Limitations of Earned Value Analysis in Project Management

The provided document discusses the limitations of using earned value analysis (EVA) in project management. It highlights several key concerns, such as the lack of consideration for quality, the presence of uncertainty, and the potential for inaccurate predictions. The document also mentions that EVM is not used extensively due to its high cost and the need for software coordination among various project departments. These limitations can lead to challenges and issues in project management.

Running head: PROJECT MANAGEMENT
Project Management
Name of the Student
Name of the University
Author’s Note

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PROJECT MANAGEMENT
Table of Contents
Question 1........................................................................................................................................2
Question 1(a) - Project 1..............................................................................................................2
Question 1 (b) - Project 2.............................................................................................................3
Question 1 (c)..............................................................................................................................5
Question 1 (d)..............................................................................................................................8
Bibliography..................................................................................................................................10

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Question 1
Question 1(a) - Project 1
Given,
BAC= $2,100,000.
Time= 12 months
Planned Value (PV) = $600,000
Actual Cost (AC) = $650,000
Percentage of work completed= 26%
Solution:
I.) Earned Value
= Total project budget*% of project completion
=$2,100,000*26%
=$546,000
II) Cost Variance
= Earned Value-Actual Cost
=546,000-$650,000
= - $104,000 (the negative value of cost variance reflects that the project is over-budget)
III) Schedule Variance

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= Earned value- Planned value
=$546,000-$600,000
= -$54000 (the negative value of schedule variance reflects that the project is behind schedule)
IV) Cost performance Index
=Earned value/Actual cost
=$546,000/$650,000
=0.84 (As CPI is less than 1, it suggests that the earning is less than the amount spent)
V) Schedule performance Index
= Earned Value/ planned value
=$546,000/$600,000
=0.91 (As SPI is less than 1, it suggests that less work has been completed than the planned
work)
VI) Estimate at Completion (EAC)
= AC+ [(BAC-EV)/ (CPI*SPI)]
=$650,000+ [($2,100,000-$546,000)/ (0.84/0.91)]
=$650,000+ [$1,554,000/0.923]
= $2,333,640.303
Question 1 (b) - Project 2
Given,

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Budgeted actual cost= $2,100,000
Time= 12 months
Percentage of work completed = 38%
Actual cost= $650,000
Planned value= $600,000
Calculation:
I) Earned value
=Total project budget*% of project completion
= $2,100,000*38%
= $798,000
II) Cost variance
= Earned Value-Actual Cost
= $798,000-$650,000
=$148,000 (the positive value of cost variance reflects that the project is under budget)
III) Schedule Variance
=Earned value- Planned value
=$798,000-$600,000
=$198,000 (the positive value of schedule variance reflects that the project is ahead of schedule)

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IV) Cost performance Index
=Earned value/Actual cost
==$798,000/$650,000
= 1.22 (As CPI is greater than 1, it suggests that the earning is more than the amount spent)
V) Schedule performance Index
=Earned Value/ planned value
=$798,000/$600,000
= 1.33 (As SPI is more than 1, it suggests that work has been completed than the planned work)
VI) Estimate at Completion (EAC)
= AC+ [(BAC-EV)/ (CPI*SPI)]
=$650,000+ [($2,100,000-$798,000)/ (1.22/1.33)]
=$650,000+ [$1302, 000/0.917]
=$2069, 847.328
Question 1 (c)
Project performance aspect Project 1 Project 2
Cost variance (CV) It is identified that in Project
1, the calculated cost variance
is around -$104,000. The
negative value of cost
variance reflects that the
On the other hand, in project
2, the calculated cost variance
is around $148,000. The
value of the cost variance is
positive because the budget

