Earned value management, or EVM, is a systematic and organised technique that project management teams employ to measure project performance in a more objective manner. The technique also helps illustrate the development or progress of a given project by providing measurable parameters upon which actual observations can be measured against. While EVM can be a very useful method for many organisations, there are also organisations and projects for which this project management technique is not suited for.

Principles of Earned Value Management

Like any technique, EVM consists of several key elements that every project manager needs to understand. These core principles are described in detail in the British Standards-published BS 6079-1.

  • Planned Costs

Every project activity, task, or work has an approved budget. The plan also sets forth a date upon which the work, task, or activity should be completed. The planned budget and work schedule provide a baseline with which to base future measurements.

  • Actual Costs

This is the real cost or actual expenditures incurred in completing the project activity or task. It can be either cumulative or current. Cumulative actual costs include all project expenditures to date. Current actual costs reflect only the actual project expenditures for a given time period.

  • Earned Value

The main purpose of EVM is to track the progress of a project. This is only possible if the organisation has a quantifiable value with which to measure the project’s progress. The earned value provides such a quantifiable measure of what the project has accomplished or achieved to date.

  • Cost Variance

This reflects the difference between the project’s earned value and its actual costs. A negative value suggests an over budget project. A positive value points to an under-budget project. A zero value indicates a project on budget.

  • Schedule Variance

This describes the time efficiency of a project. It takes into consideration the planned costs and the project earned value. The project is said to be on-schedule if the schedule variance returns a value of 0; behind schedule if the variance has a negative value; and ahead of schedule if the variance returns a positive value.

Trends and Indices

Earned value management keeps track of and measures two very important parameters or indices. These are the cost and the work schedule of the project. Computing for the indices at predetermined points in the project life span and plotting these values in a graph can provide the project management team a clear idea about the trend in the project’s development.

  • Cost Performance Index

This is a measure of the project’s cost efficiency. It gives managers an idea about the value of the completed work relative to the actual expenditures. To obtain the CPI, managers must divide the earned value (EV) by the project’s actual cost (AC).

  • Schedule Performance Index

Like the CPI, the schedule performance index (SPI) is a measure of the project’s efficiency in terms of time. It reflects the relationship between the earned value and the planned costs or value of the project. As such, one must divide the EV by the PV or PC.

The Cost Performance Index

The CPI is one of the most crucial indices in EVM. It is a direct measure of the cost efficiency of the project. To have an objective assessment of the CPI, organisations must learn how to derive EV from data at hand. There are two essential requirements for this. One is the budget at completion (BAC) data. This reflects the total planned project cost upon 100% completion. The second requirement is the percentage of work that is already completed. Multiplying these two values will produce the earned value.

              EV = BAC x % work completed

For example, a $1 million project needs to be completed in 2 years. After 1 year, the project has already spent $600,000, but only 35% of the project has been completed. Employing the formula:

              EV at 12 months = $1 million x 35%

              EV at 12 months = $350,000

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Earned Value Analysis

The computed EV can also have implications in forecasting project duration and outturn costs. The EV is an important parameter for computing both the CPI and the SPI of a given project.

As mentioned, the CPI is a good indicator of project cost efficiency. It can help in the forecasting of the project’s final cost or the outturn. It describes the relationship between the approved budget and the total estimated project expenditure.

The SPI is also a good barometer of project performance as it measures time efficiency. If the SPI is >1, then it is possible that the project duration will be shorter than expected. Conversely, an SPI value of <1 indicates activities that are lagging. The project management team can then institute measures that will help correct the problem.

Advantages and Disadvantages of EVM

Earned value management allows project managers to have a very clear and objective understanding of the progress of the project, especially in terms of scheduling and budgeting. This provides management an opportunity to institute proactive measures if data shows that the project is not proceeding as planned. EVM can also be a very useful tool for comparison purposes, relative to other ongoing projects within the same organisation.

The main strength of EVM can also be its greatest shortcoming. EV only accounts for time and cost. It does not have any checks for ensuring the quality of work. The processes involved in EVM also require direct and constant supervision. This can take project managers away from some of their other responsibilities. A successful EVM methodology can only be ensured if the organisation has the right team of specialists because the technique is often too complex for ordinary organisational managers.

Resource S-Curves and Planned Costs

Organisations engaged in EVM are expected to provide at least two important documents to stakeholders. These are the cumulative resource S-curve and the planned costs.

The S-curve is a visual or graphic report that gives stakeholders and other key decision-makers an idea about the progress of a project. It shows trends and how the actual project costs relate to the approved planned costs.

Earned value management is a very objective and systematic technique for measuring project progress. Unfortunately, it is complex and does not consider the quality of the completed project. Regardless, there is an increasing number of organisations who are using this approach to provide them with a clearer idea of project progress and allow them to institute proactive measures if necessary.

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