The BCWS is a key measurement to keep projects on track and assess performance against budget. Learn how it can improve your project planning.
Every project manager wants to accomplish three things:
- Meet or exceed project criteria and deliverables
- Complete projects on or ahead of schedule
- Complete projects on or under budget
If they do these things well, they’ll have happy customers and likely earn the profit they expect. If their project management plan fails to deliver on any of these criteria, the outcome isn’t going to be as positive.
Tracking performance against budget at every stage of your project is a great way to measure project progress objectively.
Overview: What is the budgeted cost of work scheduled (BCWS)?
The budgeted cost of scheduled work (BCWS) is also called the planned value (PV) as its core function is to plan the value of the project at various stages. It’s essential in bidding and managing jobs to assure there’s an appropriate profit at the end of the project.
For organizations doing project work, the BCWS is typically factored in and allocated to days or phases. If there’s an overrun in any day or phase, there will likely be a total budget overrun and reduced profit.
Any project starts with scoping the project life cycle. This includes the project plan, schedule, and budget.
5 benefits of calculating the BCWS
By calculating the BCWS, you create a working document that lets you assess your financial progress against actual performance at any point in the project.
1. BCWS helps manage project costs
By having benchmarks for performance and the costs associated with each phase, it’s easier to see when projects are estimated to exceed anticipated costs during projects.
2. BCWS provides a baseline measurement
As actual costs are incurred, they can be quickly compared to the BCWS for each phase of the project.
3. BCWS uncovers problems more quickly
When you know exactly what your costs should be at every phase of a project, discrepancies will be discovered more quickly and be easier to deal with.
4. BCWS doesn’t require actual input from the field
Because it tracks costs by days or phases, the BCWS doesn’t need to account for tracking or reconciliation from field data. It’s designed to be a snapshot of expected costs for any particular part of the work performed.
5. BCWS tracking helps future project planning
By comparing the BCWS to the actual project costs, it can help you find where things went off track so you can do a better job of planning future projects.
How to calculate the BCWS
Calculating the BCWS or PV is a fairly simple formula. It takes the project scope and divides it into phases which will be used for tracking. Everything begins by creating a budget in the first place.
1. Create your project budget
Your project budget will include the total costs needed for completion. It includes the costs of labor and material procurement, as well as operating costs. Creating your BCWS works best when you can break costs down into phases and attribute individual costs to each phase.
This process can become complex when you break out budgets into multiple phases. Not all phases will have equal costs. And often phases will overlap. While simple projects can be tracked in spreadsheets, more complex projects will benefit from project management software to break down each phase and provide the tracking you need for more efficient scope management.
Once this first step is completed, your BCWS will be the same as your budget since no work has yet begun. As your project gets underway, you’ll need to update your BCWS.
2. Track your BCWS
As your project progresses, you’ll want to track your BCWS. It gives you a quick look at where you are against budget at any given point.
BCWS = % Complete (Planned) x Project Budget
For example, let’s say you had a budget of $100,000 and 30 days to complete your project. After 15 days, your BCWS would be 50% x 100,000 = $50,000.
3. Track your budgeted cost of work performed
BCWS is just one metric you need to track during your ongoing project risk management analysis. The budgeted cost of work performed (BCWP) tracks how far along your project is versus where you budgeted to be as part of your project cycle management plan.
BCWP = % Complete (Actual) x Project Budget
In our example, if you’re really 75% completed at the 15-day mark, your BCWP would be 75% x $100,000 = $75,000.
4. Compare budgeted project costs to the actual cost of work performed
In the next step, it’s time to compare both of these metrics against the actual cost of work performed (ACWP) in your project quality plan. This will tell you whether you’re over budget or under budget at any point in time (the cost variance or CV).
Cost Variance = BCWP – ACWP
Continuing with the same example, let’s say your project at the halfway point has spent $60,000. Your CV would be $75,000 – $60,000 = $15,000. In this case, you’ve spent $15,000 less than anticipated. If it’s a negative number, you’ve spent more than you planned.
This can also be expressed as a percentage, called the Cost Performance Index (CPI).
CPI = BCWP / ACWP
Using our example, the CPI would be $75,000 / $60,000 = 1.25%. This tells us the project has spent 25% less than it should have at this point. If the index is below 1, you’re experiencing cost overruns.
5. Communicate with key stakeholders
An important part of your project communication plan is to keep key stakeholders advised where the project stands versus budget. The process will surface problems so everyone can be better informed and project planning can adjust to compensate for shortfalls.
6. Review at project completion
A post-project assessment should be done to compare costs at each phase of the project versus initial budget perspectives. This is an important exercise to identify not just where issues occurred but why they occurred.
If you failed to realize the results you expected at the beginning of the project, the information can help you prevent a repeat performance in the future. Pay particular attention to these common reasons for project overruns, including:
- Scope creep and change orders
- Unforeseen project changes
- Items missed in budgeting
- Inefficient resource planning
This information can be used to assess performance as well as influence future bids and projects. By identifying key lessons learned, it can help improve your accuracy and prevent you from making the same mistakes again.
Tracking these metrics leads to better performance management
These project management metrics help stakeholders evaluate how well a project is going from a budget perspective. As part of performance management, they provide constant progress checks that identify whether projects are running smoothly or if they’re getting bogged down.
As one of my mentors used to say: bad news doesn’t get better with age. When you find there’s a problem, the sooner you can recognize it, communicate it, and deal with it, the better off you’ll be.