Earned Value Management (EVM)

Earned value management is a project management tool used to appraise the cost
performance and progress of the project at any given moment during the life of the project.

Benefits of Earned Value Management

1) To provide a systematic and structured basis of assessing the performance and progress of
the project.

2) To ensure that project managers and the project team have a timely visibility into cost and
schedule challenges.

3) It ensure project managers obtain summarised information about the project useful in
guiding (informed) decision making.

4) It ensures that valid, timely and verifiable data/information is provided to analyse and take
appropriate action where necessary.

5) It ensures that customers and other stakeholders develop trust and confidence in the project
and the works of the project manager(s) and the project team in managing the project,
identifying problems early and providing objectively determined project cost analysis and
schedule status.

Earned Value Management System

It is a structured and systematic approach used in appraising project cost and progress
performances.

Steps in developing an earned value management system

1) have the scope baseline that has the entire project work
2) have the schedule baseline that shows how the project work will be executed during the
life of the project
3) have the cost baseline that shows the budgeted amount for the whole project
4) Develop the project performance baseline by integrating the scope baseline, schedule
baseline and cost baseline. The project performance baseline will be used to assess project
cost performance and progress against the actual cost performance status and progress status
of the project at any given moment during the life of the project.
5) Use the earned value management appraisal techniques like CV, SV and CPI to determine
the cost performance and progress of the project at any given moment.
6)Draw conclusions from results obtained during the appraisal, develop remedial action
where required and implemented the necessary corrections to ensure the project progresses
and finishes as desired.

Progress determination

Progress measurement methods

These are methods used to determine the level of progress occuring with the project during
the life of the project.

a) Fixed formula (0/100; 50/50; 25/75)

1)0/100--nothing is earned when activity starts but 100% of budget is earned when completed

2) 50/50---50% is earned when activity starts and the remainder is earned on completion

3) 25/75---25% is earned when activity starts and the balance is earned on completion

Please note the fixed formula is more suitable for short term, low value work packages and is
not effective for long term work packages

b) Milestone Weighting

Assigns budget value to each milestone. It is more suitable for long term duration work
packages
c) Percent-complete with Milestone

Assigns budget value to each milestone and it is earned based on the percent of work
completed against each individual milestone.

d) Units complete

Uses a physical count to determine what is earned. Units must be identical or similar and with
the same budget.

e) Subjective percent complete

Percent complete is determined by the Control Account manager or other designated

f) Level of Effort (LOE)

This is a time based method of measuring progress. A monthly budget is earned with the
passage of time and is always equal to the monthly planned budget.
- LEO is usually used for accounts that are more time related than task related e.g Project
Management Support.
-With LOE, PV is usually equal to EV i.e PV=EV.

Earned Value Management techniques

Budgeted Cost of Work Scheduled (Planned Value/PV)

BCWS/PV.

-This is the total amount set aside or budgeted to finance the project work from start to finish.
-BCWS/PV shows the expected value the project seeks to create at any given point of the
project.
-It is common knowledge that to earn, we must spend or incur a cost.
-It is also common knowledge that we budget/plan for what we intend to spend on.

Budgeted Cost of Work Performed (Earned Value)

BCWP/EV
BCWP/EV is the amount relative to the PV, that should be spend on the project work at any
given moment and represents the value the project must earn at any given point of the project
from undertaking the project, hence earned value.

Actual Cost of Work Performed (Actual Cost)

This is the amount incurred during executing project work and represents the actual cost
reflective of the dynamics happening with and affecting the project.

Budget at Completion (BAC)

BAC is useful in determining if the project will eventually finish within the set budget or not
from the status of project at any given point during the life of the project.

Cost Variance (CV)

Cost Variance is the difference between Earned Value (EV) and Actual Cost (AC)
computable for the project at an give point of the project during the project life.

-CV is computed to determine if the project is operating under budget or over budget.

-CV=EV-AC

Interpretation and comment

2)If CV is positive (+ve), the project is presently operating under budget.

Schedule Variance (SV)

Schedule Variance is the difference between Earned Value (EV) and Planned Value (PV), and
is computable for the project at any given point of the project during the life of the project.

