Editing Earned value management (section)

== Advanced implementations ==
In addition to managing technical and schedule performance, large and complex projects require cost performance to be monitored and reviewed at regular intervals. To measure cost performance, planned value (BCWS) and earned value (BCWP) must be in the same currency units as actual costs.

In large implementations, the planned value curve is commonly called a Performance Measurement Baseline (PMB) and may be arranged in control accounts, summary-level planning packages, planning packages and work packages.

In large projects, establishing control accounts is the primary method of delegating responsibility and authority to various parts of the performing organization. Control accounts are cells of a [[Responsibility assignment matrix|responsibility assignment (RACI) matrix]], which is the intersection of the project WBS and the [[organization chart|organizational breakdown structure]] (OBS). Control accounts are assigned to Control Account Managers (CAMs).

Large projects require more elaborate processes for controlling baseline revisions, more thorough integration with subcontractor EVM systems, and more elaborate management of procured materials.

In the United States, the primary standard for full-featured EVM systems is the ANSI/EIA-748A standard, published in May 1998 and reaffirmed in August 2002. The standard defines 32 criteria for full-featured EVM system compliance. As of the year 2007, a draft of ANSI/EIA-748B, a revision to the original is available from ANSI. Other countries have established similar standards.

In addition to using BCWS and BCWP, implementations often use the term actual cost of work performed (ACWP) instead of AC. Additional acronyms and formulas include:

=== Budget at completion (BAC) ===
According to the [[PMBOK]] (7th edition) by the [[Project Management Institute]] (PMI), '''Budget at Completion''' (BAC) is the "sum of all budgets established for the work to be performed."{{sfn|Project Management Institute|2021|loc=Glossary §3 Definitions}}

It is the total planned value (PV or BCWS) at the end of the project. If a project has a management reserve (MR), it is typically ''not'' included in the BAC, and respectively, in the performance measurement baseline.

=== Cost variance (CV) ===
According to the [[PMBOK]] (7th edition) by the [[Project Management Institute]] (PMI), '''Cost variance''' (CV) is a "The amount of budget deficit or surplus at a given point in time, expressed as the difference between the earned value and the actual cost."{{sfn|Project Management Institute|2021|loc=Glossary §3 Definitions}} Cost variance compares the estimated cost of a deliverable with the actual cost.{{sfn|Project Management Institute|2021|loc=§2.7.2.3 Baseline Performance}}

<math>
\begin{align}
CV = EV - AC
\end{align}
</math>

CV greater than 0 is good (under budget).

=== Cost performance index (CPI) ===
According to the [[PMBOK]] (7th edition) by the [[Project Management Institute]] (PMI), '''Cost performance index''' is a "measure of the cost efficiency of budgeted resources expressed at the ratio of earned value to actual cost."{{sfn|Project Management Institute|2021|loc=Glossary §3 Definitions}}

<math>
\begin{align}
CPI = {EV\over AC}
\end{align}
</math>

CPI greater than 1 is favorable (under budget).

CPI that is less than 1 means that the cost of completing the work is higher than planned (bad).

When CPI is equal to 1, it means that the cost of completing the work is right on plan (good).

CPI greater than 1 means that the cost of completing the work is less than planned (good or sometimes bad).

Having a CPI that is very high (in some cases, very high is only 1.2) may mean that the plan was too conservative, and thus a very high number may in fact not be good, as the CPI is being measured against a poor baseline. Management or the customer may be upset with the planners as an overly conservative baseline ties up available funds for other purposes, and the baseline is also used for manpower planning.

=== Estimate at completion (EAC) ===
According to the [[PMBOK]] (7th edition) by the [[Project Management Institute]] (PMI), '''Estimate at completion''' (EAC) is the "expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate to complete."{{sfn|Project Management Institute|2021|loc=Glossary §3 Definitions}}

EAC is the manager's projection of total cost of the project at completion.

