Earned Value Management (EVM) in

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Earned Value Management(EVM) is a well-known technique used in Project Managment to

control the cost and time performance of a project and is also used to predict the final project
cost and duration. [1]

Contents
[hide]

 1 History
 2 Concept overview
 3 Implementation of the method
o 3.1 Steps to EVM
 4 Terminology
o 4.1 Key Parameters
o 4.2 Measuring project performance
o 4.3 Forecasting measures
o 4.4 EVM Graph
 5 Example
 6 Advantages
o 6.1 The use of EVM to make progress payments on construction projects.
 6.1.1 Cost type
 6.1.2 Fixed price
o 6.2 10 Benefits of EVM
 7 Limitations
 8 Annotated Bibliography
 9 References
o 9.1 Further reading

History
The Us federal government introduced Earned Value management(EVM) in 1967 as a part of
the cost/schedule control systems criteria (C/SCSC) to understand the financial aspects of
programs and to be used in acquisition programs of large degree in an attempt to generate a
consistent method based on best practices. Earned Value management and methods that vary
from EVM to a small degree have been used under handful of names, including earned value
project management, earned value analysis, earned value method, cost/schedule summary
reporting, Earned Value Management Systems(EVMSC), and the current 32 guidlines in the
EIA-748 Standard for Earned Value Management Systems(EVMS) [2]

Concept overview
Earned Value management is a systematic process that is used to measure the performance of
a project at different times throughout the life cycle of a project. EVM is useful to help
project managers or people in general that are responsible for a project to determine whether
a project is on schedule, or if the project is over or under budget. EVM can also be used to
compare the actual work that has been performed to the work that was estimated and planned
for the project at a certain time during the project, EVM can also be used to forecast projected
performance. EVM is a technique that can be applied, to at least some degree, to the
management of projects in any industry and using any contracting approach. [1]

EVM measures project progress and performance by the integrated management of three
fundamental elements of project management, cost, schedule and scope which make up the
Project Management Triangle as can be seen in figure 1.

figure 1:Project management triangle source:

http://www.ambysoft.com/essays/brokenTriangle.html

In most cases in practice, the progress of an project is evaluated by comparing it against

earned value indices and estimates against historically values, past projects or according to
numerous criteria.

To sum up the objectives of Earned Value Management:

 To relate time phased budgets to exact contract task or/and statement of work.
 To provide the necessary basis to capture the work progress assessment against the
pre-planed baseline plan
 To relate schedule, technical and cost performance
 To provide the necessary timely, valid and auditable information so it can be used for
the proactive project management analysis and the corresponding action
 To provide the managers with a practical level of summarization to enable effective
decision making
[1]

Implementation of the method

Steps to EVM
In this section a simplification of the steps that need to be taken in EVM are described, this is
done since each of the step is quite comprehensive and each and every one could be an article
on its own. Since EVM is decomposed into 32 summery criteria, and these 32 criteria contain
roughly 200 attributes. The list below is composed by Strategic Consulting Solition, Inc. [3]

step 1-5 is before the project starts

Step 1. Building the foundation for the project - this step is about deconstructing the project
Statement of Work(SOW) into more discrete, measurable components to develop the Work
Breakdown Structure(WBS) and the tasks/activities that are essential to execute the work.

Step 2. Determine the resources and effort required to execute the work. This is an
estimation, and it can provide useful for the company to use previous projects that have been
similar to make the estimations.

Step 3. Make up a Resource leaded schedule of the time that it is expected to take executing
the work.

Step 4. Define a methodology to measure activity/task completion that suits the project (EV
methods).

Step 5. This steps is about pricing the resources and efforts that are expected to be used
during the project, this is done to make a project budget (Budgeted Cost of Work Scheduled
or Planned value).

step 6-10 is after the project has begun

Step 6. Now the project has begun and in this step the actual cost(AC) of work performed by
period is collected against the WBS below the level required for reporting.

