 100%. However you may not deliver Work Packages / Deliverables / Tasks at the same linear rate. In some instance most of the value is delivered near the end of the project. Using a timely measure such as weeks/Sprints/Iterations/milestones, it is possible to track your progress and determine whether the project is on track.

Definition of Burn Rate PMP

‘Burn Rate PMP’ measures how quickly you are ‘burning through’ your project budget and tasks. It is defined as: ‘a formula-based metric used to calculate the rate at which a project is spending its predefined budget’. The ‘PMP’ is added to the end of the phrase to distinguish it from the Burn Rate that is typically used by Start-up companies to track how fast they are spending their money. Applying this metric to a project is great news for a project manager as it provides them with a single number to measure a project and it can be applied to both budget and/or Deliverables.

Burn rate less than 1 ( BR<1) [🟢]

Behind budget. The project is managing to spend less time/money than budgeted while earning or unlocking more than planned.

Burn rate equal to 1 ( BR=1) [🟠/🟢]

On budget. The project is perfectly balanced and spending the exact amount of time/money that is it earning or unlocking.

Burn rate greater than 1 ( BR>1) [🔴]

Over budget. The project is spending more time/money than it is earning or unlocking.

What is the difference between Earned Value and Earned Schedule?

Earned Value focuses on the value unlocked by the amount of money spent to deliver ‘Deliverables’ over time, while Earned Schedule focuses on the value unlocked by the ‘Deliverables’ against linear time.

Easing into Earned Value Management by starting with Burn Rate PMP and gaining early success with Earned Schedule

While Earned Value Management generates a host of Project Management Key Performance Indicators (KPI) that the Project Manager must calculate and understand, it is much easier to focus on one number and learn whether your project is on track or not. That is where Burn Rate PMP plays the staring role.

Burn Rate PMP = Actual Cost divided by Earned Value [BR=AC/EV]

Burn Rate PMP considers the amount of money that is being spent against the more complicated Earned Value formula, but provides a singular focus for a Project Manager.

If the Burn Rate is less than 1, then your project will probably have a Green RAG Status, as it is behind budget. Your project is likely ahead of schedule also and delivering the required scope.

If the Burn Rate is less equal to 1, then your project will probably have a Green RAG Status, as it is exactly on budget. Your project is delivering to the planned schedule also and delivering the required scope. However, this project may be a little too perfect. Such projects rarely happen and therefore we should question whether its actually an Amber status.

If the Burn Rate is greater than 1, then your project will probably have a Red RAG Status, as it is ahead of budget. Your project is spending more than it is delivering. Its likely that there are issues with the schedule and maybe even the scope.

The Earned Value, Earned Schedule Calculator generates the project Burn Rate PMP in seconds. It also generates an array of other values that are extremely useful in managing a project, but may seem overwhelming at first. The information that they reveal is explained below.

Progressing to Earned Schedule via Burn Rate PMP.

From Burn Rate PMP is it worth progressing to EVM because EVM helps the Project Manager to calculate the cost-benefit ratio of a project, as the project progresses. This metric helps the Project Manager easily communicate to stakeholders as to whether or not the project will provide a return on investment. Unfortunately it is common in some industries not to provide the Project Manager with any financial details. While the Finance Department are likely trying to be helpful, this practice puts the Project Manager at a disadvantage as they can not precisely track progress through EVM. This is why Earned Schedule can become so valuable. Despite the lack of any financial information, the Project Manager can gain most of the benefits of EVM by focusing on the project timeline and deliverables.

The benefits of Earned Schedule (ES)

ES provides a more accurate measure of project performance than simply tracking weekly progress in a project scheduling tool. ES allows Project Managers to predict project completion dates more accurately, resulting in improved project execution and control. Either by using ES graphs or adapting the Agile Burndown graphs, a Project Manager can visually estimate the likely Project Finish Date. The Earned Value, Earned Schedule calculator informs you of this also. ES is also a great way to track performance in terms of resource utilization, ensuring that the project will be delivered on time and remain within budget. ES allows a Project Manager identify problem areas early, which affords them time to take corrective action before they become too costly. By having access to all of this information it is easy to see that ES can help Project Managers better communicate progress to stakeholders. This allows them to make informed decisions quickly and efficiently, thereby increasing the likelihood of project success.

What the Earned Schedule Formulas tell you

Here are the highlights of the main formulas used in ES.

Actual Time (AT)

AT is the linear percentage of time that has been spent on the project so far. Its important to note that it ignores the amount of people working on the project and does not take ‘man days’ into account.

Earned Schedule (ES)

ES is the actual value that has been generated from the planned work undertaken, at this point in time.

Schedule Variance (SV)

SV is the time different between time spent and the value earned or generated from that effort.

Schedule Performance Indicator (SPI)

SPI is a calculated metric based on the value earned by the project versus the time spent.

Time Estimate To Complete (TETC)

TETC is the amount of time required to be allocated, from this point forward, in order to complete the project. If the project is on track, this this amount equals the remaining actual time.

Time Estimate At Completion (TEAC)

TEAC is the time spent on a project so far (AT) along with the estimated amount of time required to complete the project (TETC).

Progressing to EVM via Earned Schedule.

From Burn Rate PMP via Earned Schedule, it is now worth progressing to EVM because EVM helps the Project Manager to calculate the cost-benefit ratio of a project, as the project progresses. A Project Manager can build upon the successes of previous projects where Earned Schedule was used, to persuade the Financial Department that now is the time for the Project Manager to take control of the budget.

The benefits of Earned Value Management (EVM)

EVM provides all of the benefits of ES while unlocking financial insights which gives the Project Manager more control. EVM highlights how much has been spent on a project and what is left to be done. By focusing on milestones, EVM allows the Project Manager to accurately calculate what it will take to complete the project. The Project Manager can track costs and this should prevent overspending or under-spending on new changes. EVM also provides the Project Manager with more confidence by allowing them to make informed decisions before taking action like making schedule & scope changes, contract negotiations, negotiating with vendors, etc.

What the Earned Value Formulas tell you

Here are the highlights of the main formulas used in EVM.

Actual Cost (AC)

AC is the amount of money spent on a project so far.

Planned Value (PV)

PV is the estimate of the work deliverables that you planned would be generated at a given point in time.

Earned Value (EV)

EV is the actual value that has been generated from the planned work undertaken.

Cost Variance (CV)

CV is the financial different between money spent and the value earned or generated from that expenditure.

Cost Performance Indicator (CPI)

CPI is a calculated metric based on the value earned by the project versus the money spent.

Estimate To Complete (ETC)

ETC is the amount of money required to be spent, from this point forward, in order to complete the project. If the project is on track, this this amount equals the remaining budget.

Estimate At Completion (EAC)

EAC is the money spent on a project so far (AC) along with the estimated amount of money required to complete the project (ETC)

Budget At Complete (BAC)

BAC is the final amount of money spent in order to deliver the project.

Variance At Complete (VAC)

VAC is the calculated metric noting the difference between the final budget against the estimated amount of money that it will still take to complete the project.

Conclusion

Earned Value Management (EVM) is a Project Managers super-power. It allows them to accurately predict the future in a way that no other practice can. However there are natural barriers in place which prevent Project Managers from using EVM, such as a steep learning curve and lack of information. By first using Burn Rate PMP and Earned Schedule, every Project Manager can utilise EVM and become a more valuable and experienced Project Manager.

Ensure your projects success by easing into Earned Value Management (EVM)