Burned and earned hours are sometimes misunderstood. What are they? How do you calculate them? This article takes a deeper look at what these hours are and how to calculate them.
What are Burned and Earned Hours?
Burned hours, in many other industries, refer to hours that were non-billable, don’t contribute to the product or service being sold, or both. In project management circles, burned hours tend to refer to the actual hours spent on a task, as opposed to the earned hours. Earned hours represent the portion of estimated / baseline hours that were initially budgeted to get to the current state of progress of a task.
How to Calculate Burned Hours
To calculate burned hours in a project management environment, you simply need to account for all expended or charged hours. These are often referred to as the actual hours, or time-sheeted hours, etc. For example, if you had a crew of 3 work for an 8-hour day, then the burned hours would be:
3 x 8 = 24
Therefore, 24 hours have been burned.
How to Calculate Earned Hours
To calculate hours that have been earned on a task, we need to know the originally estimated hours and have some idea as to the rules of credit, so that we know how to score the progress of the task. Refer to our other article on rules of credit and progress for a discussion on that topic. For this example, let’s assume we are painting a large room. We originally estimated it would take our crew of 3, 2 days to paint the room. Therefore our total estimated hours is 3 x 8 x 2, or 48 hours. The room has 4 equally-sized walls to paint, and so our simple rules of credit are set at 25% per wall. At the end of the first day, the workers tell us they have managed to paint 2.5 walls. We can now calculate the earned hours:
2.5 walls x 25% per wall
= 2.5 x 0.25
= 62.5% completed
62.5% of the originally-estimated 48 total hours
= 48 x 0.625
= 30 hours earned
It’s clear how burned / actual hours are useful, in that they relate to costs expended and schedule time used. This is very useful in understanding your resource usage and expense, and in forecasting spend with a quick burn rate calculation, for example. However, earned hours are seemingly not as useful, at least intuitively. This is because they relate back to the original estimate, so they really don’t tell you much about what is happening now; this has led many on-the-ground managers to dismiss earned hours as a useful management tool. This may be so at the work face, however earned hours can be used as inputs into an Earned Value Management System (EVMS) to easily re-estimate cost and schedule forecasts. This allows project management team members to focus on flagging and solving macro-level progress issues, something burn rates and actual hours alone do not inherently allow. In future articles, we will expand on some of these tools, and how they can be employed in various ways (some easy, some complex) that your team may find useful.