Calculating Budgeted Cost of Work Performed (BCWP) - A Key Metric in Earned Value Project Management

Understanding how to calculate budgeted cost of work performed (BCWP), also known as earned value, is a crucial skill for anyone involved in project management. This metric allows you to track the performance and progress of projects, determine if you are on schedule and budget, and forecast future performance. In this comprehensive guide, we will break down everything you need to know about BCWP - how it is calculated, how it relates to earned value management, the advantages and limitations, and most importantly, how it can be applied to improve project oversight.

Why Understanding BCWP and Earned Value Management Matters

For any project manager overseeing a project, having visibility into performance and progress is absolutely essential. Without a way to accurately track where a project stands relative to the original plan and budget, it becomes incredibly hard to proactively identify and address issues before they spiral into major problems. This lack of insight was the downfall of many projects before the development of earned value management (EVM) and metrics like BCWP.

With BCWP specifically, project managers gain the following:

• A quantitative measure of the work completed to date, expressed in monetary terms

• Insight into whether the project is on track vs the budget and schedule

• The ability to forecast whether the project will go over budget

• Data to calculate cost and schedule variance to identify deviations

Understanding BCWP is mandatory for anyone looking to leverage the full power of earned value project management. Read on to learn exactly how it is calculated and applied.

How is BCWP Calculated?

BCWP stands for budgeted cost of work performed. It measures the value of completed work in terms of the project's total budget.

The formula to calculate BCWP is:

BCWP = Sum of the Budgets for All Completed Work Packages + Completed Portions of Open Work Packages

Some key points about the BCWP formula:

• It is cumulative - BCWP reflects all work completed from project start to a specific status date

• Work packages are pieces of work identified in the work breakdown structure (WBS)

• For completed work packages, 100% of the budget is counted

• For open work packages, only the % completed is counted

For example, if a task is 25% complete with a budget of $5,000, the BCWP would be 25% * $5,000 = $1,250

BCWP is all about the value of the work done to date. It enables project managers to quantify budgeted work in financial terms rather than just as a percentage.

How Does BCWP Relate to Earned Value Management?

BCWP is a central metric used in earned value management (EVM), a project management technique developed in the 1960s. EVM looks at scope, schedule, and cost to provide an integrated view of performance and progress. 

The two other core metrics in EVM are:

• Budgeted Cost of Work Scheduled (BCWS): The budgeted cost of work that should have been completed by a status date if the project is on schedule. Also called planned value (PV).

• Actual Cost of Work Performed (ACWP): The actual cost incurred for the work completed by a status date.

By comparing BCWP, BCWS, and ACWP, project managers can calculate important variances like schedule variance (SV) and cost variance (CV). These variances highlight whether the project is on track or deviating from the baseline plan.

Earned value management provides a much more objective and data-driven way to manage projects than simply looking at % complete. BCWP is the essential starting point that enables the execution of EVM.

How is BCWP Used to Calculate Earned Value?

BCWP represents the value of the work completed to date. For this reason, it is synonymous with the term earned value. By comparing BCWP at a point in time to the project’s total budget, you can calculate earned value as a percentage.

For example, if the total project budget is $100,000, and the BCWP to date is $25,000, then:

Earned Value % = BCWP / Total Budget 

      = $25,000 / $100,000

      = 25%

This percentage earned value is an intuitive way to communicate how much of the budgeted work has actually been completed so far. While the term “earned value management” uses the same words, it refers to the full project management approach, not just the percentage.

BCWP as a Project Management Metric

Now that we’ve covered how to calculate BCWP, let’s look at some examples of how it can be applied as a powerful metric for project oversight.

Measure Progress Against the Baseline Plan

BCWP allows you to quantify exactly how much planned work has been accomplished to date. By comparing it to the budgeted cost of work scheduled (BCWS), you can determine if the project is behind or ahead of schedule.

For example, if BCWP is $80,000 and BCWS is $100,000 at a status date, the project is behind because less value has been delivered than was planned.

Identify Early When Projects Go Over Budget

If BCWP starts exceeding the budgeted cost of work scheduled, it is an indicator that the project is likely going over budget. Project managers can identify this early deviation and take corrective actions.

