What is earned value management?

Earned value management is used to forecast project results and budget, and to measure a project’s performance through to delivery. EVM provides data for decision-making and ensures the project baseline is the reference point to ascertain performance.

Put simply, earned value management is a technique for tracking a project’s performance. As such, the project’s baseline is used for measuring progress against it. Using EVM brings visibility and ensures that a project is on track and on budget. There are several techniques of EVM. The choice of technique depends on the project and its aims. For example, earned value analysis (EVA) is a quantitative approach to EVM. To evaluate assignments, project managers use earned value management systems (EVMS). These are tools and templates for measuring project performance.

Benefits of earned value management

There are many benefits to EVM. Some of the potential benefits include:

• Map the project and its cost
• Clarify what is unknown at the beginning of the project
• Quantify performance
• Create benchmarks for comparisons with the project baseline
• Move to a data-based approach
• Move to data-based decision making
• Identify the critical path to project success
• Monitor the project budget against the planned budget
• Support project adjustments, such as the allocation of more resources, budget or project expectations
• Get increased visibility of the project status and its performance compared to the project plan
• Set clear metrics that have a direct impact on accountability
• Ensure focus on the end goal

Earned value management is commonly used by project managers because it is a powerful tool for predicting project results and taking action.

Earned value management concept and calculations

There are some core concepts in earned value management, and they come with associated calculations. Here’s an overview of those concepts.

The planned value

The planned value (PV) is set before the project starts. It is a prediction of where the project should be at a defined time. It defines the project’s progress based on the schedule and cost estimates. To calculate the planned value, the formula is:

PV =% of project completed * project budget

The actual cost

The actual cost (AC) is the cost of the work delivered during a specific time. Knowing the actual cost is straightforward. The project AC = actual costs to date.

Earned value

The earned value (EV) of a project is the value of the work that has been completed up to a certain date. It is the sum of the budget from project inception up to a defined date. To calculate the earned value, use the following formula:

EV =% of completed work * budget at completion

All the above calculations can be cumulative.

Features of earned value management

Think of earned value management as a benchmark for comparison against the plan or baseline. For effective earned value management, project managers can consider the following principles:

The scope of the project

Defining the scope of a project is one of the first steps in the process. This step is important for EVM; it answers the ‘what’. Often, the project scope is defined in the project charter and detailed in the project plan. The project scope incorporates the project baseline, which can then be referred back to as the starting point.

Detailed project planning and associated budget per phase

Project planning is also a basic part of EVM. With the different tasks of the project broken down, the project manager can define the project milestones and associate KPIs and a budget with each section. Project planning answers the ‘when’, ‘who’ and ‘how’. For more granularity, weights of importance can be assigned to the different tasks. This will make the EVM calculations more accurate.

Actual expenditure on a project

Tracking the cost of the project might sound simple, but if there aren’t any systems implemented to do so, it can quickly get out of control. The project manager should create a document to track all expenses of the project and compare them to the planned budget. This can be done per project phase.

Metrics to analyse performance

You could use the calculations discussed earlier in this article to create the KPIs of your project. For consistency, keep the same methodology and metrics throughout the project. The statistics aim to give visibility to the project team and senior sponsors on the project status.

Shortcomings of EVM

Earned value management is useful for measuring project performance. However, it is not always easy to implement, and it does not solve all issues in project control. Below are some caveats about EVM worth noting.

EVM does not offer a holistic view

Earned value management offers a narrow quantitative view of the project. It does not account for qualitative metrics such as customer satisfaction or the quality of deliverables. Some projects might be behind schedule but have exceptional results. Others might be over budget but achieve much more than expected. EVM does not consider these subtle, non-data-driven achievements.

Availability of accurate and granular data

Accurate and granular data is not always available. Yet, it is essential for EVM to reflect progress. As such, earned value management is not always possible. Additionally, if the data available is not accurate, the results of the calculation could be misleading.

EVM needs a baseline and context for the numbers to be meaningful

Metrics and KPIs deprived of context are meaningless. Project managers would do well to deliver the results in context. It helps to provide a story behind the data so that the desired message is conveyed. Without this context, just like any KPI, EVM loses its value.

Earned value management is a valuable tool that project managers can consider when launching their projects. It provides important insights into progress made on a project. However, it is best to keep its drawbacks in mind in order to provide an accurate overview.