Earned Value Management

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.