Earned Value Method

Compares tasks completed and milestones achieved to the project schedule, perhaps using periodic updates of a critical path method (CPM) analysis as described in the next chapter. If critical tasks are or soon will be behind schedule, takes corrective actions discussed in that chapter. As noted earlier in this chapter, the project manager may also use the earned value method (EVM) to monitor planned costs, actual costs, and the value of results produced. 

Both methods assume that the money earned can be reinvested at the nominal interest rate. Suppose the rates of return calculated are after tax returns and the company is generally earning a 5% or 6% return on investment. Is it reasonable to expect that all profits can be reinvested at 23% or even 20% No, it isn t Yet this is what is assumed in the Rate of Return method. Sometimes the rate of return may be as high as 50%, while a reasonable interest rate is less than 15%. Therefore if a reasonable value for the interest rate has been chosen (this is discussed later in this chapter) and the two methods differ, the results indicated by the Net Present Value method should be accepted. 

The third process, financial control of the project, is again based on the cost accounts. The basic control method is an ongoing comparison between actual and planned cost accumulation. Methods such as the earned value technique develop ratio measures that help the controller to analyze the schedule and cost deviations over time and employ control limits as triggers for corrective action. The control is usually performed at the WP cost account level. 

Anbari, F. T. 2003. Earned Value Project Method and Extensions. Project Management Journal, December, pp. 12-23. 

Example 8 Calculation of Rate-Based Distillation The separation of 655 lb mol/h of a bubble-point mixture of 16 mol % toluene, 9.5 mol % methanol, 53.3 mol % styrene, and 21.2 mol % ethylbenzene is to be earned out in a 9.84-ft diameter sieve-tray column having 40 sieve trays with 2-inch high weirs and on 24-inch tray spacing. The column is equipped with a total condenser and a partial reboiler. The feed wiU enter the column on the 21st tray from the top, where the column pressure will be 93 kPa, The bottom-tray pressure is 101 kPa and the top-tray pressure is 86 kPa. The distillate rate wiU be set at 167 lb mol/h in an attempt to obtain a sharp separation between toluene-methanol, which will tend to accumulate in the distillate, and styrene and ethylbenzene. A reflux ratio of 4.8 wiU be used. Plug flow of vapor and complete mixing of liquid wiU be assumed on each tray. K values will be computed from the UNIFAC activity-coefficient method and the Chan-Fair correlation will be used to estimate mass-transfer coefficients. Predict, with a rate-based model, the separation that will be achieved and back-calciilate from the computed tray compositions, the component vapor-phase Miirphree-tray efficiencies. 

This method, which is favored by many accountants today, takes into account the concept that money has a time value. This is because 2000 in 10 years time is not the same as 2000 now. Similarly, if a project earns 2000 in 10 years time this is not the same as 2000 spent now to help finance the project. If, instead of spending this 2000, it had been invested at compound interest, then in 10 years time it would have become a much larger... 

Expenditure on corrosion prevention is an investment and appropriate accountancy techniques should be used to assess the true cost of any scheme. The main methods used to appraise investment projects are payback, annual rate of return and discounted cash flow (DCF). The last mentioned is the most appropriate technique since it is based on the principle that money has a time value. This means that a given sum of money available now is worth more than an equivalent sum at some future data, the difference in value depending on the rate of interest earned (discount rate) and the time interval. A full description of DCF is beyond the scope of this section, but this method of accounting can make a periodic maintenance scheme more attractive than if the time value of money were not considered. The concept is illustrated in general terms by considering a sum of money P invested at an... 

Various methods have evolved, depending on the available resources, the product concerned and the premium value it might earn in an improved frozen state. 

The most used method is based on application of the Mayo equation (eq. 5). For low (zero) conversion polymerizations carried out in the presence of added transfer agent T, it follows from eq. 5 that a plot of 1/ Xn vs [T]0/[M]0 should yield a straight line with slope Clr.12 Thus, a typical experimental procedure involves evaluation of the degree of polymerization for low conversion polymerizations earned out in the presence of several concentrations of added transfer agent. The usual way of obtaining Xn values is by GPC analysis of the entire molecular weight distribution. 