Step 7. Using which ever methodology created in step 4, calculation are made to determine
the completion percentage of an activity/task

Step 8. In this step Earned Value(EV) or Budgeted Cost of work is calculated. That is
achieved by multiplying the completion percentage of the task/activity against the total
budget for that task/activity

Step 9. In this step Schedule Variance(SV) is calculated. that is achieved by subtracting the
Planned value from the Earned value(EV)

Step 10. Calculate the Cost Performance Index, which is often referred to as the cost
efficiency of a project in order to calculate the Estimate at completion(EAC) which is the new
projected estimated total cost at project completion given the information at time calculated.
[3]

Additional reading The full 32 criteria guideline.

Terminology
Key Parameters

The first three parameters are considered the three dimensions of earned value: Planned
Value, Earned Value and Actual Cost. Both Planned Value and Actual Cost dimensions will
apply to nearly all construction projects. The only dimension that is sometimes unknown is
Earned Value in construction, especially on lump-sum or fixed price jobs. [4]

Table 1: EVM Parameters. [4]

Parameter Description
Planned Is a budget baseline that has been established for a project/work
Value (PV) package/activity. It is a function of cost and time as can be seen in figure 2.
PV baseline can be used to view the value to be earned at a certain
time/phase in the project. PV is frequently referred to as the S curve simply
because of the shape of the curve.
Actual Cost Is the cumulative actual cost that has been spent on a project/work
(AC) package/activity.
Earned value is the cumulative value that has been earned for the work completed at a
(EV) certain point in time.
Formula: Earned value(EV)=total budget for activity*completed
proportion
Budget at BAC is the final point and the highest value of the cumulative Planned value
completion curve. BAC represents the total budget for the project/work
(BAC) package/activity.

Measuring project performance

The following variances and indices are used in EVM to measure the performance of a
project at any given time.

Table 2: EVM Variances. [4]

Earned Description Formula Result
Value
Variances
Cost The difference between the amount budgeted = Earned Value > 0 means
Variance and the amount that was actually spent on the (EV) - Actual under
(CV) work performed. CV shows whether and by how Cost (AC) budget
much amount the project is over or under pre-
approved budget. < 0 means
over budget
Schedule The difference between the amount budgeted = Earned Value > 0 means
Variance and the amount that was planned for the project. (EV) - Planned ahead of
(SV) SV is a good indicator to show if and by how Value (PV) schedule
 much your work is behind or ahead of pre-
approved schedule. < 0 means
behind
schedule
Table 3: EVM Indices. [4]
Earned Value Description Formula Result
Indices
Cost The ratio of approved budget for work = EV/AC > 1 means
Performance performed(EV) to what was actually spent on better
Index (CPI) the work(AC). CPI reflect the relative value of progress for
the work that has been completed to the the money
amount paid for the task. CPI is often reffered spent
to as the Cost efficiency of a project.
< 1 means less
Additional note According to Fleming and progress for
Koppelman CPI is one of the two most useful the money
EVM metrics, the reason for that is according spent
to a study of 155 actual contracts showed that
at the 20% point of project completion , the
final projected results from CPI would only
change by +/- 10%. This proves that CPI is an
excellent to accurately determine requirements
for final performance, in order to meet
financial goals. [5]
Schedule The ratio of approved budget for work = EV/PV > 1 means
Performance performed to the actual approved budget for more work
Index (SPI) work performed(EV) to what was budgeted for performed
the project(PV). SPI is useful since it reviels if than had been
the project is behind or ahead of schedule. scheduled

< 1 means less

work
performed
than had been
scheduled
Project Percent of project work complete at a given =
Percent time. (EV/BAC) *
Complete 100
Remember BAC = Budget at Completion
To Complete The cost performance index required to =(BAC-
Performance complete the project on the predetermined EV)/(BAC-
Index (TCPI) budget or the required future cost efficiency AC)
that is needed to achieve the target Budget at
completion(BAC).

Forecasting measures
To make a forecast of the future state of an project an simplified assumption is made: the cost
performance(CPI) and the Schedule Performance(SPI) are assumed to be a representative
indicator for the actual future performance of the project.

