What is Earned Value Management?
How is the project progressing? What is the status of the project? In project management, we’ve all had to respond to questions like these from our sponsors or clients. Earned Value Management (EVM) is also known as Earned Value Analysis (EVA). Using this method keeps your sponsors and clients informed, without overwhelming them with details at a more tasked-based level. EVM is a management methodology used for integrating scope, schedule, and resources, with the goals of objectively measuring project performance and progress as well as forecasting project outcome.
Before EVM, project managers could only compare planned costs against actual costs incurred to date – which doesn’t tell the whole story because the amount of work completed to date isn’t factored in. With EVM, we can visualize the money spent on the project and see how that relates to the money earned from the project.
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EVM enables us to be proactive, which is why it is known as “management with the lights on”, since by analyzing past trends you are better equipped to predict future conditions and course correct before it's too late. The method involves a time-phased, integrated performance management baseline that incorporates project scope, schedule, and resource measurements to assess your project progress and performance. Using EVM informs the process for estimating project outcomes based on both past performance and current project conditions. When project managers apply EVM to their projects, they are better able to identify the causes of deviations from the baseline and deploy recovery planning needed to counteract them.
EVM Origin and Definition
The concepts of EVM have been around for 55 years, so the principles are tried and true. EVM grew out of a need for the Department of Defense to integrate cost, schedule and technical performance measurement of the large, complex, and (very) expensive programs they oversaw. EVM concepts have since been adopted by the Project Management Institute® (PMI). The PMBOK Guide defines it as:
a methodology that combines scope, schedule, and resource measurements to assess project performance and progress. An earned value management system (EVMS) is a set of principles, methods, processes, practices, and tools for managing project performance. When EVM is used in concert with the Process Groups, Knowledge Areas, and processes defined in A Guide to the Project Management Body of Knowledge (PMBOK® Guide), the project manager, the broader project team, and relevant stakeholders will be able to understand project progress and gain insight into future performance based on the analysis and interpretation of project performance information. The use of EVM improves the overall project delivery process through increased insight into efficiencies, opportunities, risk management, and better project outcomes.”
Foundational Metrics of EVM
The three metrics EVM is built upon are:
- Planned value
- Earned value
- Actual cost
Consider these metrics in terms of your project budget and schedule.
Planned Value (PV) is the scheduled cost of work planned in a given time period, also known as Budgeted Cost of Work Scheduled (BCWS). The PMBOK Guide defines it as “the authorized budget assigned to work to be accomplished for an activity or WBS component.” Simply stated, PV is the approved value of the work to be completed in a given time period or the money that you should have spent according to your project schedule. Your total PV for a project is known as Budget at Completion (BAC).
PV = (Planned % Complete) * BAC
Earned Value (EV) is the amount value of the work actually completed to date, also known as Budgeted Cost of Work Performed (BCWP). EV represents the value that has been earned by the work completed in a given time period. As defined in the PMBOK Guide, “Earned Value (EV) is the value of work performed expressed in terms of the approved budget assigned to that work for an activity or WBS Component.” This is typically the most important element, as it is used to calculate many other EVM metrics.
EV = ( % of Completed Work) * BAC
PMI.Org, The Standard for Earned Value Management (2019).
Actual Cost (AC) is the easiest to understand – it’s simply the actual amount of money spent to date or the total cost incurred for the actual work completed to date. AC is also known as Actual Cost of Work Performed (ACWP). The PMBOK Guide defines AC as “the total cost actually incurred in accomplishing work performed for an activity or WBS component.”
From these three primary elements of EVM, you can calculate many other data elements to analyze your current project performance and predict future performance. These will be covered in Part 2, so stay tuned!
Benefits of EVM
By applying the concepts of EVM to your projects, you will obtain better control over your project constraints (scope, cost and schedule). You’ll have the opportunity to identify any problems or deviations from the baseline early on so that you can better manage them proactively. Your clients and sponsors will have more transparency and visibility into the true status of the project which can give them greater confidence in its success. Plus, EVM will help your team mature their project management practices and drive continuous improvements. You can’t improve if you don’t know where you are or where you're headed in relation to where you are supposed to be. Using the EVM method can guide you to greater success.