Earned Value Management – an introduction

If we apply 80:20 principle to the entire project management concepts, Earned Value Management (EVM) falls into the 20 percentage of the concepts which will give us 80% of the benefits. EVM helps project managers to be more pro-active. This ability to forecast helps project managers to manage their projects effectively. In the absence of it, one becomes very reactive and helpless. EVM is built on some very basic building blocks like;

Planned Value  (BCWS) – Also known as Budgeted Cost Of Work Scheduled till the project review date. Sum of the budgeted values of work that were supposed to be completed as per the plan, till the review date.

Earned Value (BCWP) – Is also known as Budgeted Cost Of Work Performed (BCWP). This is the sum of the budgeted cost of the work performed till the review date.

Actual Cost (AC) – Is the actual cost of work performed till the review date.
The underlying concept

If the earned value (EV) is equal to the planned value (PV), then the project is progressing as per the schedule.

If the actual cost (AC) is equal to the earned value (EV), then the work is progressing within budget.

The ratios to be monitored

Schedule variance (SV) = Planned value (PV) – Earned value (EV)

Cost Variance (CV) = Planned Value (PV) – Actual Cost (AC)

Schedule performance index (SPI) = EV/PV Cost performance index (CPI) = EV/AC Schedule variance percentage = ((EV-PV)/PV)*100

If the SPI=1 and CPI=1 indicates that the project is right on track schedule wise as well as cost wise.

A well implemented earned value management system can become the cornerstone for effective project management.

 

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2 thoughts on “Earned Value Management – an introduction

  1. Well very said sir, You can also highlight the limitations of EVM, as it cannot handle quality as it being one of the major producable certificate in mordern delivery terms even in India. The other place where we really cant use EVM is ever changing project requirments or agile way of every day work executions.

    I have tried to implement PMP to a great extent on an ever changing project, but failed on to keep track of ever changing documents. My skill pad isnt enought to pin each detail as the same detail is obsolute at the end of day. Agile works perfect in this environment.

    Infact most of the software driven projects that run the core would have to go in agile for their vapouring needs.

    These are just my personal observations and appriciate the efforts done on the blog. Excuse me if I have mentioned something wrong.

    Sathya

  2. Thanks for your post. Here are some of my views;

    1) In an ever changing scenario, the PMBOK concepts (the 9 knowledge areas) will still hold good. Integration, Time, Cost, Scope, Procurement, Quality, Human resource, Communications, Risk. Everything has a place in every project. We need to articulate them to suit the high requirements volatility.

    2) In agile, majority use the burn down chart, which focuses on the effort required to complete the balance activities. Earned value management fits well for agile, better than waterfall because across sprints the activities are by and large homogeneous.

    I am working on my next video – ‘Developing a project strategy’, which will give more insights to choosing the appropriate project strategy for a project, depending on the nature of the project.

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