Table 4: EVM Forecasting. [4]

Earned Value Description Formula
Forecast
Estimate at The estimated total cost at project completion. The formula =
completion for EAC is based on the assumption that the current BAC/CPI
(EAC) performance gives a fair indication of future performance
Variance at The estimated variance between actual total cost(EAC) and = BAC-
completion planned total cost(BAC) at project completion. EAC
(VAC)

EVM Graph

figure 2:S-curve graph:

source:http://www.chambers.com.au/glossary/earned_value_management.php.

The parameters above can be seen in a visual representation in figure 2. It can be useful to
have the numbers translated into something visual for a more simple understanding of the
status of the ongoing project. Most of the necessary information can be found in the graph
and visually it can be seen in the figure that:

 the Actual Cost(AC) of the project is above the predetermined Planned Value(PV)
that had been established.

 The Earned Value(EV) of work completed is lower than the Planned Value

 By comparing the gaps between the Actual Cost and Earned value the Cost
Variance of the project can be found. According to this figure the project is above the
pre-approved budget
  By comparing the gaps between the Planned Value and Earned value the Schedule
Variance of the project can be found. According to this figure the project is behind
schedule

Example
In this section there will be an short simplified example of EVM in a project that has five
tasks A,B,C,D,E. For each of the tasks the duration has been estimated, the cost of each task
per week and finally the total cost of each task, as can be seen in table A. These cost are
called Planned value(PV) in EVM. In more detailed examples and projects a Statement of
Work(SOW) can be very useful if used in the right ways. [6]

Table A: Task description.

Task Predecessor Duration(Weeks) Cost/Week Total Cost
A 2 300 600
B A 3 400 1200
C B 3 400 1200
D B 2 200 400
E D 3 100 300
3700

To keep track of the status of each of the projects a Gantt Chart has proven to be very useful
since it provides much needed clarity, helps with coordination and last but not least time
management, helping teams understand the overall impact of project delays which is an vital
part of the EVM method. In this Gantt chart there can be seen the planned schedule and the
actual performance of the project up until week 7 when the project manager decided to take a
closer look at the progression of the project. [6]

Figure A: Tasks.

His report at the end of week 7 can be seen in table B and C. Using the data from that table to
fill up the Gantt Chart. According to the report and from the Gantt Chart it can be concluded
that task C and D are behind schedule.

Table B: Incurred costs at week 7.

Report at end of week 7
Activity Actual % completed Incurred cost
A 100 600
B 100 1400
C 33 500
D 50 200
E
Table C: Tasks behind schedule at week 7.
Task Planned completion Actual completion
C 66% 33%
D 100% 50%

Now it is time from the project manager to analyze the situation and take a closer look at the
Earned Value Variances(Earned Value Indices and Earned Value Forecast)

The project manager made some calculations which can be seen in table D., interpretation of
the outcomes of these calculations can be seen in table E and graphical representation in
Figure B

Table E: Project performance .

Task Schedule Cost Schedule Performance Cost Performance
Variance Variance(CV) Index(SPI) Index(CPI)
(SV)
A Exactly on Exactly On Exact amount of work Exact amount of
schedule budget performed that has been progress for the money
scheduled spent
B Exactly on Over budget Exact amount of work Less progress for the
schedule performed that has been money spent
scheduled
C Behind on Over budget 50% of work performed that Less progress for the
schedule has been scheduled money spent
D Behind on Exactly on 50% of work performed that Exact amount of
schedule budget has been scheduled progress for the money
spent
E - - - -
[6]

table D: Earned Value Variances, Earned Value Indices .

Figure B: EVM plot.

Advantages
The use of EVM to make progress payments on construction projects.

When undergoing a project there is often a risk that the owner of the project is going to
overpay their suppliers for the work they completed. This is due to the fact that Cost-type
arrangements have inherent risk for the sake of the owners focusing on the expense paid and
forgetting to closely monitor the actual work done for the money spent. One way of
mitigating this risk is to accurately measure the value of work completed, compare that
against the original budget authorized for the completed work, and only pay for actual work
completed. There are two broad contractual environments in the building industry, Cost type
and fixed price [7]