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project of the project is over
budget.
of the project is under budget
and it reflects that the entire
project will be completed
within the estimated budget.
Schedule Variance (SV) In project 1, the calculated
schedule variance is around
-$54000. The negative value
of the schedule variance
within the project helps in
reflecting that the project is
behind schedule.
However, in the project 2, the
calculated schedule variance
of the project is around
$198,000. The positive value
of the cost variance in the
project mainly helps in
reflecting that project is
ahead of schedule.
Cost performance index
(CPI)
It is identified from project 1,
that the calculated cost
performance index in the
project is around 0.84. It is
found that as the value of cost
performance Index is less
than 1, then it can be assumed
that the earning that will be
achieved from the project will
be less than the amount that is
spent on the project in order
However, it is analyzed from
project 2 that the calculated
cost performance Index is
around 1.22. It is found that
as the value of cost
performance index is more
than 1, then it can be assumed
that the earning that will be
achieved from the project will
be more than the money that
is spent on the project in

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to complete it. order to successfully
complete it.
Schedule performance index
(SPI)
In project 1, the schedule
performance index value is
around 0.91. It is identified
that as the value of schedule
performance index is less
than 1, then it can be assumed
that the amount of work that
is completed is less that the
work that is planned during
the initial stage of the project.
On the other hand, in project
2, the calculated value of
schedule performance index
is around 1.33. It is found that
as the value of the schedule
variance index is more than 1,
it can be analyzed that the
work that is completed within
the project is same as the
work that is planned during
the initial stages of the
project.
Estimated Actual Cost (EAC)
of the project
In project 1, the estimated
actual cost of the project is
around $2,333,640.303,
which is more than the actual
budgeted cost of the project.
Thus, it can be analyzed that
the project will face budget
shortfall during its progress.
In project 2, it is estimated
that the estimated actual cost
of the project is around
$2069, 847.328 that is less
than the actual budgeted
actual cost that is $1,200,000.
This helps in suggesting that
the entire project will be
completed successfully

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within the budgeted actual
cost.
Question 1 (d)
Limitations of using earned value analysis
The limitations of earned value analysis in project are provided below:
Quality: It is identified that while analyzing earned value of the project, quality of the
project is not considered. It is identified that in this situation, there is a possibility that even if the
project is scoring high in context to earned value management within the project however, the
quality of work is not appropriate (Fleming and Koppelman 2016). Quality is one of the
important criteria within the project, as it is not considered within EVA, it can cause number of
quality related issues as well as challenges within the project.
Uncertainty: While calculating the earned value management for the project, planned
value is considered as the baseline of the project by using which the calculations as well as
predictions within the project are done (Acebes et al. 2015). However, the element of uncertainty
is always involved while doing number of predictions within the project. The project can be on
schedule as planned when the earned value management is done however due to some of the
unforeseeable risks; there are chances of delaying project at later stages.
Beyond some of the project stakeholders: Earned value management is beyond the
stakeholders as the terminologies that are needed for calculating earned value is not possible to
remember unless the application is used on a daily basis (Chen, Chen and Lin, 2016). Therefore,
in order to convey information related with the project, the calculations are done using chart by

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excluding details formula for getting the accurate results. It is found that showing the entire
detail that was mainly used for reaching the comparison that EVM provides will generally
considered as the cloud report.
Problem of adjustment in actual plan: It is identified that earned value management
was never considered as an intended stand-alone tool but is used with other report as well as
schedule in order to discern the time as well as budget of the project (Fleming and Koppelman
2016). If the initial plan of the project is flawed then it will never match with the plan of the
project which becomes burdensome as the project manager does not need to adjust the planned
report but they need to change the actual plan that was created in order to match the value.
Accuracy: Earned value management does not evaluates the project accurately and they
generally represents that is needed in order to achieve the functionality of a specific project
(Verma, Pathak and Dixit 2014). However, most significantly, EVM does not successfully
covers the schedule as well as cost and thus no quality is generally factored into EVM. It is
found that without right vision as well as guidance, the entire project can be o budget as well as
time.
High cost: The cost of implementing Earned value management is high and as a result,
the managers of the project does not use it extensively. Therefore, a proper software is generally
coordinated between various project departments in order to achieve the objective as well as
goals of the project.