Earned Value in Project Management

Key Concepts of Earned Value Management

Planned Value (PV)

The authorized budget assigned to scheduled work. PV indicates how much work should have been completed by a specific point in time according to the project plan.

Actual Cost (AC)

The actual cost incurred for the work completed by a specific point in time.

Earned Value (EV)

The value of the work actually performed up to a specific point in time. EV indicates how much of the budgeted work has been accomplished.

Performance Metrics Derived from EV

Schedule Variance (SV)

Indicates whether the project is ahead or behind schedule.

Positive SV means ahead of schedule; negative SV means behind schedule.

Cost Variance (CV)

Indicates whether the project is under or over budget.

Positive CV means under budget; negative CV means over budget.

Schedule Performance Index (SPI)

Measures the efficiency of time utilization.

SPI > 1 means ahead of schedule; SPI < 1 means behind schedule.

Cost Performance Index (CPI)

Measures the cost efficiency of budgeted resources.

CPI > 1 means under budget; CPI < 1 means over budget.

Importance of Earned Value Management

• Objective Measurement: EVM provides an objective measure of project performance and progress.
• Early Warning System: By identifying variances from the plan early, EVM allows for proactive management and corrective actions.
• Integrated View: EVM integrates scope, schedule, and cost, providing a holistic view of project performance.
• Forecasting: EVM can be used to forecast future performance and project outcomes, aiding in decision-making and planning.

Example of Earned Value Calculation

Imagine a project with a total budget (BAC) of $100,000, scheduled to be completed in 10 months. By the end of month 5, the following data is available:

• Planned Value (PV): $50,000 (50% of the project should be complete)
• Actual Cost (AC): $55,000
• Earned Value (EV): $45,000 (45% of the project is actually complete)

Using these values, we can calculate the performance metrics:

• Schedule Variance (SV): SV = EV - PV = $45,000 - $50,000 = -$5,000 (behind schedule)
• Cost Variance (CV): CV = EV - AC = $45,000 - $55,000 = -$10,000 (over budget)
• Schedule Performance Index (SPI): SPI = EV / PV = $45,000 / $50,000 = 0.9 (behind schedule)
• Cost Performance Index (CPI): CPI = EV / AC = $45,000 / $55,000 = 0.818 (over budget)

Conclusion

Earned Value Management is a powerful tool in project management that provides insights into project performance, allowing for better control and decision-making. By understanding and applying EVM, project managers can effectively manage project scope, schedule, and cost, ensuring successful project delivery.