Cost type

Cost type is often used in construction projects to cover the initial design work and both the
first and final design. In project that are high risk, f.x. nuclear energy construction the cost
type contract is sometimes used for all of the phases of the project.
Cost reimbursable type arrangement works in the following manner: the supplier will be
refunded each month for the actual cost(AC) during the project, which is subjected to the
terms of their agreement, meaning that all costs (excluding fee) are submitted by the
supplier/contractor to the owner, who pays the bill. Because of this arrangements there can be
a substantial difference between the physical work done and the dollars being spent on the
project. Quentin W. Fleming and Joel M. Koppelman provide four recommendations to
reduce the risk for cost type contracts:[7]

1. Project owners should order the supplier/constructor to provide a "schedule of values"

which is time-phased, and the sum of all items will be listed up to the total contract value.
This time-phased schedule provides the owner a valuable and simple form of "planned
value(PV)" which can be used to measure the performance of the project through its life cycle

2. At the end of each month, when the supplier/contractor provide their invoice that reflect
the Actual cost(AC) incurred, order the contractor to update their schedule of values, which is
the Earned value(EV) of the project. This gives the owner a tool to monitor the earned value
against the planned value and the earned value minus the actual cost to get the cost variance
of the project

3. It can be useful to monitor the performance of both the cumulative Cost Performance
index(CPI) and the Schedule Performance Index(SPI) to compare the results of one project to
all other projects with similar circumstances in the company

4. Forecast the likely final cost at regular intervals with the Estimate at completion (EAC)
method to ensure that the project is on budget, and if it is not make the necessary adjustment
to stay on track [7]

Fixed price

In most Fixed price contracts suppliers/contractors are given progress payments based on the
amount of work completed, along with the authorized budget for the completed work. This
method is highly useful with the Earned Value Management method. Effective method to
establish an earned value baseline could be to require the supplier/contractor to make a
critical path method(CPM) , with the necessary resources integrated into the CPM model, and
the sum of these resources must sum to 100% of the contract value. Actual costs(AC) related
to the earned value are oft missing in the fixed price work. If there is no AC then we lack the
ability to make up the Cost performance index(CPI), which is one of the most important
indicator in the EVM method. Suppliers/contractors who accept a fixed price job are likely to
be reluctant to disclose how much profit they are making on the job, actual cost to earned
value. The profit that the contractor is set to make should not be concern to the project owner,
it's only when the contractor starts to incur a loss, especially a large loss that the project
owner could get concerned. This is due to the fact that a loss increased the likelihood that the
supplier is unable to complete the job. To mitigate the risk to the owners Quentin W. Fleming
and Joel M. Koppelman provide two recommendations.[7]

1. Condition all fixed price suppliers to hand over their anticipated costs that have incurred,
to match with their planned value(PV) projections contained with either previously
mentioned time-phased schedule of values, or their CPM resource loaded model. These costs
incurred forecasts usually resemble the "S" shaped curve . Unless there are justifying reasons
there forecast should resamble the "S" curve, else the projections may be "front-loaded", or
the project owner might be paying for work that has not been completed

2. To minimize the financial risk of the project, there could be a good thing to condition the
supplier to have their chief financial officer(CFO) to validate each month that they have not
exceeded their planned value of cost incurred. On the other hand if the supplier has exceeded
their planned value , require them to reveal the amount of their actual cost incurred, so it is
possible to compare it to the earned value and be able to quickly determine how much loss
the contractor has suffered. [7]

10 Benefits of EVM

Davis S. Christensen enlisted the 10 benefits of EVM in the article The costs and benefits of
the earned value management process

1. It is a single management control system that providing reliable data

 Even though the criteria does not require an external report, managing with one
system while reporting from another one is not effective neither efficient. The concept
of the criteria encourages companies to use their own internal management control
system, given that the these systems meet the management standards that are
described by the criteria.

2. Integration of schedule, work and cost using WBS

 One requirement of the criteria is that all the authorized work and the related
resources are well defined and integrated using a project-oriented work breakdown
schedule(WBS)

3. Database of criteria-compliant projects useful for comparative analysis

 Due to the consistent reporting of criteria-compliant projects for over 30 years, there
is a database useful for comparative analysis. Analysts have used this information in
the database to create important insights for managers and relative people.

