EARNED VALUE MANAGEMENT

A Simple Approach to understanding EVM

By Ravikumar Kalose N MCA, MS (BITS - Pilani), PGDBA, PMP®, SCT™

As a PROJECT MANAGER, did you

◦ Prepare “Regular Project Status Reports” ?

◦ Understood the “Performance Variance” ?

◦ Attempt to highlight the “Current Project Performance” ?

◦ Derive and communicate “Project Forecast” ?

If your answers to any of above is “NO”, Please continue to read on……..

Being Professional…

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Earned Value Management (EVM)

EVM is one of the widely used scientific approach to measure, analyze, integrate project data to accurately report on current project performance and forecast the required performance for completion.

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Subjective Vs Objective

Relies on assumptions, interpretations based on high level work status

Lack of any measured data and facts

Project Health (Red/Amber/Green) is debatable and subjective

Relies on measured values derived from triple constraints – Scope, Time and Cost

Project Status reported based on defined matrix

Unambiguous, No Assumptions

Easily understandable by Stakeholders

Green OR Red

?

What IF…??

?

Can defend the current Project Status

Assertive

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Earned Value – Balancing Factors

Scope

Cost----

-------- ----

Timeline

Project’s performance based on information On Scope, Cost and Time at a given point in time.

This is compared against Scope Baseline, Cost Baseline and Schedule Baseline.

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So, What is Earned Value (EV)?

Objective method to measure project progress.

Helps to determine if a project is on track.

Indicator of current project performance.

Provides early warnings and trends on any cost and/or schedule over runs.

Helps to derive the Project Forecasts on Cost and Timelines.

Earned Value (EV)

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Earned Value is an

Indicates how much of “Value” you have “Earned” on the project at any given point

of time.

Helps determine variance against Planned Value (PV).

Characteristics of EV

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EVM - Key measurement components

Planned Value (PV) – Is the “Authorized Budget” to be expended for an activity, work package, Milestone or to the project at a given point.

Budget At Completion (BAC) – “Total Planned Value (PV)” at the end of the project

Earned Value (EV) – The “Value of Work Performed” expressed in terms of the Authorized Budget

Actual Cost (AC) – “Cost Incurred or Expended for the Work” performed at a given point to complete an Work Package or accomplish a Milestone.

Earned Value Management - Components

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Earned Value – Key Components PV = Planned % complete X BAC EV = Actual % complete X BAC AC = Cumulative money spent till date

Performance ReviewsVariances Analysis Schedule Variance (SV) = EV – PV (SV > 0, Good) Cost Variance (CV) = EV – AC (CV > 0, Good) Variance At Complete (VAC) = BAC – EAC (VAC > 0, Good)

Performance Indicators Schedule Performance Index (SPI) = EV / PV (SPI > 1, Good) Cost Performance Index (CPI) = EV / AC (CPI > 1 Good)

EVM - Variances and Performance

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A Forecast

Helps to determine Revised likely Budgets using performance measurements.

Helps to determine “Estimate At Complete (EAC)” . This indicates the revised

BAC and may requirea approval from sponsor if variance between BAC and EAC is quite marginal

“Estimate To Complete (ETC) ”. This indicates the amount required to to complete the rest of the project.

“To-Complete-Performance-Index”. This is an indicator of how much speed(performance) is required to be applied in order to catch up with the plan in the remaining period of the project

Earned Value Management

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EAC – Three methods

◦ EAC = AC + BAC – EV (when initial assumptions were flawed)◦ EAC = BAC / cumulative CPI (assuming similar CPI would continue)◦ EAC = AC + ((BAC – EV) / cumulative CPI X cumulative SPI ) (trying to factor both schedule and cost performances)

ETC = EAC-AC

To-Complete-Performance-Index

◦ TCPI = work remaining / funds remaining◦ TCPI = (BAC - EV) / (BAC - AC) Based on BAC◦ TCPI = (BAC - EV) / (EAC - AC) Based on EAC

EVM - Forecast - Formulae

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Earned Value - Illustration

Time (in Weeks)

Deliv

erab

les

1 2 3 4 5 6 7

A

B

C

D

E

100%

75%

50%,

$500

$2000

$800

$5000

$600

20%

0%

PV= $4900

$600

$2500

$600

$2000

EV= $3400

AC= $5700

$0

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BAC= $8900

Let us consider the following example to understand the concepts better

An ERP implementation project for ABC company is estimated tocost $500,000 with an estimated duration of 40 weeks. At theend of 10 weeks the project is 20% complete with $150,000being already spent on the project.

Exercise: 1. Identify what is BAC and AC2. Calculate PV, EV, CV, SV, CPI, SPI, EAC, ETC, TCPI, VAC

Please Watch our next video for explanation of this Exercise.

EVM - Example

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