What is Earned Value Management and Uses?

Have you ever asked yourself any of these questions?

  1. My actual costs are less than my budget. Is my project doing well or is it behind schedule?
  2. My project’s real expenses have now exceeded my budget, despite the fact that it is only 50% completed. How much do you think it’ll cost when it’s finished?

Earned Value Management (Hereinafter referred to as “EVM” also) is a project management method that integrates scope, schedule, and cost to assess how the project is performing against the project plan.

In other words, It is a method for measuring and assessing project performance (time and cost) by integrating

  • Planned work
  • Planned cost
  • Actual work and
  • Actual costs

Likewise, EVM compares the Actual cost of work accomplished to the Budget cost of work accomplished. In other words, called Earned Value.

EVM is vital to have adequate means of obtaining information about the progress of a project against

  • its baseline and
  • the anticipated outcome of the project.

Budget, earned value, actual costs, and predictions are the four primary components of a project’s study. To get a complete view of the project’s health, you’ll need all four. When you merely look at the budget vs the actual expenditures, you’ll almost always get the wrong picture.

For example, if project spending is 10% below budget, it may look that the project is performing effectively. When the project status or earned value is included to the analysis, however, it may reveal that just half of the work that was initially intended has been completed. If that’s the case, we’ve got a project that’s much behind schedule, and the final amount will be substantially higher than expected!

MEASURES OF EVM

EVM measures project cost performance by comparing the assigned cost of work accomplished against its actual cost.

Furthermore, it also measures project schedule performance by comparing the assigned cost of completed work with the assigned cost of scheduled work that should have been completed.

By providing a uniform unit of measurement and a consistent methodology for reporting progress. Moreover, EVM provides an objective measure to assess cost and schedule project performance.

And, by integrating the scope of work with the budget and actual costs, a better picture of project progress can obtain.

Earned Value Management

Fig.1 – Budget cost vs Actual Cost

From the above figure,

During a specific period of time, the actual cost is compared with budgeted costs up to that point and a variance is calculated.

This variance is traditionally used to determine whether a project is under budget or over budget.

Thus, comparing actuals to budget results in determining a spending variance, rather than a cost variance and does not provide a realistic picture of an overrun or underrun.

This is the result of the fact that the actual cost of completed work should not be compared to the planned cost of the work budget.

From the above figure, there is a possibility of two scenario’s

  • Could the project team be accomplishing the planner work but with more money?
  • If the team was ahead of schedulewould that mean they spent slightly more than anticipated at the current analysis time (Time now)?

Earned Value Management is apparent that comparing the budget to the actual cost makes it very hard to determine a true picture of project progress.

USES

  1. Helps project managers in analyzing and reporting project performance.
  2. It is a single management control system that provides reliable data.
  3. It integrates work, schedule, and cost into a work breakdown structure.
  4. To find variances in a project like a cost, schedule
  5. Enables early problem identification and resolution.

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Also Read: Introduction to Project and Project Management

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