Earned Value Management (EVM) is a project management methodology that employs a set financial of metrics integrates schedule, costs, and scope to measure project performance. Based on planned and actual values, EVM predicts the future and enables project managers to adjust accordingly.
EVM is used on the cost and schedule control and can be very useful in project forecasting.
⤵️ SOME PROMINENT ORGANIZATIONS USING EVM
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Source: https://www.projectsmart.co.uk/earned-value-management/earned-value-management-explained.php |
Earned Value Management Core Elements
EVM can be intimidating to some project managers, due to the many terminologies associated with it. So, let’s break this down into easy-to-digest smaller concepts first. Each of these concepts plays a key role in improving project performance.Metric’s Components
Planned Value (PV)
Planned value is the budgeted cost for work scheduled (BCWS). PV varies based on the scope of work in consideration and the point where you’re at in the overall schedule.
PV = Total project cost * % of planned work
For example, the PV for complete project which is expected to run for 5-month is $25,000:
PV for the complete project = $25,000
PV at 2 months = $25,000 * 40% = $10,000
Actual Costs (AC)
Actual costs, also known as actual cost of work (labor cost - CAPEX and OPEX combined) performed (ACWP), plus any overhead charged to the project (e.g. marketing materials, hardware, software licenses, travel expenses, customer dining, etc.)
Here is how Jira-based project management system allows you to track all the costs within a single project and assign them to a pre-configured accountTime & Costs Tracking in a Single Project, which results in real time spreadsheet of project actual costs - https://wmdemo.atlassian.net/wiki/spaces/BPS/pages/11763839/Filter+View
Earned Value (EV)
EV = Total project cost * % of actual work
It was expected to complete a certain amount of work and budgeted accordingly. But a discrepancy from your estimate occurs, for example, after a few weeks down the line. EV indicates which of the two potential reasons contributed more: budgeted overspent or work output lagging behind the planned?
Variance Analysis
Planned value, actual cost, and earned value numbers are vital to variance calculations. At this point, the project manager wants to know how far off we are from the project baseline. This can be determined through schedule and cost variance.
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Schedule Variance (SV)
SV = EV – PV
Schedule variance is a quantitative indicator of your divergence from the initial planned schedule. A negative SV indicates that we are behind schedule, a positive SV indicates that we are ahead of schedule and zero means that we are exactly on schedule.
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Cost Variance (CV)
Cost variance is a quantitative indicator of your divergence from the initial planned budget. A negative CV indicates that we are over budget, a positive CV indicates that we are under budget and zero means that we are exactly on budget.
CV = EV – AC
Performance Indexes and Schedule Performance Index
Another way of looking at project performance, apart from performance variance and schedule variance respectively.
Cost Performance Index (CPI)
CPI gives a sense of project performance from a cost perspective.
CPI = EV/AC
CPI > 1 indicates the project is under budget and CPI < 1 indicates the project is over budget.
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