Earned Value Method: What is it and how to use it

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Earned Value Method (EVM) is a method for evaluating the performance of project management.

Because it provides a fairly comprehensive evaluation concept, this system is regarded as an effective strategy for evaluating project performance.

Furthermore, EVM is a method that can be used for any type of project.

Learn more about Earned Value Method by reading Primaverareader’s summary!

What is Earned Value Method?

The-Earned-Value-Method

Earned Value Method is a project management technique used to measure the performance and progress of the project.

In an integrated system, EVM can provide accurate estimates of project performance issues. This estimate is an important contribution to project performance.

Therefore, earned value method is often considered as an approach to performance management.

EVM can provide calculations based on the comparison of the actual work to the work planned (baseline).

After conducting the evaluation, EVM will provide quantitative data that the project manager can later use as a consideration before making a decision.

From the EVM The project manager will be able to determine whether the project is:

  • Ahead or behind schedule,
  • Under or over budget.

Each variable and formula in the Earned Value Method will be explained in this article.

BAC (Budget at Completion)

The total project budget is simply the sum of the individual task budgets.

BAC = Project Budget.

In this example, the project  budget (BAC) = $100,000.

BCWS (Budgeted Cost of Work Scheduled)

BCWS is also known as PV (Planned Value), BCWS describes the budget plan up to a certain period of the project work plan.

BCWS or PV = Percent Complete (planned) x Project Budget.

For example, if it’s 40th day today, and the project periode is supposed to be 100 days, it should be 40% complete.  If the project budget is $100,000, PV = 40% x $100,000 = $40,000.

BCWP (Budgeted Cost of Work Performed)

BCWP is also known as EV (Earned Value), BCWP describes the project budget that should be spent for what has been done.

EV or BCWP = Percent Complete (actual) x Project Budget.

For example, if the actual percent complete is 45% and the project budget is $100,000, EV = 45% x $100,000 = $45,000.

AC (Actual Cost)

Also known as ACWP (Actual Cost of Work Performed), ACWP describes the actual project budget that has been spent for what has been done.

AC = Actual Cost of the Project.

For example, if the actual cost is $50,000, AC = $50,000.

From the indicators above, the following formula can be used to analyze cost and schedule variances:

SV (Schedule Variance)

In this variance of the earned value analysis, the project manager gets a value that tells how far ahead or behind the project is:

SV = BCWP – BCWS, or

SV = EV – PV.

If :

SV < 0 (negative), the project is behind schedule.

SV = 0, the project is on schedule.

SV > 0 (positive), the project is ahead of schedule.

SPI (Schedule Performance Index)

The SPI, like the SV, indicates ahead or behind schedule, but it also tells the project manager how much (from the budget comparison).

SPI = BCWP/BCWS, or

SPI = EV/PV.

If :

SPI < 1, actual < plan progress, the project is behind schedule.

SPI = 1, the project is on schedule.

SPI > 1, actual > plan progress, the project is ahead of schedule.

From the example above, SPI = $45,000 / $40,000 = 1.125.  Therefore, the task is 12.5% ahead of schedule.

CV (Cost Variance)

Like the schedule variance, the cost variance informs the project manager if the project is over or under budget.

CV = BCWP – ACWP, or

CV = EV – AC.

If:

CV < 0 (negative), actual cost > plan cost, the project is over budget.

CV is zero, the project is on budget.

CV > 0 (positive), actual cost > plan cost, the project is under budget.

From the example above, CV = $45,000 – $50,000 = -$5,000.  Consider the possibility that the project may be ahead but over budget. The amount of money spent is out of proportion to the work that has been completed.

CPI (Cost Performance Index)

Similar to the CV, the CPI indicates whether or not a project is under or over budget.

CPI = BCWP/ACWP, or

CPI = EV/AC.

If :

CPI < 1, actual cost > plan cost, the project is over budget.

CPI = 1, the project is on budget.

CPI > 1, actual cost > plan cost, the project is under budget.

In our example, CPI = $45,000 / $50,000 = 0.9.  Therefore, the task is 10% over budget.

Estimated Completion Date (ECD)

ECD = (Remaining duration/SPI) + Time spent (cut off date).

In the example above:

Project duration: 100 days.

Actual duration: 40 days.

Remaining duration = 100 days – 40 days = 60 days.

SPI = 1.125.

ECD = 60/1.125 days + 40 days = 93 days (on day 93th)

The estimated completion date for the example above is day 93th. To get the date, you can add it to the project start date.

Estimated at Completion (EAC)

EAC = Remaining Cost/CPI + ACWP.

In the example above:

EAC = $50,000/0.9 + $50,000 = $105,556.

Conclusion

The earned value method is more progressive than the conventional S curve, making it helpful in tracking and evaluating project progress at a given baseline.

The Earned Value method can predict cost and time losses due to slow work progress, allowing additional project duration and final costs to be calculated mathematically and used to determine what corrective actions are required.

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