Earned Value Management
Earned Value Management (EVM) is the project management practice of combining performance measures across scope, schedule, and cost, and in doing so it measures and assesses project performance. In effect, EVM takes more than an abstract view of project health by tracking the progress of the project enabling project managers to evaluate performance and forecast outcomes in the future. With all these clarifications, let us go into a deep explanation of EVM, key EVM metrics, and then practical examples.
Key Metrics of EVM
1. Planned Value (PV)
Planned Value (PV), also known as Budgeted Cost of Work Scheduled (BCWS), refers to the authorized budget for work planned to be completed by time X. It represents expected progress under the project schedule.
Example (Building Construction):
If the schedule says that by the end of month 3, the building should have been completed by 30%, and the total budget is $1,000,000, then the PV for month 3 will be:
PV = 30% of $1,000,000 = $300,000
2. Earned Value (EV)
This measures how much work is done until a specific time; it shows how far things really are. So, under the new definition, EV is also called Budgeted Cost of Work Performed (BCWP).
Example (Building Construction):
If at the end of the 3rd month, 35% of the building has been completed, the EV will be:
EV = 35% of $1,000,000 = $350,000
3. Actual Cost (AC)
Actual Cost (AC) is the cost that is incurred for the work done until a specific time.
Example (Building Construction):
If the total expenditure at the close of month 3 is $320,000, then:
AC: $320,000
EVM Formulas and their Performance Indicators
Using PV, EV, and AC, EVM calculates a whole lot of performance indicators:
1. Schedule Performance Index (SPI)
Measures schedule productivity and adherence to a given duration.
Formula: SPI = EV / PV
SPI < 1: Behind schedule. SPI > 1: Ahead of the schedule.
2. Cost Performance Index (CPI)
Measures cost efficiency in the project budget.
Formula: CPI = EV / AC
CPI > 1: This means you are under budget. CPI < 1: Over budget.
3. Cost Variance (CV)
That shows whether the project is over or under budget by balancing EV and AC.
Formula: CV = EV – AC Positive CV: Means under budget. Negative CV: Over budget.
4. Schedule Variance (SV)
Comparison of earned value (EV) with planned value (PV) helps to determine whether the project is on-time or ahead of schedule.
Mathematical interpretation:
SV = EV – PV
- Positive SV: Ahead of schedule
- Negative SV: Behind schedule.
EVM Practical:
Here is an illustration of a software project budgeted at $100,000, and the planned duration is 6 months. After 3 months, the following data:
- PV: $50,000 (Planned Value = 50 of the budget)
- Earned Value: $45,000 (Progress status: Slightly behind schedule).
- AC: $48,000; this is over as well with respect to this unanticipated expenditures
Calculations:
1.SPI = EV / PV
SPI =$45,000 /$50,000 = 0.9
(This means that the project is behind schedule).
- CPI = EV / AC
CPI = $45,000 /$48,000 approximately equals 0.9375
(Noted that the project is above budge).
- CV = EV – AC
CV = $45,000 – $48,000 = -$3,000
(States that there is a cost overrun of -$3,000).
- SV = EV – PV
SV = $45,000 – $50,000 = -$5,000
(So here the schedule delay of $5,000 exists).
Insights and Actions
These metrics indicate that the project is over budget and delayed on its schedule. The project manager could utilize this information to:
Investigate cost overruns and delays from the schedule. Reallocate resources or reprioritize the activities. Take corrective measures to minimize further risks and realign the project.
Earned value management drives data-driven decision-making and ensures projects are managed in a rational systematic manner.
