Earned Value Management (EVM) is a key concept in project management. Show
Cost overrun and schedule delays are common among projects, and these deviations affect the project objectives. If you are managing projects, you must be aware of how the situation can be stressful. If these deviations are not controlled, the project could be terminated. You need a control mechanism to help you avoid this situation, and one such mechanism is Earned Value Management (EVM). What is Earned Value Management (EVM) in Project Management?Earned Value Management was developed in the 1960s when the US Air Force started using it in their programs. Since 2005, it has become a standard part of federal project risk management. Now, EVM is a requirement for US government contracts. Definition: According to the PMBOK Guide, EVM integrates the scope baseline with the cost and schedule baselines to form the performance measurement baseline. Put simply, EVM is a performance measurement technique that integrates cost, schedule, and scope to provide project status, progress, and forecasting reports. EVM uses Earned Value Analysis (EVA), a mathematical technique to determine project status, compute progress, and forecast results. Fundamentals of Earned Value Management Analysis (EVMs)Earned Value Management Analysis (EVMs) helps you find project status and measure project progress. To understand the fundamentals of Earned Value Analysis, please refer to the 32 guidelines defined under the EIA-748 standard. These guidelines are broadly categorized under five principles, which are outlined below. #1. Organization and Project ScopeThe first section has five guidelines emphasizing work organization. You must define the Work Breakdown Structure to a level where you can connect it with the product deliverable; this will be the “what” part. At the same time, you must have an Organization Breakdown Structure (OBS) that will define “who” will take care of the WBS element. This intersection point of WBS and OBS defines a control account. #2. Planning, Scheduling, and BudgetingThe next section has ten guidelines for planning, scheduling, and budgeting. You should develop a resource-loaded schedule so you can determine your budget. This time phase and resource-loaded schedule is known as schedule baseline and is part of performance measurement baselines. #3. Accounting ConsiderationsThis section has six guidelines for capturing costs incurred (actual costs). You should record your actual cost in accordance with the planned work. You should record the actual cost along with the earned value. Doing so at different times will affect the accuracy of readings. #4. Analysis & Management ReportThis section has six guidelines defining how to carry out analysis and reporting. This is where you collect all project data and find variance and performance. If required, calculate a new budget (EAC) and do the forecasting. All Earned Value Management calculations are performed on a control account level. #5. Revision and Data MaintenanceThis is the last section and has five baseline control guidelines. This guideline details managing change requests and updating the performance measurement baseline. Elements of Earned Value ManagementEVM has three essential elements:
You can call them primary data points as well. Planned Value: Planned Value is the scheduled cost of work planned in a given time. It is also called the Budgeted Cost of Work Scheduled (BCWS). The total Planned Value of the project is the Budget at Completion (BAC). Earned Value: Earned Value is the value earned from the completed work at a given time. Simply put, you can say that the Earned Value will show you the value of the completed work if the project was terminated today, which is also called the Budgeted Cost of Work Performed (BCWP). Actual Cost: The Actual Cost is the money spent to date. It is also called the Actual Cost of Work Performed (ACWP). This is the easiest element of EVM to identify since it just takes one look at the question. Visit: Earned Value, Planned Value, and Actual Cost Secondary Elements of Earned Value ManagementYou can calculate the following variances and performance indexes with the help of these four elements:
You have two variances in EVM: Schedule Variance and Cost Variance. These help you track project performance in dollars. Schedule VarianceSchedule Variance is the difference between Earned Value and Planned Value. It tells you if you are ahead or behind schedule in terms of dollars. Schedule Variance = Earned Value – Planned Value SV = EV – PV You are behind schedule if the Schedule Variance is negative, ahead of schedule if the Schedule Variance is positive, and on schedule, if it is zero. Cost VarianceCost Variance is the difference between Earned Value and Actual Cost. It tells you whether you are under or over budget. Cost Variance = Earned Value – Actual Cost CV = EV – AC You are over budget if the Cost Variance is negative, under budget if it is positive, and zero means you are right on target. Visit: Schedule Variance and Cost Variance Like variances, indexes help you compare planned with actual progress, helping you understand how efficient your progress is. You have two indexes in EVM: Schedule Performance Index (SPI) and Cost Performance Index (CPI). Schedule Performance IndexThis is the ratio of Earned Value and Planned Value. Schedule Performance Index = (Earned Value) / (Planned Value) SPI = EV / PV If the Schedule Performance Index is greater than one, you have completed more work than planned or are ahead of schedule. If the Schedule Performance Index is less than one, you have completed less work than planned and are behind schedule. Lastly, if the Schedule Performance Index equals one, you have completed the work exactly as planned and are on schedule. Cost Performance IndexThis is the ratio between the Earned Value and Actual Cost. Cost Performance Index = (Earned Value) / (Actual Cost) CPI = EV / AC You are earning less than what you are spending or are over budget if the CPI is less than one. If it is greater than one, you are earning more than you are spending and are under budget. If the CPI is one, the spent cost is equal to the cost earned, and you are on budget. Visit: Schedule Performance Index and Cost Performance Index Variance and performance indices are examples of derived data points. Earned Value Management in ForecastingEVM helps you to forecast the following:
