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This lesson focuses on earned value management. This is the concept of tracking where your project is and where it's going to be in the future. When doing this; it is important to consider the following factors:
Planned Value (PV) : the actual budget
Earned Value (EV) : the work that's complete
Actual Cost (AC): the money that paid for the project in the first place
[toggle_content title="Transcript"] Under control, costs there is earn value management, which is tracking where your project is, where it is going to be in the future. Plan value is one of the key inputs as far as earn value and actual cost. You have to understand what each one of these are before we can continue. Plan value is your actual budget. As you are building up your budget, during the planning process, you are coming up with stages. On day one, my project will cost a thousand dollars. Day two my project will cost two thousand dollars. Day 3, three thousand dollars. By the end of my project it might be a 100 thousand dollars after a hundred days. Earn value is the work that is complete. If all the work that I set up for on day one is complete, I got a hundred percent of that. My earn value for day one will be a hundred percent, I get a thousand dollars. If I only have fifty percent of the work done on day one, I will only get five hundred dollar cause I only did fifty percent of the work I set up to do on day one. Earn value is the work that is complete. Actual cost now is where you have to get the concept down. Actual cost is the money that it came out of your wallet to pay for it. On day one my budget was a thousand dollars is what I planned for. The work that got done was that thousand dollars, I got a hundred percent on that work done. I got to pay that amount. What if I use twice the amount of waiver to get that work done, on day one, that is twice the amount of waiver. I planned for a thousand dollars. It is going to cost me two thousand dollars. I am paying two thousand dollars to have the work complete. For control cost you have to understand these three values. Which is plan value, earn value and actual cost. Plan value is what you have done on the planning process. You created a budget. Under plan value I said day one I am going to spend a thousand dollars. Day two , two thousand dollars. I am going to spend a thousand dollars every day on a hundred day project. This last term is budgetary completion. At the end I am going to spend a hundred thousand dollars. Over a hundred days for this project. Earn value is taking your plan value to figure out what work you have completed. You set goals for day one of what needed to be done. When those goals are met you have earned it. If you completed everything you set up for day one, you have received a thousand dollars of earned value. If you did a hundred percent of the work. If you did fifty percent of the work, you say the plan value for day one a hundred and fifty percent, that's only worth five hundred dollars actual cost, this is what confuses many people. We have just talked about plan value which is your budget, earn value which is the work that you have completed, actual cost when you get to think about it, that is the money I am paying out of my wallet to get that work done. If I said my plan was a thousand dollars for day one, my earn value, I got everything done under the plan, so I earned a thousand dollars. But, I used twice the amount of waiver for that first day. So actually it cost me more than what I planned. The actual cost is two thousand dollars. If you look over here I have put five days on the board. I mentioned my plan is to do a thousand dollars a day. Day five, five days into it, five thousand dollars. Earn value is taking assessment of what you have done. On day one I earned a thousand dollars. I did everything I said I was going to do. On day two, I wasn't as lucky, I only earned half a day's worth of work for what I set out. My earn value was only one thousand five hundred dollars. On day three I caught up. I got everything that I set up to do. By day three I got three thousand dollars. On day four, I fell way behind again am five hundred dollars behind what I planned so I only did three thousand five hundred dollars' worth of work. On day five I caught up back again so its five thousand dollars. One thing you are going to try to do, is you are going to try to focus where you are on the future especially at budgetary completion, we are going to those formulas next. Trying to make sense out of this data. On day one I put twice amount of people so cost me twice the amount that I planned. Cost me two thousand dollars. On day two I reduced my waiver, I didn't get as much work done but it only cost me two thousand five hundred dollars for the total part of the project at that point. On day three I increased my waiver, I got caught up so it cost me three thousand five hundred on my wallet. I was only planning to spend three thousand by that time. Day four I added my waiver, cost me five thousand dollars, by day five I spend six thousand dollars when I was only planning to spend five thousand dollars. The next work formula is critical it is what sets everything up. We are a going to look at a certain time. We are going to look at day four to figure out how we are doing. I want to write down the formulas which is schedule variance, which is represented by sv, cost variance which is represented by cv, and schedule performance index and cost performance index. For each one of these I want to make it easy. We are going to start off with earn value. So am going to just write ev and ev. For schedule variance I am looking at time. I am trying to figure out how well am I doing as far as time goes. For cost variance I am trying to figure out how well am I doing as far as my budget. From my schedule variance I have already used that ev and it always be plan value and actual cost. My variances, I am going to use subtraction. From my indexes I am trying to get a ratio so I am going to divide. Schedule variance am dealing with time so between plan value and actual cost, plan value is trying to figure out where am I planning to be, moment of time, according to my budget. Actual cost is trying to figure out cost information. What will that cost be out of my wallet. What makes sense is for schedule variance if you don't know the time I am going to use plan value. If I use plan value for schedule here am also going to use plan value down here for schedule. For cost variance, the only thing left is AC, which is dealing with cost so I am going to use AC here and AC down here. Let's put the numbers in. Earn value for day four is four thousand dollars. Earn value for day four, I was looking at plan value. Earn value is 3500. I am going to subtract plan value which s what I circled and I also have plan value down here so I am going to divide down here by four thousand. I have used earn value and I have used plan value. Actual cost is five thousand dollars. My schedule variance is if I take 3500 and subtract 4000, I am minus $500. That means at that moment on time on day four I am $500 behind of what I planned...where I was planning to be. My cost variance is trying to figure out my budget. If I take 3500 minus 5000 not only am I behind schedule right here, am also doing bad on budget. I am $ 1500 overspent of where I plan to be. My schedule performance index if I have a one, it means I am right on schedule right where I plan to be. I am greater than one means I am doing great. I am ahead of schedule if am less than one I am behind schedule. My sci is 3500 divide by $4000. If I take my calculator I believe that is .875. Going with what I have just said, I am less than 1.0 that means my schedule am behind where I planned to have been Cpi, I am taking 3500 and dividing by 5000 it comes up to .7. Which makes sense, I am less than one, it looks like am over budget. For every dollar am spending, I am losing 30 cents. [/toggle_content]