What is the Health of your Project? (Earned Value Management)
Takeaway: I have seen a number of status reports in my earlier company, which is being prepared by various PM(s). And mostly it is % of completion of each feature. However, does it really convey the status? I am sure, it does not. Here, we will have a simple question to know the status of the project.
To know the status of the project, you need to simply ask only these two:
1. What is the SPI for your project?
2. What is the CPI for your project?
If SPI and CPI are below 1.0, then the project is not in good health, i.e., not performing well.
The calculation for these is also known as EVM, i.e, Earned Value Measurement.
SPI: Schedule Performance Index
CPI: Cost Performance Index
To understand it, we will use a simple example.
Example: Say you have a software project (fixed price), which will have to complete 6 modules. Cost of each module is $10,000. And you have to complete the project in 6 months. After 3 months, you find that 2 modules have been completed and the current cost for the project is at $35,000. Now what is the SV, CV, SPI, and CPI.
Answer: We will use EVM here to calculate.
EV = Earned Value – The value being earned by the project with the current work completed till date.
PV = Planned Value – The expected value of work to be completed till date.
AC = Actual Cost – The actual cost incurred for this project till date.
And all will be calculated in terms of money. This will somewhat difficult to understand initially. However, it will be clear shortly.
EV = 2 modules completed = 2 * $10,000 = $20,000
PV = [(6 modules/ 6 months) * 3 months] * $10,000 = $30,000
AC = $35,000
SPI = Schedule Performance Index = EV/PV = $20,000 / $30,000 = 2/3 = 0.667
CVI = Cost Performance Index = EV/AC = $20,000 / $35,000 = 4/7 = 0.557
By SPI 0.667 means, for every 1 day effort I am getting a return of 0.667 days of work.
By CPI 0.557 means, for every 1 dollar spent on the project, I am getting a return of 0.557 dollar.
It clearly means that the project is under schedule and over budget. And it needs remedial actions.