Earned Value Management (EVM) analysis is a technique in Project Cost Management that determines the current status, tracks the progress and helps in forecasting the likely future performance of the project. It helps project managers to measure project performance.
Earned Value Management (EVM) technique is one the few techniques in the PMBOK Guide that involves mathematical calculation, others are in Time and Risk Management.
Since these techniques involve mathematical calculation, many people find this concept difficult and try to ignore it. However, if you closely look at these concepts, they are not really as difficult as they appear to be.
Anyway, I’m going to make all EVM stuff easy for you. Just stay tuned with me.
In this blog-post, I will discuss briefly about Earned Value Management (EVM) and its three basic elements; e.g. Actual Cost (AC), Planned Value (PV) and Earned Value (EV). Afterwards, we will move into further details in forthcoming blog posts.
OK, let us get started.
Earned Value Management (EVM): Earned Value Management (EVM) analysis is a Project Cost Management Technique used to track the progress and current status of the project in terms of scope, cost and schedule
As per PMI,
“Earned Value Management (EVM) in its various forms is a commonly used method of performance measurements. It integrates project scope, cost, and schedule measures to help the project management team assess and measure project performance and progress.”
Earned Value Management (EVM) is a very strong management control tool that provides reliable and robust data. It tells you-
Current status of the progress; e.g.
• How much work have been completed and how much is balance?
• How much budget has been spend and how much is left?
Tracking the progress compare to planned progress; e.g.
• How much work have been completed vs how much was plan for a given time?
• How much work have been completed vs how much was plan for a given cost?
Answers various performance related queries; e.g.
• Is the project over budget or under budget?
• Is the project behind schedule or ahead of schedule?
• How much work (scope) is completed?
By analyzing these results you can find very easily
• If your project is deviating from any performance measurement baseline (scope, cost and schedule baseline).
• About the potential risk areas (and then you will be in better position to create a risk mitigation plan for those risks).
Earned Value Management (EVM) has three basic elements:
Planned Value (PV)
Earned Value (EV)
Actual Cost (AC)
Planned Value (PV): Planned Value is the approved value of work to be completed in a given time period; i.e. it is the money that you should have spent as per the schedule.
As per the PMBOK Guide “Planned Value (PV) is the authorized budget assigned to work to be accomplished for an activity or WBS component. Total planned value for the project is also known as Budget At Completion (BAC).”
PV = (Planned % Complete) X (BAC)
Planned Value is also known as Budgeted Cost of Work Scheduled (BCWS).
Let me explain you it with the help of an example.
You have a project to be completed in 12 months and total cost of project is $100,000. Six months have been passed (and schedule says that 50% of work should be completed).
What is the Planned Value?
Let us see that what have we been given in this question-
Project duration – 12 months
Project Cost (BAC) – $100,000
Time elapsed – 6 months
Percent complete – 50% (as per the schedule)
Definition of Planned Value says that Planned value is the value of work that should have been completed so far (as per the schedule).
Therefore, in this case we should have been completed 50% of total work.
Hence,
Planned Value = 50% of value of total work
= 50% of BAC
= 50% of $100,000
= (50/100)X $100,000
= $50,000
Therefore, Planned Value (PV) is $50,000
Earned Value (EV): Earned Value is the value of the work actually completed till date; i.e. it is the value of the project that you have earned so far.
As per the PMBOK Guide “Earned Value (EV) is the value of work performed expressed in terms of the approved budget assigned to that work for an activity or WBS Component.”
Earned Value is also known as Budgeted Cost of Work Performed (BCWP).
Example:
You have a project to be completed in 12 months and total cost of project is $100,000. Six months have been passed and $60,000 is spent but on closer look you find that only 40% of work is completed so far.
What is the Earned Value (EV)?
From the above question you can clearly see that only 40% of work is actually completed.
Definition of Earned Value says that it is the value of project that has been earned.
In this case only 40% of work has been completed.
Hence,
Earned Value is = 40% of value of total work
= 40 % of BAC
= 40% of $100,000
= 0.4X$100,000
= $40,000
Therefore, Earned Value (EV) is $40,000
Actual Cost (AC): Actual Cost is the total cost incurred for actual work completed till date; i.e. it is the amount of money you have spent till now.
As per the PMBOK Guide “Actual Cost (AC) is the total cost actually incurred in accomplishing work performed for an activity or WBS component.”
Actual Cost is also known as Actual Cost of Work Performed (ACWP).
Example:
You have a project to be completed in 12 months and total cost of project is $100,000. Six months have been passed and $60,000 is spent but on closer look you find that only 40% of work is completed so far.
What is the Actual Cost (AC)?
Finding Actual Cost (AC) is simplest in all.
As per the definition of Actual Cost, it is the amount of money that you have been spent so far.
And in our question, you have spent $60,000 on the project so far.
Hence,
Actual Cost is $60,000
This is all about Earned Value, Planned Value and Actual Cost
