Watch Video on Explanation of Earned Value Management
Mastering Project Performance
The Essential Guide to Earned Value Management (EVM)
EVM is a powerful project management methodology for measuring project performance and progress in an objective manner. It combines scope, schedule, and cost into a single, integrated system to give you a clear picture of project health.
1. Core EVM Concepts
At the heart of EVM are three fundamental values. Understanding these is key to assessing any project's progress and financial standing. They form the basis for all further analysis.
🗓️ Planned Value (PV)
**What you PLANNED to spend** by a certain point in the project. It's the budgeted cost of work scheduled (BCWS).
*Also known as Budgeted Cost of Work Scheduled (BCWS).*
📈 Earned Value (EV)
**What you ACTUALLY accomplished,** measured in terms of the budget. It's the budgeted cost of work performed (BCWP).
*Also known as Budgeted Cost of Work Performed (BCWP).*
💸 Actual Cost (AC)
**What you ACTUALLY spent** to achieve the work completed. It's the actual cost of work performed (ACWP).
*Also known as Actual Cost of Work Performed (ACWP).*
2. Project Performance Over Time
This chart illustrates how PV, EV, and AC accumulate throughout a project. The relative positions of these lines indicate the project's health:
EV above PV: Ahead of schedule | EV below PV: Behind schedule
EV above AC: Under budget | EV below AC: Over budget
3. Key Performance Indicators (KPIs)
EVM provides powerful metrics to quantify project performance in terms of variances (actual vs. planned differences) and indices (efficiency ratios).
↔️ Variances (Value Difference)
Cost Variance (CV)
CV = EV - AC
CV > 0: Under Budget ✅
CV < 0: Over Budget ❌
Schedule Variance (SV)
SV = EV - PV
SV > 0: Ahead of Schedule ✅
SV < 0: Behind Schedule ❌
📊 Performance Indices (Efficiency)
Cost Performance Index (CPI)
CPI = EV / AC
CPI > 1: Efficient Spending ✅
CPI < 1: Inefficient Spending ❌
Schedule Performance Index (SPI)
SPI = EV / PV
SPI > 1: Efficient Schedule ✅
SPI < 1: Inefficient Schedule ❌
4. Forecasting (What Will it Cost?)
EVM helps predict future project performance, giving project managers critical insights to take corrective actions before it's too late.
🔮 Estimate At Completion (EAC)
**The predicted total cost** of the project when all work is complete.
Common Formula:
EAC = BAC / CPI
*BAC = Budget At Completion (Total Project Budget)*
⏭️ Estimate To Complete (ETC)
**The expected cost** to finish all the remaining work.
Common Formula:
ETC = EAC - AC
*Or often, ETC = (BAC - EV) / CPI if future performance matches past.*
5. Why Use EVM? (Key Benefits)
Implementing EVM offers numerous advantages, providing a clear, objective view of project performance and enabling proactive management.
Objective performance measurement.
Early warning of problems (cost/schedule).
Better cost control and financial management.
Improved forecasting of project completion.
Enhanced communication with stakeholders.
Data-driven decision making.
6. Simple EVM Example
Imagine a 10-month project with a total budget (BAC) of $100,000. Each month, $10,000 worth of work is planned.
At the end of Month 5, let's analyze:
- **Planned Value (PV):** We planned to spend $10,000/month * 5 months = **$50,000**
- **Earned Value (EV):** Only 40% of the total project work is actually complete. So, 40% of $100,000 (BAC) = **$40,000**
- **Actual Cost (AC):** We have actually spent **$55,000** to date.
Now, let's calculate the KPIs:
- **Cost Variance (CV):** $40,000 (EV) - $55,000 (AC) = **-$15,000** (Over Budget! ❌)
- **Schedule Variance (SV):** $40,000 (EV) - $50,000 (PV) = **-$10,000** (Behind Schedule! ❌)
- **Cost Performance Index (CPI):** $40,000 (EV) / $55,000 (AC) = **0.73** (Inefficient Spending! ❌)
- **Schedule Performance Index (SPI):** $40,000 (EV) / $50,000 (PV) = **0.80** (Inefficient Schedule! ❌)
- **Estimate At Completion (EAC):** $100,000 (BAC) / 0.73 (CPI) = **$136,986** (Project will likely cost more than planned!)
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