<math>
\begin{align}
EAC = AC + {(BAC-EV)\over CPI} = {BAC \over CPI}
\end{align}
</math>

This formula is based on the assumption, that the performance of the project (or rather a deviation of the actual performance from a baseline) to date gives a good indication of what a performance (or rather deviation of a performance from a baseline) will be in the future. In other words, this formula is using statistics of the project to date to predict future results. Therefore, it has to be used carefully, when the nature of the project in the future is likely to be different from the one to date (e.g. performance of the project compare to baseline at the design phase may not be a good indication of what it will be during a construction phase).

=== Estimate to complete (ETC) ===
According to the [[PMBOK]] (7th edition) by the [[Project Management Institute]] (PMI), '''Estimate to complete''' (ETC) is the "expected cost to finish all the remaining project work."{{sfn|Project Management Institute|2021|loc=Glossary §3 Definitions}}

ETC is the estimate to complete the remaining work of the project. ETC must be based on objective measures of the outstanding work remaining, typically based on the measures or estimates used to create the original planned value (PV) profile, including any adjustments to predict performance based on historical performance, actions being taken to improve performance, or acknowledgement of degraded performance.
While algebraically, ETC = EAC-AC is correct, ETC should ''never'' be computed using either EAC or AC.

In the following equation:

<math>
\begin{align}
EAC = AC + ETC
\end{align}
</math>

ETC is the independent variable, EAC is the dependent variable, and AC is fixed based on expenditures to date. ETC should always be reported truthfully to reflect the project team estimate to complete the outstanding work. If ETC pushes EAC to exceed BAC, then project management skills are employed to either recommend performance improvements or scope change, but never force ETC to give the "correct" answer so that EAC=BAC. Managing project activities to keep the project within budget is a human factors activity, not a mathematical function.

=== To-complete performance index (TCPI) ===

To-complete performance index (TCPI) is an earned value management measure that estimates the cost performance needed to achieve a particular management objective.{{sfn | Project Management Institute | 2021 | loc=§2.7.2.7 Forecasts}}
The TCPI provides a projection of the anticipated performance required to achieve either the BAC or the EAC. TCPI indicates the future required cost efficiency needed to achieve a target BAC (Budget At Complete) or EAC (Estimate At Complete). Any significant difference between CPI, the cost performance to date, and the TCPI, the cost performance needed to meet the BAC or the EAC, should be accounted for by management in their forecast of the final cost.

For the TCPI based on BAC (describing the performance required to meet the original BAC budgeted total):

<math>TCPI_{BAC} = { BAC - EV \over BAC - AC }</math>

or for the TCPI based on EAC (describing the performance required to meet a new, revised budget total EAC):

<math>TCPI_{EAC} = { BAC - EV \over EAC - AC }</math>

This implies, that if revised budget (EAC) is calculated using Earned Value methodology formula (BAC/CPI), then at the moment, when TCPI based on EAC is first time calculated, it will always be equal to CPI of a project at that moment. This happens because when EAC is calculated using formula BAC/CPI it is assumed, that cost performance of the remaining part of the project will be the same as the cost performance of the project to date.

[[File:Earned Value Calculations TCPI EAC and ETC.png|thumb|alt=Earned Value Calculations: TCPI, EAC and ETC|To-Complete Performance Index (TCPI) for 3 scenarios.]]

The graph illustrates  three scenarios outlined in PMI's "''Process Group: A Practice Guide''" (2022 edition, p.&nbsp;311):
# The To-Complete Performance Index (TCPI) required to complete the project on plan, assuming the Budget at Completion (BAC) remains unchanged (i.e., '''EAC = BAC''').
# The Estimated At Completion (EAC) calculated under the assumption that the Cost Performance Index (CPI) remains constant (i.e., '''TCPI = CPI''').
# The EAC calculated under the assumption that future work will be accomplished at the planned rate (i.e., '''TCPI = 1''').

=== Independent estimate at completion (IEAC) ===
The IEAC is a metric to project total cost using the performance to date to project overall performance. This can be compared to the EAC, which is the manager's projection.

<math>IEAC = \sum AC + { \left( BAC - \sum EV \right) \over CPI }</math>