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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