4. Cumulative Cost performance Index(CPI), early warning signal

 CPI has been shown to stabilize to within +/- 10% by the 20 percent completion part
for most defense acquisition contracts. In most cases the cumulative CPI only
worsens. This along with other indicators suggest that cot management must take
place early to be effective.

5. Schedule Performance Index, early warning signal(SPI)

 SPI is useful to identifying schedule problems, notably when used with Critical Path
information. Schedule problems are frequently resolved by increased spending, an
adverse SPI is also foretelling of later cost problems. The criteria suggests that all
work should be scheduled and traceable from the master program level down to the
detailed levels.
6. Cost Performance Index(CPI), predictor for final cost of a project

 CPI is also useful to determine a fair lower limit for the estimated final cost of a
project. A lower band can provide to be useful for planning and control purposes. The
criteria recommends regular evaluation of the estimate.

7. Index-based method to predict final cost of a project

 There are evidence that show when the SPI and CPI are combined to estimate a
reliable upper bound to the Estimate at Completion(EAC). When combined with the
CPI based lower bound, then a "most likely" range of EAC is determined. If the
contractor's EAC is outside this calculate range, then there may be a problem with the
estimation of the contractor.

8. To-Complete performance index to assess the forecasted final cost

 TCPI is useful to evaluate the reasonableness of the contractor's EAC or other

financial goals. TCPI is the ratio of remaining work to the remaining budget. This can
help managers to evaluate the reasonableness of critical financial goals within the
project, e.g. completing the remaining work within the predefined budget.

9. Periodic Cost Performance Index as a benchmark

 While cumulative performance indices are effective for predicting trends at summarly
levels in the Work Breakdown Schedule, CPI's at regular intervals are useful for cost
performance trends at the more detailed levels of the WBS

10. Management by expectation principle can result in reduced information overload

 By leading the managment attention to only the most urgent problems, the chance of
information overload can be reduced.
[8]

Limitations
Applying Earned Value Management can have it downsides if not performed in a well
structured manner, with this in mind EVM has some limitations when implementing it. Some
of these limitations are listed below.

Is the plan correct

EVM was never meant to be a stand-alone tool. But rather, it should be applied with other
schedules and reports to understand where your project time line and budget stands.
Moreover, if the initial plan is inaccurate, then the tracking of the project will never match the
plan. This becomes wearying task since then it becomes necessary not only to adjust the
planned project, but also the actual plan needs to be adjusted.

Convoying the information

Understanding of the Earned value management is often beyond most of the stakeholders.
Formulas and terminology are unfamiliar to those who are not using the application daily.
That is way it is necessary to convoy the information to stakeholders and team members in
the most straight forward manner. This can be achieved by using charts e.g. the S-shaped
curve and not going into to much detail regarding exact formulas.

Mismatched opinions and quality control

If a project team is used to Earned Value Management there can often occur debates on the
best mathematical formulas that should be used in the tracking of the projects process, also
there could be different view on what to track. [9]

Annotated Bibliography
Kwak, Y. H., & Anbari, F. T. (2012). History, practices, and future of earned value
management in government: Perspectives from NASA. Project Management Journal,
43(1) [2] This article goes over the historical background of earned value management, from
the origin of the concept and how it has evolved over time. This article describes shortly why
to use EVM and the main attributes of the methodology behind it. Current practices for
implementing EVM are discussed through examining the adaption and implementation of
EVM at NASA. This study showed the substantial project management value NASA received
from implementing EVM across its agency, furthermore EVM provided effective training in
scheduling, leadership and data analysis

Strategic Consulting Solutions inc. (2012). 10 Steps to Understanding Earned Value

Management [3] This article provides a useful simplified 10 steps to understand and use
earned value management. This article is useful to demonstrate how earned value
management works without over complicating it with highly technical terms. EVMS is
originally decomposed into 32 parts summery, with over 200 attributes.

Earned Value Management. (n.d.) [4] This page gives a great overview of the calculations
behind earned value management. The page covers the variances of earned value: Cost
variance(CV) and schedule variances(SV), provides the formula for these variances along
with what the results of these equations would suggest about the progress of the project.
Earned value indices are also covered in the same manner, formula and interpretation of the
result. Formulas used for the forecasting process of earned value management. Finally the
page displays a graph of earned value metrics as a function of cost and time. Actual cost,
planned value and earned value are plotted using data from the project.

