Earned Value Management (EVM) is a project management methodology that helps the project managers to measure a project’s performance. It helps them to find out the variances by comparing the actual work performed with the planned work. It gives project managers the answer for the questions related to the project like “Where have we been?”, “Where are we now?” and “Where are we going?”. It provides the basics to assess the progress of work against a pre-set baseline plan and helps project managers in decision making.
The key practices in Earned Value Management (EVM) are;
1. Establishing a performance measurement baseline (PMB)
- Decompose the work scope into manageable levels – Work breakdown structure (function oriented WBS, Organizational breakdown structure (OBS) having list of project personnel)
- Assign management responsibility using responsibility assignment matrix (RAM)
- Develop a time phased budget for each work task using critical path schedule or integrated master schedule
- Select Earned value (EV) measurement technique for all tasks
- Maintain integrity of PMB throughout the project.
2. Measure and analyze performance against baseline
- Record resource using project execution.
- Objectively measure physical progress of work.
- Credit EV against EV techniques.
- Analyze and forecast cost and schedule performance.
- Report performance problem and total duration.
Earned Value Management (EVM) measures consists of primary and derived data points.
Primary Data Points
- Budget at Completion (BAC) – It is the total budgeted cost of the project.
- Budgeted cost for work scheduled (BCWS)/Planned Value (PV) – It is the budgeted cost or planned cost for work packages that are planned to be completed. It is the amount of work to be performed as per the scheduled plan. BCWS curve is derived from work breakdown structure (WBS), project budget and project master schedule. The Sum of all planned values (PV) will give you the Budget at completion (BAC).
- Budgeted cost for work performed (BCWP)/Earned Value (EV) – It is the amount of actual work performed up to date, expressed as an initial budget for that work. It is calculated from measured work complete and budgeted cost for that work.
- Actual cost for work performed (ACWP)/Actual Cost (AC) – It is the sum of all costs accrued up to date or the true cost of work performed up to date. It is recorded from invoices and workmen timesheet.
Derived Data Points
- Schedule Variance (SV) – It measures how much ahead or behind the schedule is. It is the difference between earned value and planned value.
Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)
SV < 0 indicates that the project is Behind schedule.
SV > 0 indicates that the project is ahead of schedule.
SV = 0 indicates that the project is on schedule.
- Cost Variance (CV) – It measures how much under or over budget is. It is the difference between earned value and actual cost of work performed.
Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
CV < 0 indicates Over budget.
CV > 0 indicates Under budget
CV = 0 indicates on budget.
- Schedule Performance Index (SPI) – This indicates whether the project is on time. its is the ratio of earned value and planned budget of completed works.
Schedule Performance Index (SPI) = EV/PV
SPI < 1 indicates that the project is Behind schedule.
SPI > 1 indicates that the project is Ahead schedule.
SPI = 1 indicates that the project is on schedule.
- Cost Performance Index (CPI) – This index indicates whether the project is spending as per the budget. It is the ratio of earned value and actual cost of work performed.
Cost Performance Index (CPI) = EV/AC
CPI < 1 indicates that the project is overspend. (Cost overrun)
CPI > 1 indicates that the project is underspend. (Cost underrun)
CPI = 1 indicates that the project is on budget.
- Estimate at Completion (EAC) – It is the expected total cost required to complete the work. It is the sum of actual cost to date and approximate estimate cost of remaining works.
- Variance at completion (VAC) – It is the variance of the total cost of work and expected cost.
VAC = BAC – EAC
VAC > 0 indicates there is underrun and savings in project
VAC < 0 indicates there is a overrun in project
VAC = 0 indicates that there is no cost overruns and no savings in project.
- To complete performance index (TCPI) – It helps to determine the efficiency that must be achieved on the remaining work for a project to meet a specified endpoint, such as BAC or the team’s revised EAC.
- Integrated cost, progress and time management
- Better vision of project in terms of scope and procurement
- Early alert to problems
- Foresee project deviation trends
- Reduced time to understand and perceive problems
- Support for negotiation and decision making process
- Motivation to implement project control
- Complicated and burdensome paperwork
- Poor understanding of EVM
- Pressures to report only good news
- Fixed price contract makes less attractive o clients
- Unavailability of cost and schedule integrated data