What is Earned Value Management?

Earned Value Management (EVM) relies on the concept of Time Phased Baselines to ensure that projects are being planned and executed efficiently. Planned Value (PV) is established at each stage in order to track progress over time using a unit measure which was also used during planning stages. The importance behind earned value management lies within maintaining accurate records by tracking all expenses against what has been achieved so far in terms of money so when it comes down too crunching numbers you know exactly where every penny went. The Earned Value Management system is a more accurate way to assess project financial status than simple comparisons of budget and actuals. 
The three data points used in Earned Value Management are the

  • Planned Value of work scheduled (PV)
  • Actual Completion rates (AC) and
  • Earned Value (EV)

Let's understand the concept with a simple example

EVM looks at the Project from three different perspective

  • Scope
  • Cost &
  • Time

Let’s say we are at the end of month 2 in this example.

Budget at completion (BAC)   =   $40,000
Planned Value (PV)   =   $20,000
Earned Value (EV)   =   $15,000   [ $10,000 + 50% x $10,000 ]
Actual Cost (AC)   =   $16,000  [ $9,500 + $6,500]

Based on the above data we can now calculate

Schedule Variance (SV)   =   EV – PV = -$5,000  [ $15,000 – $20,000]
Cost Variance (CV)   =   EV – AC = -$1,000  [ $15,000 – $16,000]
Cost Performance Index (CPI)   =   EV/AC = 0.937  [ $15,000 / $16,000]
Schedule Performance Index (SPI)   =   EV/PV = 0.75  [ $15,000 / $20,000]
Estimate at Completion (EAC)   =   BAC/CPI = $42,689.43  [ $40,000 / 0.937 ]
Estimate to Complete (ETC)   =   EAC – AC = $26,689.43  [ $42,689.43 – $16,000 ]

SV = 0 means project progress is on time
SV = +ve means project progress is ahead of schedule
SV = -ve means project progress is behind the schedule

CV = 0 means project spend is right on budget
CV = +ve means project spend is less than budget
CV = -ve means project spend is more than budget

CPI = 0.93 means 93 cents earned on every $1 spent.

SPI = 0.75 means rate of progress is 75% of rate planned.

head to the >>Demo page for EVM calculation on a sample project.

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