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288 Part IV: Controlling Your Software Project sponsor and stakeholders in a language that they can all understand. Maybe. They should. Oh, they will. Understanding this information also aids you in determining if you need to make changes to your cost and schedule estimates. Creating a new EAC When your project sponsor or stakeholders ask about your Estimate at Completion (EAC), they are asking you to forecast the total value of the project based on project performance thus far. EAC answers the question, What do you expect the total value of the project will be when all the work activities of the project are completed? You use the EAC to forecast the total value considering how efficiently you are completing project activities. There are many formulas out there to aid you in determining your EAC, but for starters just consider one. You must take into account two things when determining your EAC: your BAC and your CPI. We explain how to calculate your CPI later (see Finding your cost and schedule performance indexes ), so just take our word for it now that your CPI is 0.96. The ideal CPI is 1.00 or more. Your CPI tells you how much you are getting for every dollar you spend. In other words, you consider how much you expected to spend and how much you are getting for each dollar you expected to earn. To calculate your EAC, you divide your BAC by your CPI. EAC = BAC CPI In your example, this would be EAC = $120,000 0.96 = $125,000. Seems logical, doesn t it? You budgeted $120,000, but you know your project isn t going as efficiently as planned because your CPI is less than one. If it s not as efficient as you planned, then you know you re spending more money than you expected. If you continue going at this rate, then instead of spending $120,000 as you originally budgeted, you should expect to spend $125,000 at completion. EAC answers the question, How much do you expect the project to cost based on where you are in relation to the cost and the schedule? There are many variations of each of these formulas. If you plan on studying for the PMP certification, you should memorize the formulas in the Guide to the Project Management Body of Knowledge (PMBOK). The primary point to
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Chapter 14: Using Earned Value Management in Software Projects 287 Calculating earned value After you know the planned value, you can calculate the earned value (the value that you have earned on your project) of your software project relatively easily. First consider what earned value means how much work your team completed at a particular point in time. Just take the actual percent of the project that your team has completed and multiply by how much you said you would spend for the entire project. Multiply the actual percentage of the project complete by how much you planned on spending (BAC). In our example we have completed 20 percent of the project, so here are the details: EV = Actual % complete BAC Actual % complete = 20% Budget at Completion (BAC) = $120,000 EV = .20 $120,000 = $24,000 At this point in time, your project has an earned value of $24,000. Because you planned on your project having a value of $30,000 at this point in time, but it only has a value of $24,000, you have a $6,000 variance (which we discuss later). Calculating your AC You add your direct costs to your indirect costs to determine your actual cost (AC). Say for the sake of argument that the AC is $25,000. Now that you understand all of these terms and you know how to calculate the formulas, you also know whether or not your team is ahead of or behind the planned schedule. You now know whether your costs are more or less than you planned and you have been able to quantify your progress. With this knowledge, you not only can plan for what changes you need to make for the rest of the project, but also report your progress to your
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286 Part IV: Controlling Your Software Project Budgeted at Completion (BAC): This refers to the amount that you planned for the cost of the project. In our example, we budgeted $120,000 for the cost of the entire software project. When you add all the planned values for all the project activities, you get a total BAC. In our example, your BAC is $120,000. BAC is the total cumulative PV at completion. Estimate at Completion (EAC): Looking at where you are at this point in time, how much work do you estimate it will take to complete the scheduled activities? The answer to that question is your EAC. To gather your EAC data, use what you know about where things stand right now to estimate what your costs will be when the project is completed. You evaluate your project s performance as of a particular point in time. Playing with Values When you understand how planned value, actual cost, and earned value relate to your project, you can start figuring out how to calculate these numbers so that you, your sponsor, and your stakeholders can have a meaningful snapshot of where your project stands with regard to costs and schedule. Calculating your PV How much did you plan to have completed at this point in time? Your percentages may vary, but for our example, we say that you planned on having 25 percent of the code completed by June 29. But you ve actually completed just 20 percent. If your BAC is $120,000 and you planned on having 25 percent of the project completed, here s what the math yields: PV = Planned % complete BAC Planned % complete = 25% Budget at Completion (BAC) = $120,000 PV = .25 $120,000 = $30,000 You had planned on your project having a value of $30,000 at this point in time.
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