- Understand the concept of earned value management and its application in project monitoring and control.
- Learn how to calculate and interpret key EVM metrics, such as earned value (EV), planned value (PV), and actual cost (AC).
Earned Value Management (EVM) is a powerful project management technique used for measuring and assessing project performance. It integrates data related to project scope, schedule, and cost to provide a comprehensive view of a project’s health. EVM allows project managers to track progress, evaluate performance, and forecast future outcomes. Here’s a detailed explanation of EVM with examples:
Key EVM Metrics
1. Planned Value (PV):
Also known as Budgeted Cost of Work Scheduled (BCWS), PV represents the authorized budget for the work planned to be accomplished by a specific point in time. It’s essentially the value of the work that should have been completed according to the project schedule.
In a construction project, if the project schedule specifies that by the end of month 3, 30% of the building should be completed, and the total budget is $1,000,000, then the PV for month 3 is $300,000 (30% of $1,000,000).
2. Earned Value (EV):
EV, or Budgeted Cost of Work Performed (BCWP), represents the value of the work that has actually been completed up to a specific point in time. It’s a measure of the project’s true progress.
If, at the end of month 3, the construction team has completed 35% of the building, and the budgeted cost for the work completed is $350,000, then the EV for month 3 is $350,000.
3. Actual Cost (AC):
AC, or Actual Cost of Work Performed (ACWP), represents the actual cost incurred in performing the work up to a specific point in time.
If, at the end of month 3, the total cost incurred for the construction project (including labor, materials, and other expenses) is $320,000, then the AC for month 3 is $320,000.
Using these metrics, EVM calculates the following key performance indicators:
Schedule Performance Index (SPI): SPI measures the efficiency of schedule performance. It quantifies how well the project is adhering to the planned schedule.
Formula: SPI = EV / PV
- SPI > 1 indicates that the project is ahead of schedule.
- SPI < 1 indicates that the project is behind schedule.
Cost Performance Index (CPI): CPI measures the efficiency of cost performance. It quantifies how well the project is managing its costs.
Formula: CPI = EV / AC
- CPI > 1 indicates that the project is under budget.
- CPI < 1 indicates that the project is over budget.
3. Cost Variance (CV): CV measures the difference between the earned value (EV) and the actual cost (AC). It indicates whether the project is over or under budget.
Formula: CV = EV – AC
- A positive CV indicates that the project is under budget.
- A negative CV indicates that the project is over budget.
4. Schedule Variance (SV): SV measures the difference between the earned value (EV) and the planned value (PV). It indicates whether the project is ahead of or behind schedule.
Formula: SV = EV – PV
- A positive SV indicates that the project is ahead of schedule.
- A negative SV indicates that the project is behind schedule.
EVM in Action
Consider a software development project with a budget of $100,000 and a planned duration of 6 months. After 3 months (halfway through the project), the project manager assesses the following data:
- PV (Planned Value): $50,000 (half of the budget, as per the project schedule).
- EV (Earned Value): $45,000 (work completed is slightly behind schedule).
- AC (Actual Cost): $48,000 (higher than planned due to unexpected expenses).
Now, let’s calculate the EVM metrics:
- SPI = EV / PV = $45,000 / $50,000 = 0.9 (indicating that the project is behind schedule).
- CPI = EV / AC = $45,000 / $48,000 ≈ 0.9375 (indicating that the project is over budget).
- CV = EV – AC = $45,000 – $48,000 = -$3,000 (indicating a cost overrun).
- SV = EV – PV = $45,000 – $50,000 = -$5,000 (indicating a schedule delay).
Based on these metrics, the project manager can conclude that the project is both behind schedule and over budget. This information allows for informed decision-making and corrective actions to bring the project back on track.