Wednesday, September 10, 2008

BCWP vs. ACWP

I received a comment on this post requesting an explanation of the difference between BCWP and ACWP. So here is a simple example to help show the what these values represent and how they are used.

First the definitions:
  • BCWS = Planned Value (also called PV). It means: What is this thing worth to us? It is often used as a synonym for "planned cost".
  • BCWP = Earned Value ( also called EV). It means: What have we received for our money?
  • ACWP = Actual Cost (also called AC). It means: How much did we spend to get what we received?
So the short answer is that BCWP means value received or "earned," while ACWP means amount spent. The difference between BCWP and ACWP gives you your cost variance.

Now the example:

Let's say you contract with a painter to paint your house. He estimates that he can paint all four walls at a rate of one wall per day, over a total of four days. You agree to pay him $100 at the end of each day, or a total of $400 for the entire project.

At the end of the first day, one wall is completed.
  • Your BCWS = $100 since you planned to have one wall complete at the end of day 1.
  • Your BCWP = $100 since the wall was actually completed.
  • You pay the painter the agreed $100, so your actual cost, or ACWP is $100.
We can use these values to understand the project schedule and cost variance.

  • Schedule Variance (SV) = Earned Value - Planned Value = BCWP - BCWS = $100 - $100 = $0. Your project is right on schedule.
  • Cost Variance (CV) = Earned Value - Actual Cost = BCWP - ACWP = $100 - $100 = $0. Your project is on budget.

6 Comments:

Anonymous Glen B. Alleman said...

Michael,
A better term for BCWS would be "what are we planning on spending to get each wall painted?" "What are we budgeting for these activities?" The Budget Cost for Work Scheduled (Planned).
The term "worth" is not usually found in EV. Planned Value and Earned Value, where EV=PV*100% is the ideal.

12:24 AM  
Blogger michael said...

Glen, great point, thanks.

You're right, of course. The term "worth" is not typically found in EV, and BCWS is more precisely defined as planned cost.

This brings up an interesting point. While it is important to think and speak with precision, we must also recognize that many people have significant trouble understanding EV. Why? See here. But EV itself is not that hard. I have often felt that the reason is the way it is presented and taught, so I'm always on the lookout for new ways to present the material. There is a book to be written here, I think.

In this case, I used the term "worth" because the EV alphabet soup can be confusing. I find that "PV" is more intuitive than "BWCS" for most people. From there, it's a short step from PV to "worth", which is understood as a synonym for "value".

Yes, it's a little loose, plus it blurs the time phase component, but it's useful as an introduction to the concept. Your comment takes it to the next level by adding precision to the definition and by reinforcing the timephase concept by making the point about spending for each wall.

7:01 PM  
OpenID galleman said...

Michael,
I left a meeting yesterday where I led a 4 hours workshop on delploying our Deliverables Based Planning method for an enterprise IT project. The last part of the workshop introduces the idea of EV and its application to managing such projects. Some in the room understood, some did not. There was a near zero correlation with the holding of a PMP. But a near 100% correlation with those PM's who had worked in aerospace of defense.
I've enbcountered large firms where EV was mandated becasue of SOX. In the same firms they copy ACWP to BCWP in Clarity and call it a day - every back to work!
Some might say there is something fundamentally wrong with EV when it causes such confusion. I'd conjecture the profession of project management has gone in the ditch in many places we visit and sometimes work. Hence my desire to stick with our A&D clients. Event then there is confusion about physical percent complete and how to provide credible measures inside of work packages.
Latley, I've become cranky about this topic and for those who can't do the necessary work to figure this out - god help them when the auditors come around asking "where did the money go?"
Maybe chipping away one concept at a time will help. But the Feds are now demanding EV be used for IT projects. GAO has several burning reports showing that the lack of good EV process has costed the tax payers billions.
Keep on plugging.

11:57 PM  
OpenID galleman said...

Michael,
There comes a time in every project managers career where learning how to manage using the tools is simply part of the job.
For the professional project manager, EV is one of those tools.
I accept that it might have to be "dumbed down" at times. But from my experience that makes those participanting "professional amatuers."

12:00 AM  
Blogger John Rusk said...

Michael,

>I'm always on the lookout for new ways to present the material

Here's one way, which has worked well for me. I'd be interested in your thoughts on it.

1:41 AM  
Blogger Bilbo-Baggins said...

Dear Michael,

Going by your example, Day 1 there is no variance. If wall 2 and wall 4 requires 1.5 days each, than there is a variance of a day when the project is complete. If you incur a loss of say $300 or $200 or whatever, due to this extra day, won't the extra money be equally accountable to all the walls, and not just 2 and 4. This is because, I can do down line work only when the 4 walls are painted.Wall nos 1 and 3 are finished in time which is good, but unless all 4 walls are painted, my utility is zero.

Would like to have your opinion on this.
Regards
Arindom
salesgyaan.blogspot.com

7:34 PM  

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