An Introduction to Earned Value Management

Earned value management also referred to as EVM is a project management modus operandi for measuring the progress of a project. It originated as a financial analysis area of expertise in US Government programs in 1960’ and since then has played an important role in project management methodology especially after the 1980’s.

With EVM it is possible to unite the measurements of the Project attributes such as Scope, Schedule and Cost as a distinct integrated system. It can help to notify on performance problems. In addition EVM helps to provide better communication method about the project’s status to stakeholders and maintain the project’s team focus towards progress.

 

The basic concepts of EVM lie in the fact that all steps in a project, earn value on work completion. This can be compared to actual and planned costs to determine project performance. The principle consists of measuring technical performance independently and quantitatively. Only then a true understanding of cost performance and schedule performance can be expected.

 

The basic requirement of an EVM system is that it quantifies development using the valuation of planned work PV (Planned Value) and EV (Earned Value). The basic elements PV, EV, also including AC (Actual Cost) should be captured on a standard basis as of a reporting date.

 

Planned value is also referred by the term Budgeted Cost of Work Scheduled (BCWS). It is calculated by Rate at which effort is valued multiplied by Total Hour Planned or Scheduled.

 

Actual Cost (AC) is also referred by the term Actual Cost of Work Performed (ACWP) and is calculated by multiplying Rate at which effort is valued by total hours spent.

Earned Value (EV) also referred to by the term Budgeted Cost of Work Performed (BCWP) is calculated by multiplying Base lined Cost with Percentage of Complete Actual.

 

The above three elements can be derived easily through the Work Breakdown Structure (a tool which is used to define and group the tasks of a project such that the total work scope is clearly defined and organized) by association of costs to all of the tasks.

 

Since this can be tedious tasks for big projects scheduling software tools can be used to compute these factors automatically based on inputs. Further the Cost Performance Index (CPI) and Schedule Performance Index (SPI) can be calculated from the elements to give a measure of the cost efficiency and schedule efficiency.

 

There are some criteria defined for setting up successful Earned value Management systems to be implemented. Work elements should be authorized. The project organizational structure should be acknowledged. The Planning, scheduling, budgeting and all inter related processes should be well integrated.

 

The authorized work must be scheduled sequentially and task dependencies identified. A time phased base lined budget should be maintained. This is required to measure performance. The Project metrics should be periodically generated. The direct costs should be recorded consistently.

 

There is a saying “Good Metrics let us see if we are doing the right things and doing them well.” A successfully established Earned Value system helps to provide dependable and consistent data on the performance of the project.

 

The schedule performance index and cost performance index derived gives an early insight to problems. EVM contributes to prevention of Scope creep, Reduction of risks, Project forecasting, Profitability Analysis and better accountability. Some of the tools available in market to measure earned value are Microsoft Office Project, Primavera Cost manager, Deltek Cobra etc.

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| An Introduction to Earned Value Management | A Note on Construction Project Management | An Overview of the Contribution of Sharepoint Project Management | Distinguishing between Project Scope/Hope/Effort/Feature Creep | Introduction to Open Workbench | Project Management Audit – Modus Operandi | The Critical Chain Project Management as presented by Goldratt |