These tools serve as early warning signs for potential overruns. Estimate at CompletionEstimate at Completion is the project’s total expected budget. This is the price tag of the project at the end. You can calculate the Estimate at Completion in four different scenarios. Please refer to my blog post on Estimate at Completion for further details. Estimate to CompleteEstimate to Complete lets you calculate the expected cost of completing the rest of the work. You can calculate the Estimate to Complete in three different scenarios. Please refer to my blog post on Estimate to Complete for more details. Variance at CompletionVariance at Completion tells you how much you will be under or over budget when the project is complete. It is the difference between the Budget at Completion and the Estimate at Completion. Variance at Completion = Budget at Completion – Estimate at Completion VAC = BAC – EAC You have spent more than planned if the Variance at Completion is negative. If the difference is positive, you have completed the project within the planned budget. To Complete Performance IndexThe To Complete Performance Index (TCPI) estimates the cost performance required by the project to meet the budgeted goal. Please note that the Cost Performance Index is the past performance, while the To Complete Performance Index is the future cost performance. You can calculate the TCPI by dividing the remaining work by the remaining funds. TCPI = (Remaining Work) / (Remaining Funds) There are two cases in which you can calculate the TCPI: Case I: under budgetTCPI = (BAC – EV) / (BAC – AC) Case II: over budgetTCPI = (BAC – EV) / (EAC – AC) So, you can see how EVM helps you analyze the project’s performance and forecasting. Visit: To Complete Performance Index Benefits of Earned Value ManagementEVM offers immense benefits to project managers, sponsors, clients, and organizations. Here are a few benefits of EVM:
Earned Value Management Vs Traditional Project ManagementProject managers used to have two parameters: planned expenditures and actual expenditures in the past. These two variables help the project manager compare planned spending with actual spending. However, this is not enough information to get the whole picture as the information is incomplete. It was not possible to understand the relationship between the completed work and the money spent. Getting the cost performance of the project was not possible. This is where EVM comes in. It helps project managers overcome the shortcomings of traditional project management methods. Earned Value Management has several advantages over traditional project management, which focuses on planned and actual expenditures. EVM focuses on actual accomplishments and gives you an insight into the project. EVM helps analyze the cost performance, schedule performance, cost variance, and schedule variance. Earned Value Management (EVM) TableEarned Value Management (EVM) ChartSummaryEarned Value Management (EVM) helps analyze the project’s performance and predict the forecast. It provides you with quantitative data for decision-making. It is an excellent communication tool for project stakeholders because it helps them understand the project’s insights. Many PMP aspirants find EVM concepts difficult because of their mathematical calculations. However, once you understand the concept, solving questions will be easy. I have written seven blog posts on EVM and project forecasting, explaining EVM concepts in clear language with concrete examples. This blog post is the first in a series of seven on Earned Value Management. The following are links to the other blog posts:
These blog posts are in a particular sequence, and I request you follow this order. Bookmark this blog post and use it as a reference for Earned Value Management (EVM) concepts. What is a project performance measurement technique that integrates scope time and cost data called?Earned value management (EVM), earned value project management, or earned value performance management (EVPM) is a project management technique for measuring project performance and progress in an objective manner.
What is the purpose of EVM?Electronic Voting Machine (also known as EVM ) is voting using electronic means to either aid or take care of the chores of casting and counting votes. An EVM is designed with two units: the control unit and the balloting unit. These units are joined together by a cable.
What techniques are used to measure work progress for earned value methodology?In particular, there are two types of efficiency analysis: the Schedule Performance Index (SPI) and the Cost Performance Index (CPI). The SPI is an indicator of the efficiency of the program of a project. In fact, it is the ratio between the earned value (EV) and the planned value (PV): SPI = EV / PV.
How is earned value management used to assess project performance?Earned Value Management (EVM) is a project performance management methodology that integrates cost, schedule, technical scope, and risk to assess progress against a baseline, use that information to identify problems, and forecast cost (and, to a certain extent, schedule) at completion.
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