Introduction to Earned Value Project Management
Focus of EVPM
Earned Value focuses on the accurate measurement of work performance against the detailed project plan, to enable accurate prediction of the final cost and schedule, for the specific project.
Earned Value management is relatively simple to implement, provided the project manager ignores the peripheral mystique which has been built up around the concept. With adequate initial planning, implementing earned value on a project requires minimal additional effort, which is fully justified by the increased accuracy of prediction. This provides an early-warning systematic monitoring of the project budget and performance.
The classic Project Management bottom-up planning occurs as follows:
- Team members define the total assumed project scope, using a Work Breakdown Structure;
- The project scope is decomposed into separate, measurable tasks; each task is allocated an estimated value, and responsibility is assigned;
- The WBS is used to create the detailed plan and schedule, including all the major tasks;
- The result is a Project Master Schedule supported by critical path methodology;
- Resources are allocated to the tasks;
- The project is presented for authorization - some changes may be required.
Historically, projects have been managed on a Planned versus Actual costs standard; this focuses purely on budget versus spent, and completely ignores the value received by the project sponsor.
The basic requirements for Earned Value Management on a Project are as follows:
- The project scope must be fully defined; earned value performance cannot be measured without an exact 100 percent description of what constitutes the project.
- A bottom-up baseline plan must be created for planning, scheduling, and budgeting; the project needs to employ a single, integrated project management control system within which it will manage the project performance baseline. The scope, authorized resources, and timeframe for performance must be clearly defined in the baseline plan.
- A formal accounting system for the recording of all project-related costs, utilising the generally accepted accounting principles.
- Dynamic management of the project earned value by monitoring the project performance against the baseline, and forecasting the costs and time to completion periodically.
- Continual updating of the baseline, with all revisions clearly traceable to the original baseline. All scope changes must be reflected here, regardless of origin.
Earned Value Terms and Acronyms
Earned Value Performance Measurement baseline
Actual Cost of Work Performed
- Earned Value
Budgeted Cost for Work Performed (a.k.a. BCWP)
- Planned value
Budgeted Cost for Work Scheduled (a.k.a. BCWS)
Budget at Completion
Estimate at Completion (actual cost incurred plus estimated cost for completing the remaining work)
Variance at Completion (algebraic difference between BAC and EAC)
Cost Variance (difference between Earned Value less ACWP) a negative CV may result in an increase in the final project cost; poor cost performance is usually irrecoverable for the work performed.
Schedule Variance (difference between Earned Value less Planned Value) A negative earned value SV indicates that the project is falling behind in its scheduled work; a positive SV indicates that the project is ahead in its scheduled work.
Work Remaining (total Budget less Earned Value)
Funds Remaining (BAC or EAC less Actual Costs)
Cost Performance Index (cost-efficiency factor, representing the relationship between the actual costs incurred and the value of the work performed)
Schedule Performance Index (schedule-efficiency factor, representing the relationship between the planned schedule value and the value of the work Performed)
To Complete Performance Index (WR divided by funds remaining) Reflects the performance required for completing the remainder of the work within the remaining budget and schedule.
Earned Value Project Management
The focus is on cost, and schedule. Any deterioration in cost performance is usually irrevocable; sometimes deterioration in schedule performance can be rectified.
- Determine how much work has been scheduled for completion by the measuring period. Taken from the progress against the Work Breakdown Structure tasks on the Project Management Schedule/EVPM.
- Calculate Planned Value: the budgeted cost of work scheduled.
- Calculate Earned Value: the budgeted cost of work performed.
- Determine the ACWP: the actual cost of work performed.
- Calculate CPI(e): divide Earned Value by ACWP.
Perfect cost performance is 1.0. This means R1 earned value accomplished for every R1 of work planned. Anything less than 1.0 indicates that the project is headed toward cost overrun, and represents a permanent loss of funds to the project. Indicates how much actual earned value was accomplished against the original planned value.
- Calculate SPI(e): divide Earned Value by Planned Value.
Perfect schedule performance is 1.0. Anything less than 1.0 indicates that the project is headed toward schedule overrun. Indicates how much of the original scheduled work has been performed at a particular point in time.
- Calculate TCPI: WR divided by Funds Remaining.
If TCPI, halfway through the project, equals 0.7, then for the project to achieve its budget goals, it must achieve a performance of 1.3 for the remaining work. Obviously if this indicator is at 1.3, a realistic negotiation may be in order, as performance is more likely to deteriorate later in the project than improve dramatically.
In projectised environments, it is challenging to evaluate the true status and progress of projects that span the corporate fiscal year. The responsibility rests with specific individuals to make a sophisticated guess regarding completed work actual costs, remaining work, remaining costs, compared to budgeted work and costs. Earned Value Project Management offers a viable, accurate alternative, as well as a consistent tool for monitoring the performance of multiple projects within the organisation.
Bibi Kasmed has extensive experience as an Information Technology Project Manager.
Bibi may be contacted at firstname.lastname@example.org or via the website www.evolve-u.com