Earned Value Management (EVM)

What is Earned Value Management (EVM)?

  • Earned Value Management (EVM) is a Project Management Methodology that integrates Scope, Schedule (Time) & Cost to measure project performance.
  • Earned Value Management is (EVM) is a Pro-Active Project Management Approach to control and measure the project objective i.e. Time & Cost
  • Earned Value Management is (EVM) is a Project Management Technique for measuring project performance and progress in an objective manner.

Why required EVM i.e. Benefits of EVM?

  • EVM helps Visualizing the Current Project Performance
  • EVM helps to Forecast the Project Objectives
  • EVM provides Early Indication of Project Problem related to Time & Cost
  • EVM provides a actual Data Based Framework which helps to take Decisions for the Future
  • EVM provides the view on Impact of Corrective Action

Earned Value Management Industry Practice:

Image Source: PMI & APM

Terms Used in EVM:

Basic Term

  • BAC – Budget at Completion (Approved Budget of the Project)
  • PV – Planned Value also Called; BCWS – Budgeted Cost of Work Scheduled
  • EV – Earned Value, also Called; BCWP – Budgeted Cost of Work Performed
  • AC – Actual Cost, also Called; ACWP – Actual Cost of Work Performed

Variance

  • SV – Schedule Variance
  • CV – Cost Variance

Performance Index

  • SPI – Schedule Performance Index
  • CPI – Cost Performance Index
  • TCPI – To Complete Performance Index

Forecast

  • ETC – Estimate to Complete
  • EAC – Estimate at Completion
  • VAC – Variance at Completion

Important Points to be Considered:

  • The Earned Value Management is based on how much progress we achieved at specific date. i.e. the “Progress Measurement Technique” will highly affect the Earned Value. For Example for a specific activity of the project Earned Value will be achieved only when it is 100% Complete (0-100), or based on Start-Finish (50-50 or 20-80), or based on actual/physical % Complete of the activity (0% to 100%).
  • Earned value is highly affected by the “Weightage given to the Specific Activity” in the initial (Planning) phase of the project.

Earned Value in Project Management

Earned Value Management Example:

We will take one Project with 10 Activity, with project duration 10 weeks and total project budget $100,000.

Assuming that, 4 weeks completed with below current status of the project.

Activity 1 – 100% Completed, Activity 2 – 100% Completed, Activity 3 – 90% Completed, Activity 4 – 50% Completed. Based on that, we can calculate the EV as below. AC will be as per the cost incurred to do that activity.

So, the Current Status of the Project is as below.

Earned Value Management Formulas:

Based on above, we can easily calculate the Variance and Current Performance Index as below.

(Image Credit:https://www.pmi.org/)

Estimate at Completion (EAC):

EAC = AC + BAC – EV = $33,100 + $100,000 – $30,400 = $102,700

To Complete Performance Index (TCPI):

To Achieve Original Budget –

TCPI = (BAC – EV) / (BAC – AC) = ($100,000 – $30,400) / ($100,000 – $33,100) = 1.04

To Achieve Estimate at Completion –

TCPI = (BAC – EV) / (EAC – AC) = ($100,000 – $30,400) / ($102,700 – $33,100) = 1

Estimate to Complete (ETC):

ETC = BAC – AC = $100,000 – $33,100 = $66,900

Variance at Completion (VAC):

VAC = BAC – EAC = $100,000 – $102,700 = -$2700

The Remaining Budget for balanced work is = BAC – EV = $100,000 – $30,400 = $69,600

VAC = ETC – Remaining Budget = $66,900 – $69,600 = -$2700

Conclusion:

The Project is behind schedule & over budget. Hence, the Earned Value Management can provide the clear current status of the Project.

To complete the Project within budget, the Performance needs to be improved. Here, the TCPI is 1.04 means all remaining work has to be completed with a cost performance that is 4% better than the original plan/budget. In other term the balanced work of $69,600 to be completed with $66,900.

Also Read:

Earned Value Management System (EVMS)

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