Earned value management explained
Earned value management is well known by project manager gurus. It’s used to forecast project results and budgeting, but also to measure a project‘s performance through to delivery. EVM provides essential data for decision making and ensures the project baseline is the reference point to ascertain performance. This section is composed of a thorough definition of earned value management and looks into the benefits of the technique.
What is earned value management?
Put simply, earned value management is a technique that aims at tracking the performance of a project. As such, the baseline of the project is essential to measure 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 what it aims to achieve. For example, earned value analysis, also referred to as EVA, is a quantitative approach to EVM. To evaluate assignments, project managers use earned value management systems (EVMS). These are tools and templates that measure the performance of projects.
Benefits of earned value management
There are many benefits to EVM. Here is a snapshot of those:
- Map the project and its cost.
- Shed light on what is unknown at the beginning of the project.
- Quantify performance.
- Create benchmarks for comparisons with 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, adjustment of the budget or simply a readjustment of expectations
- Get increased visibility of the project status and its performance versus the plan.
- Set clear metrics that have a direct impact on accountability.
- Ensure focus on the end goal.
Earned value management should be used by all project managers as it is a powerful tool to predict the results of a project and thus take action.
Earned value management concept and calculations
There are some core concepts to earned value management and they go with some associated calculations. Here’s an overview of those concepts.
The planned value also referred to as PV
The planned value is set before the project starts. It is a prediction of where the project should be at a defined time. It defines the progress of the project based on the schedule and cost estimation. To calculate the planned value, project managers should do the following:
PV =% of project completed * project budget
The actual cost also referred to as AC
The actual cost, as its name states, is the cost of the work delivered during a specific time. Knowing the actual cost is straightforward. Project managers should use the following methodology to know the project AC:
AC = Actual costs to date
Earned value, known as EV
The earned value 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 its start and up to a defined date. To calculate the earned value, do the following:
EV =% of completed work * budget at completion
All the above calculations can be cumulative.
Essentials of earned value management
Think about earned value management as a benchmark for comparisons with the plan or the baseline. For effective earned value management, project managers will need to use 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 should incorporate the project baseline. This should be sealed and reverted back to as the starting point.
Detailed project planning and associated budget per phase
Project planning is also an essential part of EVM. With the different tasks of the project broken down, the project manager can define the project milestones and associate KPIs and 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 for more accurate representation of reality when it comes to the EVM calculations.
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 it to the planned budget. This can be done per project phase.
Metrics to analyse performance
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 at giving visibility to the project team and senior sponsors on the project status.
Shortcomings of EVM
Earned value management is great to measure the performance of a project. However, it is not always easy to put in place and does not solve all issues of project control. Below are some caveats around EVM that are worth being aware of.
EVM does not offer a holistic view
Earned value management offers a narrow quantitative view on the project. It does not count for qualitative metrics such as customer satisfaction or quality of deliveries. 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.
The availability of accurate and granular data is crucial
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. The project manager needs to deliver the results in context. A story needs to be told with 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 should consider when launching their project. It provides important insight into progress made on a project. However, the technique needs to be used with caution to deliver an accurate picture. For more on how to evaluate performance, check our recommended content below:
