Run your numbers through the same set of formulas to assess budget and schedule for your project. This is the dream scenario for project managers, right? Are we saying that every project completed using earned value management techniques will be low quality? Not at all! Make sure you, oh mighty project manager, do. Another potential downside of earned value management is the somewhat in-depth process it takes to accurately calculate it. Also, EVM results require context to understand.
Earned Value Management Explained
The final potential earned value management pitfall is the need for perfectly accurate data. Without it, EVM is completely useless. Which means your ACWP will be off, your final numbers will be wrong, and you did all those math problems for nothing. Before you dive into an earned value management system, make sure you have all the numbers you need. We encourage you to use this post as a guide.
Refer back to it to learn the terms and formulas. Then apply them to your project numbers and keep your projects on track! Post Comment. Blog Archive Media Kit Sign-up. Download the app Get Toggl. What is Earned Value Management?
Wikipedia describes it this way: a project management technique for measuring project performance and progress in an objective manner. Earned Value Management Terminology Now would be a good time for us to share with you what may or may not be bad news: earned value management requires math. As the project planning components become known, the scope and quality, schedule, and cost estimate.
When approval is granted the project has established a planning baseline or time-phased cost plan.
Also, the project manager will be provided with financial information from accounting that will expressed the actual cost incurred on the project s work is performed, then the project manager will seek information from the team that will state the budgeted cost of work performed on the project, or earned value. After those three values are established, a variance analysis can be performed.
There are two basic expressions of variance, schedule variance and cost variance. Schedule Variance status does indicate the dollar value difference between work that is ahead or behind the plan and reflects a given measurement method. The formula utilized to express schedule variance is project earned value minus the project planned value as of the date of examination.
If a negative variance is determined, the project is behind schedule and if the variance is positive the project is ahead of schedule.
Earned value management systems (EVMS)
If the variance is equal to 0, the project is on budget. If a negative variance is determined, the project is over budget and if the variance is positive the project is under budget. It is the ratio of earned value EV to planned value PV. An SPI equal to or greater than one indicates a favorable condition and a value of lass than one indicates an unfavorable condition.
Assuming your SPI efficiency remains through out the reminder of work; your project will finish ahead of schedule. It is the ratio of earned value EV to actual costs AC. Assuming your CPI efficiency remains the same throughout the reminder of work; your project will be over budget. Now it is time to learn how to analyze the future or what is expected to happen on a project given the progress measurements reported to date.
Anticipating future progress requires determining when the project will be completed and how much it will cost to complete it. The Estimate at Completion EAC is the actual cost to date plus an objective estimate of costs for remaining authorized work. The objective in preparing an EAC is to provide an accurate projection of cost at the completion of the project.
If they are not equal, your earned value calculations and analysis will be inaccurate. The EAC is the best estimate of the total cost at the completion of the project. The EAC is a periodic evaluation of the project status, usually on a monthly basis or when a significant change happens to the project. EACs are developed with varying degrees of detail and supporting documents.
A comprehensive EAC is usually prepared annually or if there are any major changes in the project. There are multiple ways to develop an EAC. The technique selected is based upon the dollar value of the project, the risk, accounting system available and the accuracy of the estimates. One common formula for determining the EAC is expressed as budget at completion divided by the current CPI of the project. The reader should acknowledge that the discipline of Earned Value Management is more complicated and more complex than the information presented in this paper summary.
Earned Value Management: The three key metrics | PM Knowledge Center
This paper is intended to be an opening position for the reader to begin to build and assemble a knowledge base for Earned Value Management. Good luck in your personal EVM endeavors and remember, it all begins with a sound project plan and you too, can do earned value management! Project Management Institute.
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Third ed. Government Electronics and Information Association. Reaffirmed: August 28, United States Department of Energy Earned value management application guide, version 1. January 1, Office of Engineering and Construction Management. Also known as budgeted cost of work performed BCWP. Total cost of project work done to date. Also known as actual cost of work performed ACWP. You set a budget limit and a time period in your project plan, and you have been able to stay within the forecasted amounts. However, there is a key aspect of the project not being considered: the amount of work done so far.
Usually, Earned Value Management is displayed as a graph with 3 lines, each denoting a different value: planned value, earned value, actual cost.
Without having the Earned Value, it can be unclear if a project was truly on track or not as budget and schedule cannot be accurate indicators without taking work into account.