SV is computed to determine if the project is progressing ahead of schedule or behind

SV=EV-PV

Interpretation and comment

1) When SV is negative (-ve), the project is currently progressing behind schedule.

2) When SV is positive (+ve), the project is currently progressing ahead of schedule.

Schedule Performance Index (SPI).

It measures the efficiency at which the project is progressing at any given moment during the
life of the project.

An unfavourable SPI is useful in providing the necessary insight required to identify areas of
the project that are not performing well and to develop and administer corrective measures to
address those areas to ensure the project progresses and finishes on schedule.

A favourable SPI provides immediate insight on opportunities the project can exploit to
ensure the project progresses and finishes on schedule.
SPI is also useful as a management tool in managing project risks.

Formulae

SPI=EV/PV

i.e SPI=BCWS/BCWP

Interpretation and comment

1)SPI>1 project is currently operating or progressing ahead of schedule (favourable) and all
things remaining equal, the whole project will finish on schedule.

2)SPI<1 project is currently operating or progressing behind schedule (unfavourable) and in

Cost Performance Index (CPI)

CPI measures the efficiency at which the project is performing in cost terms at any given
moment during the life of the project

An unfavourable CPI i.e CPI<1 provides the project team and project manager with an
immediate reflection of the areas the project is not performing well in cost terms.
-It also helps in guiding the project team and project manager in developing the appropriate
measures required to correct the situation and ensure that the project progresses without
further incurring cost overruns to eventually finish within the set budget.

A favourable CPI i.e CPI>1 is an indication that the project is operating well in cost terms
and helps the project in identifying and exploiting existing opportunities/reasons to ensure the
project progresses under budget.
Like SPI, CPI is useful as management tool in managing project risks

Formulae

CPI=EV/AC

i.e CPI=BCWP/ACWP

Interpretation and comment

1)CPI>1,the project is currently operating under budget or not incurring cost overruns and the
whole project will conclude within the set budget

2)CPI<1, the project is currently operating over budget or incurring cost overruns and in the
absence of corrective measures, the whole project will conclude outside the set budget..

Estimate At Completion (EAC)

Gives a forecast of the total project cost on completion based on how the project is presently
performing in cost terms as indicated by the project's cost performance index (Index)
-Before the project begins, EAC is equal to BAC i.e BAC=EAC
-EAC starts varying from BAC only when actual costs (AC) vary from planned value (PV).

Formula

1) EAC=BAC/CPI

This formula is useful when no variances have occurred with the BAC.

2) EAC= AC+ETC
Actual cost to date plus a new estimate for the remaining work. This formula is used when
the original estimate was fundamentally flawed.

3)EAC=AC+(BAC-EV)

Actual costs to date plus remaining budget. This formula is used when current variances are
atypical.

4) EAC=AC + (BAC-EV)/CPI

Actual cost to date plus remaining budget modified by performance. This formula is used
when current variances are typical.

Estimate to Complete (ETC)

Gives a forecast of the total project cost on completion based on how the project is presently
performing in cost terms as indicated by the project's cost performance index (Index)
-Before the project begins, EAC is equal to BAC i.e BAC=EAC
-EAC starts varying from BAC only when actual costs (AC) vary from planned value (PV).

Formula

1) EAC=BAC/CPI

This formula is useful when no variances have occurred with the BAC.

2) EAC= AC+ETC

Actual cost to date plus a new estimate for the remaining work. This formula is used when
the original estimate was fundamentally flawed.
3)EAC=AC+(BAC-EV)

Actual costs to date plus remaining budget. This formula is used when current variances are
atypical.

4) EAC=AC + (BAC-EV)/CPI

Actual cost to date plus remaining budget modified by performance. This formula is used
when current variances are typical.

Estimate to Complete (ETC)

Provides a forecast of the estimated additional cost needed to complete the project from any
given point.

ETC=EAC-AC

Variance at Completion (VAC)

VAC determines the monetary value by which the project will be over or under budget.

VAC=BAC-EAC.

Please note

Before you attempt any EVM computations, make sure you establish the correct values
of PV, EV and AC.

Also note that BAC is (almost) always provided and is basically the total cost of the
entire project.