Earned Value Management (EVM) is one of the most talked-about project controls techniques, but it is often misunderstood.
In this article Project Management advisor and lecturer, John McGrath aims to give readers a high-level overview of earned value management by taking a look at the key concepts behind EVM.
What is Earned Value Management?
EVM identifies and analyzes variances in project performance based on the comparison of work performed versus the originally planned work in the baseline. It addresses three fundamental questions:
- “How much work have we completed?” (Which we refer to as the plan value or PV)
- “How much work have we completed?” (Which we refer to as the earned value or EV)
- “How much did it cost us to complete this work? (Which we refer to as the actual cost or AC)
One key consideration to remember about earned value management is that to harness the power of earned value management, you need to have a baseline set for every value in your project schedule. The essence being you need a baseline value to compare it against the actual value.
Secondly, you need to remember that while it is much stronger on cost management, it can also be used on schedule management as well. The third thing to remember is that it is now becoming the industry standard for large projects. Most scheduling tools can calculate it at the project level, but very few can calculate it at the program or the portfolio level, giving you enterprise visibility of earned value analysis across your project across your program and your portfolio.
The two most important metrics used in earned value management are Cost Performance Index, which is referred to as CPI, and Schedule Performance Index, referred to as SPI. The key thing to understand is that your project is exceeding the planned requirements if your SPI or your CPI are above 1. But if you’re CPI or SPI or below one, your project is underperforming. For example, a project with a CPI of 1.1 would indicate that we’re 10% efficient in terms of managing our budget on the project. But if we had an SPI of .9, it would indicate we’re only getting 90% of the scheduled work performed compared to what was planned. So, it is a reduction or an inefficiency of 10% under schedule.
Learn how Cora’s Project Controls Software solution PPM can help with Earned Value Management.