To learn more about the PMdistilled PMP Program

Earned Value Management (EVM)

Introduction

As a project manager, what are the vital indicators that will tell you that the project is progressing well?

Earned Value Management (EVM) is a project management technique that helps measure how much work has been completed, how much it has cost, and whether the project is ahead or behind schedule. It combines scope, schedule, and cost information into a single performance measurement system. By comparing the planned work (Planned Value), the work actually completed (Earned Value), and the money spent (Actual Cost), EVM provides an objective view of project health. It helps project managers identify problems early, predict the final cost and completion date, and make informed decisions to keep the project on track.

The concept is explained with the help of a simple sample project;

EVM - Video lesson

Earned Value Management is key in successfully monitoring and controlling project work. This video will elaborate the topics covered in this page. Take time to watch this video lesson like a student. Make notes. Note down the doubts. Will clarify them in the next meeting. Complete the quiz provided at the end.

The fencing project

The project comprises of 4 km fencing.
Each side comprises of 1 km duration
Each side has a budget of 1000
According to the plan, each side should take 1 week to complete

The review

Project got reviewed after 4 weeks
Sides A,B,C are completed
Side D is completed only 80%
Sides A,B,C incurred an actual cost of 3000
Side D already incurred 900 at 80% completion

Earned Value Management (EVM), Basic building blocks

Planned Value (PV)

Planned Value (PV) is the sum of the budget of the work till the review date (to be completed according to the plan)
PV is also known as the Budgeted Cost Of Work Scheduled (BCWS) till the review date

Earned Value (EV)

Budgeted Cost of Work completed till the review date

Actual Cost

Actual cost of work incurred till the review date

Example from the fencing project

Planned Value (PV) = 4000
Earned Value (EV) = 3800
Actual Cost (AC) = 3900

Schedule & Cost Variance Calculation

Schedule Variance (SV) = EV - PV
- Zero or above is ideal. Less than Zero is bad.
Schedule Performance Index (SPI) = EV/PV
- 1 or above is ideal. Less than 1 is bad.
Cost Variance (CV) = EV - AC
- Zero or above is ideal. Less than Zero is bad.
Cost Performance Index (CPI) = EV / AC
- 1 or above is ideal. Less than 1 is bad.

Variance calculation of the fencing project

Schedule Variance = (EV-PV) = 3800 - 4000 = -200
Schedule Performance Index (SPI) = 3800 / 4000 = 0.95
Cost Variance (CV) = EV-AC = 3800 - 3900 = -100
Cost Performance Index (CPI) = EV / AC = 3800 / 3900 = 0.97

Forecasting (Estimate At Completion)

Estimate at Completion (EAC) - Going at this rate, how much will it cost to complete the project?

EAC - Estimate At Completion
BAC - Budget At Completion (Total budget of the project from start till finish

Estimate At Completion (EAC) = AC + (BAC - EV) / CPI

How much will the fencing project cost, when we complete it, if all the conditions remain the same?

EAC = AC + (BAC-EV)/CPI = 3900+(4000-3800)/0.97 = 3900+200/0.97 = 3900+206 = 4106

To Complete Performance Index (TCPI)

TCPI is the target CPI to be maintained for the rest of the project, inorder to complete the project within the original budget

How can we complete the fencing project within 4000?

TCPI = Work Remaining / Funds Remaining = (BAC-EV) / (BAC - AC)

(4000 - 3800) / 4000 - 3900) = 200 / 100 = 2

For the remaining work, if we can maintain a CPI of 2, we can complete the project at 4000

Rules of Credit

In Earned Value Management (EVM), Rules of Credit are predefined methods used to determine how much earned value (credit) should be assigned to a work package based on the amount of work completed. They ensure that progress is measured consistently and objectively.

Common rules include 0/100 (credit only when work is fully complete),

50/50 (50% credit at the start and 50% at completion)
20/80 (20% at the start and 80% at completion)
Milestone Weights (credit awarded as specific milestones are achieved)
Percent Complete (credit based on the estimated percentage of work completed), and Level of Effort (LOE) (credit earned continuously over time for ongoing support activities).

By using appropriate rules of credit, project teams can accurately calculate Earned Value (EV) and assess project performance.

Lag and Lead Indicators

Lag indicators are those indicators which gives us the indication post event (Schedule Variance, Cost Variance, SPI, CPI etc
Lead indicators are the ones which forecasts the future trens (Estimate At Completion - EAC)

Quiz

Page updated

Google Sites

Report abuse