The determination of the present value for the depreciation plans is one of the best ways of comparing depreciation plans. In calculating the present value it will be assumed that depreciation expenses remain in the company and effectively reduce income taxes. If the income tax rate on earnings is 48%, then the amount of income tax saved when depreciation expenses are increased by 100 is 48. Therefore, the net savings of including depreciation as an expense is 48% of all depreciation. If the net salvage value is less than the book value after depreciation, the difference is an income and is subject to taxation. Since the amount will be the same for each of the depreciation schemes, it will not be considered in comparing the different methods. 

The answers obtained in Example 1 1-6 are typical of those usually obtained. If earnings are the only consideration, the straight-line depreciation method is the worst plan to use. However, the present values for the other methods are generally so close that no obviously best one can be picked. 

In general, one or more of three methods are used to justify major expenditures. The first, payback, is a measure of the time it will take for cumulative benefits to equal cumulative costs (time to break even). This, by itself, may not be sufficient to compare alternative investments and projects competing for the same limited resources so one of two other methods may be used. These methods, Net Present Value and Internal Rate of Return, consider the earning power of money in making comparisons. Because investments earn compound interest, a dollar to be gained in the future has less present value than one gained today. The NPV is computed by estimating the yearly... 

Making this table is helpful, but it isn t very practical. A better method is to solve the system of equations. The two equations involved are C = 1,600 + 40x and R = lOOx - 0.5x2. Replace the C and the R with y, letting the y represent the amount of money spent in the cost function and the amount of money earned in the revenue function. You want to find out when those two amounts are the same to find the break-even point. Then replace they iny = 1,600 + 40x with lOOx - 0.5X2 from the equation y = lOOx - 0.5X2. Solve for the value of x. 

The Internal Rate of Return (IRR) is the equivalent interest rate at which the Net Present Value of the acquisition would be zero. Given the projected total cost of the system, and the projected total benefits of the system, both projected back (discounted) to today, it is the interest rate that the investment could sustain and still just break even. Since firms, in general, operate at a point where their incremental cost of money is equal to its incremental earning power, any investment that returns an IRR better than the cost of money is a good investment. Traditionally, the IRR is found by calculating the NPV with different interest factors in a trial and error method until the interest factor is found which drives the NPV to approximately zero. 

Return on original investment. This method is also known as the engineer s method, the du Pont method, or the capitalized earning rate. It does not take into account the time value of money because of this, it offers a more realistic comparison of returns during the latter years of the investment. The return on original investment is defined as follows ... 

Of the above methods, the acetyl bromide method appears to have earned the most widespread acceptance. This recognition can be credited to the following advantages of the procedure it is rapid and simple, adaptable to small (milligram size) samples, does not require a correction for acid-soluble lignin, provides precise absorbance values from which the lignin content can be calculated, involves minimal chemical modification of the sample, and is accompanied by diminished interference from nonlignin products. 

A number of researchers have estimated the effective marginal credit rate (the percent reduction in the cost of R D) implicit in the several incarnations of this tax credit using a variety of methods and assumptions they have found effective credit rates that are substantially less than the statutory rates of 20 or 25 percent. The divergence between the effective and statutory rates stems from the way in which the credit is calculated, the interaction of the credit with other provisions of the internal revenue code,11 the rate at which future savings are discounted to their present value, and the fact that not all firms have sufficient tax liability to use credits in the year they are earned. 

Lohner [21] deseribes a cell/block-based method for estimating SoH in UPS applieations. This method includes the resistance of the wiring. The system measures the resistanees of the new battery blocks and compares these reference values with measured resistance during life. The measurements are earned out at a 95% SoC. The SoH determination is based on the change in the resistance. Feder [25] has discussed the measurement of conductance. This value is in good correlation with the measured capacity. If the SoC is known, it is possible to calculate the SoH. 

The true value of analytical pyrolysis for the characterization of organic matter is realized when combined with analytical methods such as mass spectrometry (Pyrolysis-Mass Spectrometry, Py-MS). High sensitivity, specific and fast analysis are widely recognized characteristics of mass spectrometry (MS), which have earned this technique its reputation as one of the most powerful analytical tools for organic materials available today. With the total number of library mass spectra... 

The dynamic return on investment method is superior to the static method because allowance is made for the timing of the cash movements. Since only contemporaneous monies are comparable, the investment outlay and the earnings from the profit must be discounted to a fixed point in time, usually the start of production. If a certain rate of interest p is assumed, all the capital movements can be referred to that point to obtain the so-called net value of a capital movement ... 

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