Timely & targeted feedback enables project managers to identify problems early, and to make adjustments that keep the project on time and on budget.
Earned Value Management (EVM)
Earned Value Management (EVM) (PMI, 2005) is the most effective performance and feedback tool for managing projects because it closes the loop in the plan-do-check-act management cycle. EVM integrates scope, cost and time and answers management questions critical to project success. Importantly, EVM helps identify where the problem is occurring, its criticality and what is needed to get the project back on track.
It is therefore hard to believe that EVM relies on only three key parameters.
- Planned Value (PV), and reflects the Budgeted Cost of Work Scheduled (BCWS).
- Earned Value (EV), and reflects the Budgeted Cost of Work Performed (BCWP).
- Actual Cost (AC), and reflects the Actual Cost of Work Performed (ACWP).
PV, EV and AC data points are used to analyse project status & forecast its likely outcome.
Schedule Analysis and Forecasting
PV, EV and AC provide actionable insights regarding “How are we doing time wise?”
Schedule Variance (Are we ahead or behind schedule?)
SV = EV – PV
Schedule Performance Index (How efficiently are we using our time?)
SPI = EV / PV
Time Estimate at Completion (When are we likely to finish work?)
EAC(t) = (BAC / SPI) / (BAC / Months)
- where BAC is Budget at Completion and Months is project duration.
Cost Analysis and Forecasting
PV, EV and AC provide actionable insights regarding “How are we doing cost wise?”
Cost Variance (Are we under or over budget?)
CV = EV – AC
Cost Performance Index (How efficiently are we using our resources?)
CPI = EV / AC
Estimate at Completion (What is the project likely to cost?)
EAC = BAC / CPI
Variance at Completion (Will we be under or over budget?)
VAC = BAC – EAC
To-Complete Performance Index (How efficiently must we use our remaining resources?)
TCPI = (BAC – EV) / (BAC – AC)
Estimate to Complete (What will the remaining work cost?)
ETC = (BAC – EV) / CPI
EVM Performance Measures
The beauty of EVM is not only its simplicity but the ease with which it can inform status,
EVM Actionable Insights
When either CPI and / or SPI is less than one, then the project manager needs to analyse where the problem lies and take necessary recovery actions to bring the project back on track. Further to this, patterns and trends provide further insight and, in most cases, provide useful early warning signals of impending problems that can be proactively addressed before they become serious. Finally, action thresholds can be set that supports management by exception.
EVM Practise Guidelines
Earned Value Management (EVM) augments good project management practices because it facilitates the planning and control of cost and schedule performance i.e.
Establish a performance measurement baseline (PMB)
- Create a work breakdown structure (WBS).
- Create an organisation breakdown structure (OBS) i.e. RACI.
- Create a cost breakdown structure (CBS) for the work.
- Schedule the work and develop a time-phased budget.
- Select EV work package measurement technique.
Measure and analyse performance against the baseline (PMB)
- Record resource usage during project execution.
- Measure work progress, i.e. actual start, actual work, remaining work etc.
- For each status period determine the value earned for in-progress work packages.
- Analyse and forecast cost/schedule performance.
- Report cost/schedule performance problems and / or take action.
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