EVM Forecasting Concepts

Up until now, this series on Earned Value Management (EVM) has focused on how metrics can be used to measure and analyze actual performance.  That’s a very powerful tool in the Project Manager’s (PM’s) toolkit, however it provides only one perspective: historical.  As such it’s incomplete in terms of helping the PM understand his or her project.  Fortunately, the same EVM building blocks we discussed earlier can also be used to help make certain forecasts or predictions regarding the project.

In this post, I will introduce foundational concepts that must be understood before we tackle EVM forecasting metrics such as Estimate to Complete (ETC), Estimate at Complete (EAC), and the To Complete Performance Index (TCPI).

The figure below will serve that purpose.

Forecasting Graph

The figure depicts an in progress, baselined project.  It’s in progress because there has been:

  • performance earned (as represented by the Budgeted Cost of Work Performed or BCWP line) and
  • actuals incurred (as represented by the Actual Cost of Work Performed or ACWP line)

Data points for BCWP and ACWP were added to the chart over time, after every status period.  Each BCWP data point represents the aggregate BCWP for the entire project at a particular point in time (i.e. the Status Date).  (The same is true for the ACWP line.)  This project has been statused multiple times.

The schedule has been baselined because it is difficult to calculate a Budgeted Cost of Work Scheduled (BCWS) spend profile without a baselined file.  Tools such as Microsoft Project (MSP) will calculate the spend profile or BCWS for the user once the schedule is baselined.

Note that a Status Date has been established.  This is also known as “Time Now.”  Think of this as the line in the sand against which all status is collected.  The ACWP line does not extend beyond the Time Now divider because that’s impossible.  How can costs be incurred in the future?  This is the same reason the BCWP line does not extend beyond the Time Now line – workers cannot travel into the future and complete work.  (If your BCWP and/or ACWP lines extend beyond the Status Date, then there are statusing errors in the schedule that must be corrected before an accurate BCWP and/or ACWP may be calculated.)

However, the BCWS line is different because it represents the plan for how the project intends to spend budget and complete work.  Therefore, it is appropriate that it be plotted over the entire period of performance and terminate at the project’s BAC or Budget at Completion (in this case, that number is $750,000).

Lastly, notice the overall structure of the figure itself.  It’s divided into two halves by the Time Now line.  Everything to the left of Time Now are actuals.  This is performance earned and actual costs incurred.  Everything to the right of Time Now is work to go.  It’s the future.  Understanding these two time frames in the context of forecasting will be important to calculating the ETC, EAC, and TCPI, which we’ll do in the next post.

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