Why earned value management

Actual costs, also referred to as actual cost of work performed ACWP , is relatively straightforward. If you are using a robust project cost management software, tracking actual costs should not be a challenge. You can look at AC cumulatively, accounting for all the activities done from the beginning of the project to date or over a specific time period. Now, this is where EVM gets interesting.

But, from experience, you know that there is bound to be some discrepancy from your estimate. Planned value, actual cost, and earned value numbers are fundamental 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.

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.

To arrive at these costs though, we needed to know the scope of work planned and completed. This is how the three pillars—scope, time and cost come together in EVM.

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. Again, this is an instance of how scope, time and cost come together to give you a clear picture of where you stand at the moment in your project.

Another way of looking at project performance, apart from variance, is through indexes. Here again, we have two parameters—schedule and cost index. CPI gives a sense of project performance from a cost perspective. Earned value management is all about measuring and benchmarking against a well-defined plan.

Therefore, you can only perform this in organizations with a certain key elements in place. The 32 guidelines defined under the EIA standard discuss, in detail, the fundamental processes and systems for the implementation of EVM.

These guidelines are outlined as part of five broad principles. But again, the level of detail and overhead to implement should vary based on factors including organizational maturity, project size and complexity and contractual requirements.

The five guidelines documented as part of this principle recommend us to create three important documents:. The objective of the guidelines in this principle is to help define the project baseline in concrete terms. These are the parameters against which the project will be monitored and controlled throughout the lifecycle.

The WBS is a good starting point for the planning stage. We ensure that multiple activities are grouped under a single work package and multiple work packages are grouped under a single control account. It provides a clear communication of the activities involved and improves project visibility and accountability. The basic principle of earned value management EVM is that the value of the piece of work is equal to the amount of funds budgeted to complete it.

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This article provides an introduction to the basic concepts of earned value management EVM , from initial project planning through execution including data analysis techniques and baseline revisions. The intent is to inspire an appreciation for the earned value concept and emphasize how performance measurement techniques can be a valuable management tool.

The earned value concept improves upon the standard comparison of budget vs. Earned value is a value assigned to work which was accomplished during a particular time period. This value can be stated in any appropriate measurable unit such as hours or dollars.

Earned value, and Earned Value Analysis EVA , thus provides progress information that can be compared to the planned budget and actual cost -- to provide additional insight into project status and for the EVM analyst.

Provide the basis to capture work progress assessments against the baseline plan. Relate technical, schedule, and cost performance. Supply managers with a practical level of summarization for effective decision making.

Contractor benefits include increased visibility and control to quickly and proactively respond to issues which makes it easier to meet project schedule, cost, analysis, and technical objectives. Earned value management does introduce a few new terms.