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Any PP member can tell me with examples the difference between :
Budgeted cost of work performed (BCWP) = EARNED VALUE (EV)
AND
Actual cost of work performed (ACWP) = ATUAL COST (AC)
With examples please
Regards
Mai
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Mai,
Let's have a look on this two terms from the contractor point of view. BCWP is a figure (in money) that can be defined on the percentage of the work have been done by multiplying with the amount belongs to 100% completness. This amount based on their budget value (which is not definitely, better to say it is almost never their contracted value). It simply says that this activity will cost me $2000. So when you finished 60meters out of the 100, you say that 60% of the work has finished, so my BCWP is $1200. The actual cost of it is ACWP is $1000 at this stage so you can be happy so far you saved $200. The difference of them are the so called Cost Variance. IF your ACWP is higher than your BCWP that you are not very happy and better to start some cost savings actions. (If I remember well BCWS is called EV (earned value) in the new PMI standards.) This is the theory. But what should be the amount belongs to 100% in case of an activity?
Do not forget! From contractors point of view it is never the contracted value. Why? Mike explained this very well: the contracted value contains other elemenst beyond promary costs, margins, mamagement fees, temporary infrastructure, cost of financing etc. (see Mike's comment) So it is a bit more complicated, if you interested I can explain it later.
So, You had good examples from Gary about the meaning of these terms, and also good examples from Mike, that what are the shortcomings of EVA (Earned Value Analysis) To further analyse (or make it more dificult) here goes an another example.
Imagine that you have a house to build (activity A 52 weeks, for $100K), and you have an expensive fence around (activity B, 16 weeks for $100K as well) Activity A scheduled from Januaryt till the end of the year, while B scheduled from September to the end of the year
Here comes the earned value analysis. In July you go to the site and you expect to see the following. Activity A should has to be completed in 50%, that is BCWS (new term!!) is $50K for A, and B shouldn't start so BCWS fro B is $0. so BCWS for the project is $50K.
Instead you experience the following: activity A hasn't started yet, so completness is 0%, therefore BCWP is $0, while activity B has started and finished in 100%, so BCWP for this activity is $100K. BCWP for the project is the sum of the activity BCWPs, that is $100K. So you expected that $50K should have been bult in, but insted $100K has been built in into your project. (The difference of BCWP and BCWS is the schedule variance) So for the first glance you are happy because your production was two times higher than the expected, and you might think - if you see only the EVA analysis- that you will finish it sooner. BUT.... I hope you do not think, that you will finish your project in time if you even haven't started to build the house, that is your critical activity is in 6 month delay.......
All in all.... EVA is just a tool, that can help you if you very much aware with all its terms, calculation rules, all the cost types, all the shortcomings, and never forget that it can be tricky. This can be very effective for contractors and clients as well, but it requires completely different approaches.
Miklós
Miklós
Hi All
There is a problem using pure costs as a measure of progress because at least 50-60% of a typical cost rate has no time related input.
There are at least 4 types of cost heads in each measured rate:
1. Fixed costs
2. Volume costs
3. Time costs
4. Percentage oncosts
Consider the "gold plated tap" example:
It takes a plumber say 1.5 hours to fit a pair of standard chrome taps to a basin - total cost rate 35.00 pounds.
It takes a plumber say 3.00 hours to fit a pair of gold plated taps - total cost rate 750.00 pounds.
If you are going to use costs on construction progress you must first filter out the all costs 1 2 & 4 and leave only 2. Time Costs.
I prefer to go further and do an EVA purely on Resource hours extracted from the cost plan.
You can if you wish track volume costs on your procurement programme or if you are brave enough on the consumable resources list - but this is best left to the bean counters during their cost / income reconciliation.
Best regards
Mike Testro
thanks
When you have developed and baselined your initial schedule, you have an activity, say "pour slab".
Your budget says this activity should take 2 days and cost £2000
After updating your schedule with actual progress, you are 60% complete through pouring the slab, and have spent £1000 to do the work.
Your Earned value =60% of £2000 = £1200
Your actual cost is £1000
This means you have "earned" more value than you have "spent", which means you are performing better than planned (from a cost point persepctive).
This performance is typically measured using either:
-CPI (Cost performance index), which =Earned Value / Actual cost =1.2 (anything greater than 1 is good)
-CV (Cost Variance) which = Earned Value - Actual Cost =£200
In my understanding, Planned Costs are usually Contract Costs (Contractors Costs are secret).
So, Budgeted Cost = Contract Cost
BCWP = Budgeted Cost Work Performed for a certain period
ACWP = Actual Cost Work Performed for a certain period
Thus, BCWP and ACWP might be considered equal.
Now, considering time or Schedule, will make the difference (Planned Time vs. Actual Time)
BCWP vs. ACWP - measured against time
So the difference is the variance in your schedule.
HTH
Email: PPadmin@planningplanet.com
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