Have you ever accidentally gone over budget at the grocery store? You’re browsing, pick up a few extra items, and realize once you reach the checkout line that you don’t have enough money. You frantically decide which items to leave behind and offer apologies to the cashier and customers waiting impatiently in line behind you. Just as tracking the cost of your items as you shop helps avoid this stressful scenario, calculating the Budgeted Cost of Work Performed (BCWP) during project management can prevent your team from unknowingly exceeding your budget, inadvertently damaging relationships with clients and stakeholders.
In this article, you’ll learn how BCWP can protect the interests of all parties involved in a project by allowing you to monitor your budget. BCWP is a valuable tool that can improve the performance of your team and keep everyone fully informed of the project’s status.
What is BCWP?
BCWP, also known as the Earned Value (EV), is part of Earned Value Management, a popular project management approach that allows managers to objectively analyze the progress of a project.
In essence, the BCWP reflects how much of the budget should have been spent at a given point in time, typically at the conclusion of a particular milestone or phase of the project. Project managers can determine the BCWP using the project’s total budget and the percentage of work performed so far.
How does BCWP compare to Actual Cost of Work Performed (ACWP)?
The Actual Cost of Work Performed (ACWP) is another key metric in Earned Value Management. Project managers often use ACWP in combination with BCWP to assess project expenses.
While BCWP measures the budgeted estimate based on the percentage of the project that is complete, ACWP indicates the actual amount of money that has been spent. Comparing the ACWP and BCWP allows the project manager to determine whether a project is overrunning its budget and predict whether the overall cost will be higher than anticipated.
BCWP in project analysis
BCWP is a powerful analytical tool in project management because it allows a manager to determine whether a project is on track. In addition to its use with the ACWP (actual cost of work performed), managers can also compare the BCWP to the Budgeted Cost of Work Scheduled (BCWS), also known as the planned value (PV). This comparison makes it possible to determine whether the project is running behind or ahead of schedule.
Benefits and drawbacks of BCWP
BCWP and Earned Value Management are highly effective for many organizations, but they’re not always the best option. It’s important to evaluate the advantages and disadvantages before deciding whether BCWP is a good match for a project.
Benefits
When used effectively, BCWP can help position your team for success and prevent any unexpected budgeting issues from derailing the project or damaging client relationships.BCWP is beneficial because it:
- Requires only a few key data points
- Is cost-effective
- Empowers managers to oversee and monitor project performance in real-time
- Allows project managers to clearly communicate with stakeholders about the project
- Enables management to intervene and course correct when necessary
- Makes it possible to compare multiple projects within an organization and analyze why one may be performing more effectively
Calculating BCWP and comparing it to other metrics helps the project manager remain cognizant of any issues with spending. Rather than realizing a project is significantly over budget upon work completion, a manager can recognize the issue early on and act accordingly.
Drawbacks
While calculating the BCWP is largely advantageous, there are certain challenges to using such a system. Being aware of these potential hurdles can help you make the best use of Earned Value Management or determine whether an alternate method of project monitoring would be better. BCWP may be of limited use to your organization in some cases because in addition to its benefits, it also:
- Only evaluates the timing and budget of a project and does not account for quality, necessitating the implementation of separate quality control measures
- Is reliant on adequate data that accurately reflects real-time costs and work completion
- Does not include context that can help illuminate the reasons behind budget deviations
- Can be confusing to stakeholders who are unfamiliar with the relevant terminology
It’s generally possible to overcome each of these challenges with appropriate planning and documentation. For example, using a Work OS that allows you to track each team member’s completed work can help ensure that your data is up to date.
How to calculate BCWP
The formula to calculate BCWP is fairly straightforward, but it’s reliant on building a system that provides accurate data. It’s also vital that you use the BCWP in a way that makes it useful for your project team and stakeholders.
1. Create a total budget for the project
Before the project begins, create a total budget that incorporates all costs that you expect to incur. These should include:
- Labor
- Materials
- Incidentals
- Operations
In addition, separate the project into segments and assign a portion of the total budget to each phase.
2. Calculate the BCWP and other metrics
At any point, you can calculate the various metrics that help evaluate the status of your project. To calculate BCWP, multiply the percentage of the work completed by the project’s budget.
BCWP = percentage of Work Performed (Actual) x Project Budget
For example, imagine that you have a project start date of February 1 and a completion date of February 20. The project has a budget of $10,000. It’s now February 10, halfway through the project’s schedule. You have just completed the second of four phases, meaning that you’re also finished with 50% of the work for the project. In this scenario, the formula would read:
50% x $10,000 = $5,000
This indicates that, at this stage, $5,000 should have been spent on the project. This number on its own is helpful, but it’s much more useful in comparison to other metrics, such as BCWS, which indicates the amount of work that you planned to have completed by this point in the project budget.
3. Calculate the cost variance
One of the most important things you can determine with BCWP is cost variance, which assesses the cost performance for the work that has been accomplished thus far. Returning to the previous example, imagine that on February 10, you’ve spent $4,000. This is your ACWP, the amount of money that you have actually spent at this stage of the project. You can subtract the ACWP from the BCWP to determine cost variance.
$5,000 (BCWP) – $4,000 (ACWP) = $1,000
A positive cost variance such as this one indicates that the project is running under budget, whereas a negative cost variance would indicate that it’s over budget.
4. Communicate with stakeholders
One of the primary purposes of calculating a BCWP is to clearly communicate the status of the project with stakeholders. When you do, it’s important to provide context in addition to a list of metrics. If you have an explanation for why your project is running over budget, you may want to include that information to address the stakeholders’ concerns.
How BCWP can affect future projects
BCWP also offers an opportunity for internal assessment and future improvement. When a project is complete, you can conduct an overall assessment to determine where you might have made improvements and saved money.
Because BCWP is calculated at various points throughout the project, it’s a great indicator of where things might have gone off track. In contrast, if you wait until the project is done to analyze your budget, it may be much more difficult to target specific issues. With this knowledge in hand, you can make changes to budgeting, resource allocation, and productivity strategies for later projects.
Using BCWP on monday.com
The tools available through monday.com make it possible to accurately and efficiently calculate your BCWP. You can create a budget to track expenses for every phase of a project. You can also use task management tools to track your team’s progress so that you have accurate data for your BCWP calculation. Finally, the communication features on monday.com make it possible to quickly and securely relay the project’s status and BCWP to all interested parties, including team members and stakeholders.
Frequently asked questions
How do you calculate BCWP?
BCWP is calculated by multiplying the percentage of the project that has been completed by the project’s total budget. The formula reads as follows: BCWP = % Work Performed (Actual) x Project Budget.
What is BCWP in project management?
BCWP stands for Budgeted Cost of Work Performed and is also known as Earned Value (EV). It represents the budgeted cost of a project at a specific point in time. Project managers can use the BCWP to determine whether a project is running under or over budget, more accurately estimate the final project cost, and address spending issues before the project is completed. If you wish to also take into account labor (and employee salary) into the budget, you can utilize an hourly salary calculator.
Use BCWP for budget tracking and forecasting
BCWP and Earned Value Management can play a critical role in project management. However, for this strategy to work, accurate real-time data is needed to ensure that the BCWP is a realistic representation of the status of your project. With the monday.com Work OS, you can track your project expenses and progress to keep stakeholders informed and your team on track for the duration of the project.
Calculating your project’s BCWP allows you to determine at an early stage whether your project is running over or under budget. This gives you the opportunity to make adjustments along the way and to avoid unpleasant surprises at the project’s completion. All the tools that you need to monitor your project, calculate your BCWP, and communicate with stakeholders are available through monday.com.
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