For example, if BCWP is $125,000 but BCWS is $100,000, more dollars are being spent than planned.

Forecast Final Costs

Earned value metrics like BCWP can be used to forecast the total estimated cost at completion (EAC). By looking at past cost performance, you can predict whether you will come in under, on, or over budget.

Surface Schedule or Cost Issues

By combining BCWP and ACWP to calculate schedule variance (SV) and cost variance (CV), you can identify the root causes behind project deviations.

For example, a negative SV indicates the project is behind schedule. A negative CV means it is over budget.

Communicate Performance

BCWP provides an objective financial view of progress that can be clearly communicated to stakeholders. Instead of vague percentages, you can demonstrate the dollar value of work accomplished.

Prioritize Corrective Actions

If BCWP, SV, and CV point to emerging schedule or cost problems, the project manager can prioritize interventions to get the project back on track.

Assess Contractor Performance

For projects using contractors or external vendors, BCWP offers an impartial way to measure and validate their work performance compared to payments (ACWP).

Key Benefits of Tracking BCWP

Some of the major benefits project managers gain by tracking BCWP include:

• Earlier insight into issues - Rather than waiting for problems to materialize at the end, BCWP allows earlier identification of deviations while there is still time to correct them

• Data-driven decisions - BCWP provides objective data to support project decisions vs. relying on guesswork or intuition

• Increased accountability - BCWP enables project managers to hold teams accountable by quantifying completed work

• Proactive forecasting - Performance data can be used to model project completion and forecast final cost

• Better communication - BCWP gives a clear financial picture of progress to communicate rather than abstract % complete

• Validates earned payments - BCWP helps validate payments to contractors or vendors based on work delivered

Potential Limitations of BCWP

While BCWP is a best practice metric for project oversight, there are some limitations to be aware of:

• Detail required - BCWP relies on having detailed work packages and budgets, which is more effort upfront. Insufficient breakdown can reduce the accuracy or usefulness of BCWP.

• Subjective assessments - Assessing % complete for open work packages can involve some subjectivity based on the project manager’s judgement.

• Oversimplification - BCWP is most useful when trends are analyzed over time rather than a single snapshot. It does not provide root causes.

• Gaming - As with any metric, BCWP can be “gamed” if teams are incentivized to overstate progress.

• Lagging - BCWP is based on work completed. It is not as useful for forecasting future issues.

Despite these limitations, BCWP remains one of the most valuable metrics for project performance management. The key is developing the skills to calculate it accurately and interpret it in combination with other earned value metrics.

Steps for Implementing Earned Value Management with BCWP

For project managers new to earned value management, here is a quick checklist for getting started with BCWP:

• Decompose work - Break down project scope into detailed work packages with budgets in a WBS.

• Track progress - Implement processes to assess % complete for each work package.

• Calculate BCWP - At defined intervals, calculate BCWP based on the formula.

• Capture ACWP - Capture the actual costs incurred to date.

• Calculate variances - Compare BCWP and ACWP to PV to get SV and CV.

• Analyze trends - Look at BCWP trends over time rather than one-off data points.

• Forecast EAC - Use past cost performance to forecast total project costs.

• Communicate metrics - Share earned value metrics with stakeholders and teams.

• Take action - Identify schedule or budget deviations early and intervene quickly.

Following these steps will enable you to leverage the full advantages of BCWP for data-driven project management.

Conclusion and Key Takeaways

If the complexity of calculating and applying BCWP feels overwhelming, keep these core principles in mind:

• BCWP quantifies the value of work completed to date in budget terms

• It is a key metric in earned value management, along with BCWS and ACWP

• Comparing BCWP to the baseline plan shows deviations from schedule and cost

• BCWP enables forecasting of project completion time and costs

• To leverage BCWP, projects need detailed work packages and budgets

• BCWP is a valuable metric but should not be looked at in isolation

• Implementing BCWP and EVM requires upfront work but yields major benefits

The ability to calculate budgeted cost of work performed is a skill that will serve any project manager well. When leveraged effectively, BCWP gives you the data visibility needed to proactively manage projects, minimize surprises, and maximize value. If you invest in truly understanding BCWP, you can take your project oversight capabilities to the next level.