EVM (earned value management) is often discussed but often not understood.

EVM combines the management of scope, schedule, and cost into an analytical set of formulas.  EVM can play a crucial role in answering management questions that are critical to the success of the project, such as:
  • are we ahead of or behind schedule;
  • how efficiently are we using our time;
  • when is the estimated completion date;
  • how efficiently are we using resources;
  • at this point in time are we under or over budget;
  • what is the remaining work estimated to cost;
  • what is the entire project estimated to cost;
  • how much will we be under or over budget?

If the project EVM results show that the project is behind schedule or over budget, the project manager can use the EVM methodology to help identify:
  • where problems are occurring;
  • whether the problems are critical or not;
  • what it will take to get the project back on track.

Organizations have such confidence in the EVM method that they require it as mandatory trending and reporting starting as soon as the project has resources.  The attraction to the use of the earned value is that it provides accurate measurements of performance as early as 15 percent into the project.  With an accurate “early warning” signal, actions can be taken by a project manager to avoid final cost and schedule over runs.

Earned value management involves calculating three independent yet related variables.  These include:

·         Planned Value (PV) - describes how far along a project is supposed to be at any given point in the project schedule. It is a numeric reflection of the budgeted work that is scheduled to be performed, and it is the established baseline (also known as the performance measurement baseline) against which the actual progress of the project is measured. Once it is established, this baseline may change only to reflect cost and schedule changes necessitated by changes in the scope of work. PV is also known as the Budgeted Cost for Work Scheduled (BCWS).

·         Earned Value (EV) is a snapshot of a project at a given point in time that reflects the amount of work that has actually been accomplished, expressed as the planned value for that work.  EV is also known as the Budgeted Cost for Work Performed (BCWP).

·         Actual Cost (AC) is an indication of the level of resources that have been expended to achieve the actual work performed to date or in a time period.  AC is also known as the Actual Cost of Work Performed (ACWP).

EVM (earned value management) formulas include:

Earned value if not provided:
  • EV = % Complete x PV

Schedule variance and cost variance can be calculated by:
·         SV = EV – PV
·         CV = EV – AC
Note: negatives are unfavourable, positives are favourable

Variance at completion can be calculated by:
·         VAC = BAC – EAC (budget at completion – estimate at completion)
Note: negatives are unfavourable, positives are favourable

Schedule performance index and cost performance index can be measured by:
  • SPI = EV / PV
  • CPI = EV / AC
Note: if SPI > 1 this is good (ahead of schedule) or < 1 behind schedule, if CPI is > 1 this is good (under budget) or < 1 over budget

Estimate at completion can be measured by:
Note:  ETC is estimate to complete, BAC is budget at completion)
  • EAC = AC + ETC (original estimates were flawed and a new estimate is needed)
  • EAC = AC + (BAC – EV) (variances will not follow the trend to date, future performance will not be the same as the past)
  • EAC = AC + [(BAC – EV) / CPI]
variances will follow similar trend to date, future performance will be the same as all past performance
  • EAC = AC + [(BAC – EV) / ((EV+ EV+ EVk) / (AC+ AC+ ACk))]
Future cost performance will be the same as the last three measurement periods (i, j, k)
  • EAC = AC + [(BAC – EV) / (CPI x SPI)]
Future cost performance will be influenced additionally by past schedule performance
  • EAC = AC + [(BAC – EV) / (.8 CPI + .2 SPI)]
Future cost performance will be influenced jointly in some proportion by both indices

Emerging EVM practice formulas:
  • SV(t) = PT - ET (planned time - elapsed time)
  • SPI(t) = PT / ET
Note:  this method gives another perspective for projects that run over schedule and do not want only a work based method to evaluate schedule

IF this all sounds complicated, it is because it can be.  So until you start to feel comfortable, do not over do it.  Stick to accounting basics.

Understand what your stakeholders need to know (ask them if unsure) and understand what you need to know and report on.

At a minimum, any point in time you must have in your back pocket, info that can be communicated related to (and ensure the entire team knows this):

1 - are you ahead or behind schedule
2 - what percentage are you ahead or behind schedule
3 - what was original and new estimated end date

1 - are you ahead or behind in budget
2 - what percentage are you ahead or behind in budget
3 - what was original and new estimated budget

For more information regarding EVM methodology, you can refer to the Practice Standard for Earned Value Management (2nd Ed.), published by the Project Management Institute (PMI).

Also, the two links listed below provide more details and understanding related to the EVM methodologies. You will find a deeper level of detail and examples.