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Earned Value Management

Creating a good project plan is the first step in successful project management, but the hard part comes once you start implementing it and you need to constantly sanity check whether you are progressing as expected. Moreover, it is not only about being late or early, it is also about budget and effort progress.

What is earned value management?

Earned value management (EVM) is a technique to measure a project’s performance and progress. It is a tool to help project managers make informed decisions during a project’s lifecycle. There is more than one way how project managers can calculate project progress. Quite often such measurement falls under the subjective approach to set completion percentage for each project task without any ground rules.

The bad part is that each individual will treat progress differently and will be driven sometimes by contradicting incentives. This is why it is important to use a well-defined, tested, and proven technique.

Earned value project management

To successfully use the EVM technique there are minimum requirements to have:

  • A project plan which identifies what needs to be accomplished
  • Estimate or valuation of planned work, called planned value (PV)
  • Earning rules to quantify the progress of work, called earned value (EV)
  • Actual Cost calculations, called Actual Cost of Work Performed (ACWP) or just Actual Cost (AC)
  • Plot of project cumulative costs vs time. To visualize early and late date curves

The requirements are not limited to the above ones and usually are extended in case of larger or complex projects. Examples of additional things to have:

  • Indicators of cost performance (over or under budget)
  • Indicators of schedule performance (behind or ahead of schedule)

Earned value vs planned value vs actual cost

At first, it may seem all of these three terms are quite similar, but there are key differences that separate them.

  • Planned Value is the estimated monetary value for work that has been planned.
  • Earned value is the estimated monetary value for the work that has already been completed.
  • Actual cost is the actual value of the work that has been completed.

So when comparing earned value vs planned value vs actual cost, we are looking at the same period of time from three different perspectives:

  • What value was estimated for the work that was planned to be completed – PV
  • What value was estimated for the work that has actually been completed – EV
  • What is the actual value of the work that has been completed – AV

Learn more about the differences by exploring Earned Value Management examples.

Planned value, earned value and actual cost

PV, EV, and AC are key elements that can be used to calculate and measure projects performance over time.

PV and EV and AC visualized

planned value vs earned value vs actual cost

What are the benefits of earned value management (EVM)?

While like any technique EVM has its own cost of implementation, it does bring the following advantages:

  • Objective way to measure project’s performance
  • Objective indication of better or worse performance on more than one aspect of project (schedule, budget, work)
  • Time focused to help assesing impact of changes to project
  • Well proven technique by many research studies as well as commercial projects
  • Ability to visualize and present a constructive evaluation of project’s performance versus how it was planned

How to calculate earned value?

EV = Total Project Budget * Completed % of Project Budget

Earned value management formulas

There are many more formulas than just a single EV. Closer to the final list looks like the following table.

Formula NameFormula
Planned ValuePV = % of completion based on plan
Earned ValueEV = Total Project Budget * Budget % Completed
Cost VarianceCV = EV – AC
Schedule VarianceSV = EV – PV
Cost Performance IndexCPI = EV / AC
Schedule Performance IndexSPI = EV / PV
Estimate At CompletionEAC = BAC / CPI
Estimate To CompletionETC = EAC – AC
To-Complete Performance Index (BAC)TCPI = (BAC-EV) / (BAC-AC)
To-Complete Performance Index (EAC)TCPI = (BAC-EV) / (EAC-AC)
Variance At CompletionVAC = BAC – EAC

If you need to run these formulas daily, it could seem tedious it is why popular project management tools provide those calculations out of the box. Compare the best project management tools of 2022.

Summary

There are many project management methodologies as well as stand-alone tools to guide project managers to successful projects. EVM is just one of the tools and should be used because of its benefits while rationally assessing other existing alternatives. All in all, it is still preferred to use such techniques to remove people’s bias toward different outcomes and guard stakeholder interests internally as well as externally.

Continue learning about Earned Value Management with 3 different examples and an explanation of the analysis.

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