Controlling the project in the
sense of scope, time and cost is the key factor for any Project manager. So,
cost and time are the main parameters to maintain project performance. Earned
Value Management (EVM) is the methodology to measure project performance and
progress to keep align scope, cost and schedule baseline. It can be applied to
all projects in any industry.
EVM has main three key parameters
to focus:
- Planned Value (PV)
As per the PMBOK guide, Planned
Value is the authorized budget assigned to scheduled work.
It is the approved value of the
work to be completed in given time. Planned Value should be calculated before
start work so it can be work as a cost baseline.
Total planned value of the
project is known as Budget at Completion (BAC).
Planned Value can be calculated
as:
Let say, we have a project of
duration 6 months. Its BAC is $10,000. After 3 months spent 50% project should
be completed.
Planned Value = 50% * 10000 = (50/100)
* 10000 = $5000
So, Planned Value means this much
amount of work should be completed as per schedule.
- Actual Cost (AC)
As per the PMBOK guide, Actual
Cost is the realized cost incurred for the work performed on an activity during
specific time period.
AC is the cost that actually
spent on the project till the time.
There is no any specific formula
to find out it, but let say in above example you have spent $5500 in 3 months
but work is completed just 35% then Actual Cost is $5500.
- Earned Value (EV)
As per the PMBOK guide, Earned
Value is a measure of work performed expressed in terms of the budget
authorised for that work.
EV is the earned value you earned
from amount you spent till time. EV shows that how much amount of value you
earn till spent money.
Let say in above example project
is of 6 months and after 3 months actually 35% work is completed with the
amount spent $ 5500.
Earned Value = 35% * 10000 = $3500
value is earned.
From above values, variances and
Indexes are calculated.
- Schedule Variance (SV)
Schedule Variance is the difference
between Earned Value and Planned Value. SV= EV – PV.
- Cost Variance (CV)
Cost Variance is the difference
between Earned Value and Actual Cost. CV = EV – AC.
- Schedule Performance Index (SPI)
Schedule Performance Index is the
ratio of Earned Value to Planned Value. SPI = EV/PV.
- Cost Performance Index (CPI)
Cost Performance Index is the
ratio of Earned Value to Actual Cost. CPI = EV/AC.
Let say in above example project
is of 6 months and after 3 months actually 35% work is completed with the
amount spent $ 5500.
Here, Actual Cost is $5500 and
Earned Value is $3500. So CPI will be less than 1. If CPI is less than 1 then we
can say cost for the project is over run. So, CPI should be always greater than
1 to maintain project cost.
To summarize, Planned value,
Actual Cost and Earned Value will give you the project health report and easily
we can know project status.