Fleming, Q. W., & Koppelman, J. M. (2002). Using earned value management. Cost
Engineering (Morgantown, West Virginia), 44(9), 32–36. [7] Fleming and koppelman,
explore the benefits of Earned Value Management in construction projects. Cost type and
Fixed type projects are discussed and how implementing EVM can reduce expenditures and
mitigate risk for the project owner. Benefits of implementing EVM for the customer is
enlisted for Cost type and Fixed type projects.

Associates, H. &. (2012). Basic Concepts of Earned Value Management (EVM) [1] This
article provides an introduction to the elemental concepts of EVM, this article goes through
the initial project planning to the execution, providing various data analyzing techniques
along the way. It lists out the inputs that the internal system of the contractor must be able to
provide. The 32 guidelines of EVMS are described in 5 sections, and finally describes the
customer and contractors benefits of using EVMS.
[5] [8] [6] [9]

References
1. ↑ 1.0 1.1 1.2 1.3 Associates, H. &. (2012). Basic Concepts of Earned Value Management
(EVM). Retrieved September 13, 2016, from https://www.humphreys-
assoc.com/evms/basic-concepts-earned-value-management-evm-ta-a-74-t-1_11.html
2. ↑ 2.0 2.1 Kwak, Y. H., & Anbari, F. T. (2012). History, practices, and future of earned
value management in government: Perspectives from NASA. Project Management
Journal, 43(1), 77–90. doi:10.1002/pmj.20272
3. ↑ 3.0 3.1 3.2 Strategic Consulting Solutions inc. (2012). 10 Steps to Understanding
Earned Value Management. Retrieved September 11, 2016, from
http://www.scsconsults.com/wp-
content/uploads/10StepsToEarnedValueManagement.pdf
4. ↑ 4.0 4.1 4.2 4.3 4.4 4.5 Earned Value Management. (n.d.). Retrieved September 16, 2016,
from http://www.chambers.com.au/glossary/earned_value_management.php
5. ↑ 5.0 5.1 Fleming, Quentin and Joel Koppelman. The Two Most Useful Earned Value
Metrics: The CPI And The TCPI. 1st ed. Primavera systems, inc, 2008. Web. 14 Sept.
2016.
6. ↑ 6.0 6.1 6.2 6.3 E. (2015, February 20). Earned value analysis worked example.
Retrieved September 11, 2016, from
https://www.youtube.com/watch?v=z7b3SYQuqJM
7. ↑ 7.0 7.1 7.2 7.3 7.4 7.5 Fleming, Q. W., & Koppelman, J. M. (2002). Using earned value
management. Cost Engineering (Morgantown, West Virginia), 44(9), 32–36.
8. ↑ 8.0 8.1 S. Christensen, D. (2011). THE COSTS AND BENEFITS OF THE EARNED
VALUE MANAGEMENT PROCESS. doi:10.1.1.196.3738. Retrieved September 15,
2016, from
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.196.3738&rep=rep1&type=
pdf
9. ↑ 9.0 9.1 Eschulze. (2013, July 18). Earned Value Management (EVM) Limitations (J.
Scheid, Ed.). Retrieved September 15, 2016, from
http://www.brighthubpm.com/monitoring-projects/10056-how-earned-value-
management-is-limited/

Further reading

[http://citeseerx.ist.psu.edu/viewdoc/download;jsessionid=F4DDB0399E4FD8D8A2557BED
C86B9862?doi=10.1.1.549.6673&rep=rep1&type=pdf THE USE OF EARNED VALUE
ANALYSIS (EVA) IN THE COST MANAGEMENT OF CONSTRUCTION PROJECTS ]

The Cost Monitoring of Construction Projects Through Earned Value Analysis

[http://iglc.net/Papers/Details/998/pdf CRITICAL ANALYSIS ON EARNED VALUE
MANAGEMENT (EVM) TECHNIQUE IN BUILDING CONSTRUCTION ]