Earned Value Management Tutorial

1- How to generate Earned Value Analysis diagrams?

Earned Value Management (EVM) is a powerful tool for cost management, and a complementary tool, in addition to project schedule, for time management. EVM is also a forecasting tool which helps project managers to evaluate where their projects will end in terms of cost and schedule performance. EVM can answer analytical and forecasting questions such as:

• Is the project ahead of or behind schedule?
• When is the project likely to be completed?
• Is the project currently under or over the budget?
• How much is the project under or over the budget at the end?
• What is the remaining work likely to cost?
• What is the entire project likely to cost?
• How efficiently resources are used?
• How efficiently are project team members using their time?

With EVM, project managers can both plan and control project cost and time. Planning has to be performed at the project outset. First, project Scope of Work (SOW) has to be decomposed into manageable parts, called Work Packages (WP). The collection of work packages is called Work Breakdown Structure (WBS). Then, resources including budget, machinery, labor, etc. are allocated to each work package. A work package along with its allocated budget is called a Control Account (CA). The collection of Control Accounts is called Cost Breakdown Structure (CBS). A work package my include a number of activities with defined start and finish times. The collection of activities with their dependencies and start and finish times constitutes project schedule. Like activities, each work package must have a definite start and finish time, and be identifiable on project schedule.

With work packages' budgets and start and finish times at hand, a Performance Measurement Baseline (PMB) can be assembled. PMB is the basis for project control which defines how the project work is supposed to be executed and determines how the associated budget is supposed to be expensed. Therefore, PMB is the road map for project progress and project expenditures. PMB shows the Planned Values (PV) or as noted in some Earned Value literature, Budgeted Cost for Work Scheduled (BCWS). When PMB is formed, the planning stage of Earned Value Management is completed.

2- Earned Value Analysis: Cost and Schedule Variance and Performance

During project execution, two more curves have to be made in order to control project cost and time. The first curve indicates Actual Costs (AC) spent till the day of reporting, and the second curve indicates project progress or Earned Value (EV). Actual Cost is the value of the work performed, both invoiced and un-invoiced. In some literature, actual costs are also named as Actual Cost for Work Performed (ACWP). Earned Value, is the realistic progress of project, which can be measured using different progress measurement methodologies such as incremental milestones, units completed, level of effort, etc. EV is also called Budgeted Cost for Work Performed (BCWP). By mapping and comparing all three curves of PV, AC and EV, and calculating cost and schedule variance and performance, project managers can analyze project performance in terms of cost and time.

EVM Formulas:

• Schedule Variance: SV = EV – PV
• Schedule Performance Index: SPI = EV/PV
• Cost Variance: CV = EV – AC
• Cost Performance Index: CPI = EV/AC
• To complete Cost Performance Index: TCPI = (BAC – EV)/(BAC- AC)
• Variance at Completion: VAC = BAC – EAC
• Earned Value: EV = PC × BAC
• PC = Percent Completed
• BAC = Budget At Completion
• EAC = Estimate At Completion

3- Earned Value Forecasting

As a forecasting tool, EVM enables statistical forecasting of final project cost and schedule results, and provides an early warning on project performance. Accordingly, corrective action can be taken early to prevent project from slipping away from the originally planned values and roadmap.