Earned Value Management (EVM)

Earned Value management is one of the key parameters for measuring the performance of the project. Earned value management deals with comparing the value of work delivered with the amount of cost incurred on the project to get an indication for the project performance. It deals with comparing the actual work on the project time and cost with the planned project budget and schedule.

Earned value management is therefore a performance reporting system which combines the performance, schedule, and cost to ensure accurate reports on the progress of the project can be given. It also serves as a valuable input for project forecasting and provides quantitative data for making key decisions on the project.

1.0 Key Terms in Earned Value Management

1.1 Budgeted Cost of Work Scheduled (BCWS) or the Planned Value (PV)

This refers to the planned cost for completing a specific component or schedule activity of the project.

1.2 Budgeted Cost of Work Performed (BCWP) or the Earned Value (EV)

This refers to the value of the work completed on the project at a specific point in time. It is the budgeted value of the effort spent on the project for the period that is being monitored.

1.3 Actual Cost of Work Performed (ACWP) or Actual Cost (AC)

This is the actual amount of cost incurred on the project for a given period.

2.0 Performance Variances

Using the above parameters, the cost and schedule variance for the project can be analyzed.

2.1 Cost Variance (CV)

The cost variance technique for measuring project performance compares the actual cost of the work performed on the project with the budgeted cost. It is calculated by finding the difference between the budgeted cost of work performed and the actual cost of work performed.

CV= BCWP-ACWP or CV= EV-AC

A negative cost variance means that the delivery has overrun the project cost estimation planned for the period being monitored.

2.2 Schedule Variance (SV)

The schedule variance measures the gap in project progress by comparing the actual work with the planned work on the project. The schedule variance is calculated by finding the difference between budgeted cost of work performed and the budgeted cost of work scheduled.

SV= BCWP-BCWS or SV= EV-PV

A negative schedule variance means that the project is behind schedule for the period being monitored.

3.0 Performance Indices

The above listed parameters of the Earned Value Management help in analyzing the project performance. They are useful for observing the current trends and using it as an input for forecasting the future performance of the project. The project performance is typically calculated in terms of cost and schedule.

3.1 Cost Performance Index (CPI)

The Cost Performance Index is calculated by dividing the Earned Value by the Actual Cost.

CPI=EV/AC

If CPI=1, it implies that the project performance is on track and is going as per the original plan. If CPI is greater than 1, it means that the project performance is exceptional. If CPI is less than 1, it means that the project performance is poor and there is a likelihood of project failure if adequate damage control measures are not taken at the earliest.

3.2 Schedule Performance Index (SPI)

The Schedule Performance Index (SPI) is calculated by dividing the Earned Value by the Planned Value.

SPI=EV/PV

If SPI=1, it implies that the project performance is on track and is going as per the original plan. If SPI is greater than 1, it means that the project performance is exceptional. If SPI is less than 1, it means that the project performance is behind schedule and there is a likelihood of project failure if adequate steps such as contingency planning are not taken at the earliest to speed up the project.

4.0 Benefits of Earned Value Management

The key benefits of Earned Value Management are listed below:

• Tracking project performance
• Project forecasting
• Communicating project status to the project management stakeholders
• Analyzing profitability
• Analyzing project risks

Earned Value Management (EVM) - Tip

Earned Value Management is not merely limited to analyzing the cost and schedule variances in your project. To ensure that your project succeeds, you need dig deep to find the reason for the variance, establish the corrective action to be taken, and also analyze the effect on the estimate for completing the project.