Earned Value Management
“Earned Value Management” is a tool/technique for the process “Control costs”.
Earned value management (EVM) is a methodology that combines scope, schedule, and resource measurements to assess project performance and progress. It is a commonly used method of performance measurement for projects. It integrates the scope baseline with the cost baseline, along with the schedule baseline, to form the performance baseline, which helps the project management team assess and measure project performance and progress. It is a project management technique that requires the formation of an integrated baseline against which performance can be measured for the duration of the project. The principles of EVM can be applied to all projects in any industry. EVM develops and monitors three key dimensions for each
work package and control account: – Planned value. Planned value (PV) is the authorized budget assigned to scheduled work. It is the authorized budget planned for the work to be accomplished for an activity or work breakdown structure component, not including management reserve. This budget is allocated by phase over the life of the project, but at a given moment, planned value defines the physical work that should have been accomplished. The total of the PV is sometimes referred to as the performance measurement baseline
– Earned value. Earned value (EV) is a measure of work performed expressed in terms of the budget authorized for that work. It is the budget associated with the authorized work that has been completed.
The EV being measured needs to be related to the PMB, and the EV measured cannot be greater than the authorized PV budget for a component. The EV is often used to calculate the percent complete of a project.
Progress measurement criteria should be established for each WBS component to measure work in progress. Project managers monitor EV, both incrementally to determine current status and cumulatively
to determine the long-term performance trends.
– Actual cost. Actual cost (AC) is the realized cost incurred for the work performed on an activity during a specific time period. It is the total cost incurred in accomplishing the work that the EV measured. The AC needs to correspond in definition to what was budgeted in the PV and measured in the EV (e.g., direct hours only, direct costs only, or all costs including indirect costs). The AC will have no upper limit;
whatever is spent to achieve the EV will be measured.
Variances from the approved baseline will also be monitored: – Schedule variance. Schedule variance (SV) is a measure of schedule performance expressed as the difference between the earned value and the planned value. It is the amount by which the project is ahead or behind the planned delivery date, at a given point in time. It is a measure of schedule performance on a project. It is equal to the earned value (EV) minus the planned value (PV). The EVM schedule variance is a useful metric in that it can indicate when a project is falling behind or is ahead of its baseline schedule.
The EVM schedule variance will ultimately equal zero when the project is completed because all of the planned values will have been earned. Schedule variance is best used in conjunction with critical path
methodology (CPM) scheduling and risk management. Equation: SV = EV ? PV – Cost variance. Cost variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost. It is a measure of cost performance on a project. It is equal to the earned value (EV) minus the actual cost (AC). The cost variance at the end of the project will be the difference between the budget at completion (BAC) and the actual amount spent.
The CV is particularly critical because it indicates the relationship of physical performance to the costs spent. Negative CV is often difficult for the project to recover. Equation: CV= EV ? AC.
The SV and CV values can be converted to efficiency indicators to reflect the cost and schedule performance of any project for comparison against all other projects or within a portfolio of projects. The
variances are useful for determining project status.
– Schedule performance index. The schedule performance index (SPI) is a measure of schedule efficiency expressed as the ratio of earned value to planned value. It measures how efficiently the project team is using its time. It is sometimes used in conjunction with the cost performance index (CPI) to forecast the final project completion estimates. An SPI value less than 1.0 indicates less work was completed than was planned. An SPI greater than 1.0 indicates that more work was completed than was planned. Since the SPI measures all project work, the performance on the critical path also needs to be analyzed to determine whether the project will finish ahead of or behind its planned finish date. The SPI is equal to
the ratio of the EV to the PV. Equation: SPI = EV/PV – C ost performance index. The cost performance index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost. It is considered the most critical EVM metric and measures the cost efficiency for the work completed. A CPI value of less than 1.0 indicates a cost overrun for work completed. A CPI value greater than 1.0 indicates a cost underrun of performance to date. The CPI is equal to the ratio of the EV to the AC. The indices are useful for determining project status and providing a basis for estimating project cost and schedule outcome. Equation: CPI = EV/AC The three parameters of planned value, earned value, and actual cost can be monitored and reported on both a period-by-period basis (typically weekly or monthly) and on a cumulative basis. Figure 7-12 uses S-curves to display EV data for a project that is performing over budget and behind the schedule.
BAC ETC Project Budget Management Reserve Planned Value (PV) Earned Value (PV) Actual Cost (AC) EAC Time Cumulative Cost Data Date Figure 7-12. Earned Value, Planned Value, and Actual Costs
This definition was found in the PMBOK V5
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