Earned value management (EVM)
Earned Value Management is a structured project process. It enables project managers to determine actual progress with confidence. Additionally, they can assess variances and forecast future performance.
Earned Value Management integrates scope, schedule, and cost performance data. The key EVM performance metrics are earned value (EV), planned value (PV), and actual cost (AC). Project managers can then rely on these key metrics to assess schedule and cost variances. They may also determine a ratio of current speed and cost efficiency. Moreover, they can also predict future performance. Early recognition of troubled projects allows project managers to take remedial action.
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Earned Value Management Key Metrics
The Earned Value Management method relies on the Planned Value (PV), Earned Value (EV), and Actual Costs (AC) metrics.
Planned Value (PV)
The Planned Value (PV) expresses the budget cost of the work scheduled. In other words, the Planned Value represents what “Should” have been done. The team can obtain this value by checking the S curve. You may learn more about the S Curve by checking this post.
PV= Budget X % Work Scheduled
Actual Costs (AC)
The Actual Cost (AC) expresses the costs spent until a specific date. In other words, the Actual Cost represents what was “Spent”.
Earned Value (EV)
The Earned Value (EV) expresses the budget cost of the work completed. In other words, the Earned Value represents what was “Done”
EV = Budget X % Completion
Earned Value Management Variance Analysis
Project managers can rely on the PV, AC, and EV to assess variances. There are two key variance metrics.
Schedule Variance (SV)
Schedule Variance (SV) assesses if the project is ahead or behind schedule. Project managers can calculate this variance by subtracting the Planned Value from the Earned Value. If the schedule variance is positive, the project completed more work than planned. In other words, it is ahead of schedule. If the schedule variance is negative, the project completed less work than planned. In other words, it is behind schedule.
SV = EV – PV
Cost Variance (CV)
The Cost Variance (CV) assesses if the project is saving money or overrunning. Project managers can determine the CV by subtracting the Actual Costs from the Earned Value. If the Cost Variance is positive, the project completed more work than spent. In other words, it is saving money. If the Cost Variance is negative, the project completed less work than spent. In other words, it is overrunning.
CV = EV – AC
Earned Value Management Variance Performance Indexes
In addition to variance metrics, EVM may rely on performance metrics.
Schedule Performance Index (SPI)
The Schedule Performance Index(SPI) assesses the project speed. Project managers can determine the SPI by dividing the Earned Value (EV) by the Planned Value (PV). A favorable SPI, i.e., greater than 1, reveals that the project is ahead of schedule. A project with an unfavorable SPI, i.e., less than 1, is late.
SPI= EV/PV
Cost Performance Index (CPI)
The Cost Performance Index(CPI) assesses the project cost efficiency. Project managers can determine the CPI by dividing the EV by AC. The project is underrunning if the CPI is greater than 1. The project is overrunning if the CPI is less than 1.
CPI = EV/AC
Earned Value Management Forecasting Metrics
In addition to variance metrics, EVM may also forecast future performance. The Estimate at Completion (EAC) expresses a forecast of what will be spent when the project is complete. However, there are multiple alternative ways to determine the EAC.
Atypical Estimate at Completion (Atypical EAC)
An atypical estimate at completion expresses that previous performance does not represent future performance. In other words, the project manager expects that previous performance will not be maintained in the future performance. On the contrary, future performance will occur according to the initial budget. Project managers can determine the atypical EAC by adding the Actual Costs to an Estimate to Complete according to the initial Budget Rate.
Atypical EAC = AC + ETC = AC + (BAC − EV)
Typical Estimate at Completion (Typical EAC)
A typical estimate at completion expresses that previous performance represents future performance. In other words, the project manager expects that future performance will be maintained. Project managers can determine the typical EAC by adding the Actual Costs to an Estimate to Complete according to the actual cost performance.
Typical EAC = AC + ETC = AC + (BAC − EV)/CPI
Benefits of adopting Earned Value Management
The EVM is an important tool for controlling the project. In this section, we will assess some of its benefits.
Firstly, EVM provides a realistic snapshot of current performance. In other words, project managers rely on EVM to answer key questions such as “what was done,” “what should have been done,” and “what was spent.”
Secondly, EVM also provides an understanding of progress. In other words, project managers rely on EVM to assess the project’s “% of completion”, “% of budget spent,” and “% of progress scheduled.”
Thirdly, EVM provides variances metrics. In other words, project managers rely on EVM to assess if the project is spending more or less than they should. They may also determine if the project is ahead or behind schedule.
Finally, EVM provides forecast metrics. In other words, project managers rely on EVM to determine the Estimate at Completion. They may also assess the variance at completion.