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Earned Value Management (EVM) – Concept, Purpose, Advantages and Disadvantages | Project Management

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Earned Value Management (EVM)

Concept of EVM

EVM (Earned Value Management) is an approach to project management that measures and tracks a project’s progress and performance. To determine a project’s performance and forecast its future performance, it integrates the cost, schedule, and scope elements of the project.

By comparing the project performance with the planned baseline, EVM provides project managers with specific formulas and metrics, allowing them to make informed decisions and take corrective actions.

Using EVM, we compare the value of the work performed on a project to its planned value and actual cost. This tool allows project managers to answer questions like, “Am we on track?”, “Are our resources being used efficiently?”, and “Will the project be completed on time and within budget?”

In order to better understand EVM, let’s examine its key components in more detail:

i. Planned Value (PV):

The authorized budget allocated for the work scheduled to be completed within a specified time frame is the planned value, also known as Budgeted Cost of Work Scheduled (BCWS). A PV curve shows the cumulative expenditure over time as a function of planned expenditure.

ii. Actual Cost (AC):

A project’s actual cost (AC) is the sum of direct and indirect costs incurred to completion of the project. Also known as the actual cost of work performed (ACWP), the actual cost signifies the overall cost of the project up until that point.

iii. Earned Value (EV):

The Earned Value (EV) is also known as the Budgeted Cost of Work Performed (BCWP) and represents the actual value of the work completed. It is calculated based on objective measures such as completed milestones.

iv. Schedule Variance (SV):

A project’s schedule variance (SV) indicates whether it is ahead or behind schedule by subtracting the planned value from the earned value (EV – PV).

v. Cost Variance (CV):

The Cost Variance (CV) is a measure used to indicate when projects are running under budget or over budget. The CV is calculated by subtracting the actual cost from the earned value (EV – AC).

vi. Schedule Performance Index (SPI):

This ratio compares earned value to planned value to determine whether a project is on schedule. It is calculated by dividing earned value by planned value (SPI = EV / PV).

vii. Cost Performance Index (CPI):

The Cost Performance Index (CPI) compares the earned value with the actual cost and measures the project’s cost effectiveness. It calculates the cost efficiency by dividing earned value by actual cost (EV / AC).

Purpose and Roles of EVM in Project Management

Project managers use EVM to improve their project’s performance by providing objective and reliable information. With EVM, they can perform the following:

i. Measure Progress:

Project managers are able to assess progress with EVM by comparing planned value, earned value, and actual costs. By comparing these values, they get a clear picture of where the project stands compared to what was originally planned.

ii. Forecast Performance:

EVM helps project managers forecast the performance of a project by assessing schedule variances (SV), costs variances (CV), and extrapolating these variances by extrapolating them to predict the project’s completion date and budget.

iii. Identify Variances and Trends:

EVM detects schedule and cost variances early on so project managers can take corrective actions. It helps identify trends and possible problems that could negatively impact a project’s success.

iv. Evaluation of Efficiency:

EVM calculates schedule performance indexes (SPI) and cost performance indices (CPI), which indicate the efficiency of a project and help project managers to evaluate how efficiently resources are being utilized.

v. Facilitate Decision Making:

EVM supports project managers in their decision-making by providing objective insights into projects’ performance. It helps in determining project priorities, allocating resources, and improving project plans.

In project management, EVM plays the following roles:

i. Project Planning:

In project planning, EVM is used to establish the baseline plan, including values such as planned value (PV) and costs. A baseline plan helps define objectives, establish performance benchmarks, and allocate budgets.

ii. Performance Measurement:

A performance measurement system provides project managers with the means to assess the performance of their projects against the planned baseline.

iii. Performance Analysis:

A performance analysis of EVM is able to be performed in order to identify potential issues and risks. The analysis of variances, indices, and trends allows managers to make proactive decisions and identify root causes of deviations from the planned baseline.

iv. Forecasting:

Project forecasting is one of the most important functions of EVM. It allows project managers to forecast the performance of projects based on historical data and trends, assisting in the prediction of their success.

v. Reporting and Control:

EVM provides a method to define project progress and costs according to scheduled values. It generates reports and helps stakeholders to understand project status.

Advantages of Earned Value Management (EVM)

Some of the advantages of EVM are as follows:

i. Objective Performance Measurement:

An EVM provides a standardized approach to measuring progress and cost efficiency. It eliminates subjective assessments and is a quantitative and objective approach.

ii. Early Warning System:

In EVM’s case, it serves as an early warning system that identifies schedule and cost variances early on in the project lifecycle, thus allowing managers to take immediate corrective action and prevent potential problems from escalating.

iii. Integrated View:

EVM provides a comprehensive view of project performance, enabling project managers to recognize the interdependencies and trade-offs between cost, schedule, and scope variables.

iv. Forecasting Project Performance:

EVM provides project managers with the ability to predict the project’s performance based on historical trends. It allows managers to make informed decisions and take proactive measures that ensure project success.

v. Communication and Stakeholder Engagement:

EVM enables stakeholders to inform and be informed about project performance in a standardized and structured manner. It facilitates effective engagement with stakeholders by presenting objective data and metrics.

Disadvantages of Earned Value Management (EVM)

Some of the disadvantages of EVM are as follows:

i. Complex Implementation:

EVM implementation can be challenging, especially for small projects and organizations without dedicated project control personnel. It requires a structured approach and adherence to specific formulas and metrics.

ii. Data Accuracy and Consistency:

The performance measurements and forecasts generated by EVM can be inaccurate if the data entered is incorrect or inconsistent.

iii. Limited Scope:

The scope of EVM is limited to cost, schedule, and scope elements. As a result, it may not capture other important aspects of project performance, such as quality, customer satisfaction, and stakeholder involvement.

iv. Limited Usefulness of Agile Projects:

It may be difficult to apply EVM to agile projects with their emphasis on iterative, incremental delivery because it was originally developed for waterfall-style projects.

Earned Value Management (EVM) Tools

A number of software tools are available to facilitate EVM implementation and application. These include:

i. Microsoft Project:

The Microsoft Project program is one of the most commonly used project management software applications. It features EVM features, which enable managers to define the baseline of a project, track its progress, and generate EVM reports.

ii. Primavera P6:

Featuring advanced scheduling, resource management, and EVM analysis features, Primavera P6 is a comprehensive project management software that supports EVM capabilities.

iii. Deltek Cobra:

The Deltek Cobra EVM software solution offers advanced EVM functionality, including automated calculations, data integration, and performance analysis.

iv. Earned Value Toolbox:

The Earned Value Toolbox is a Microsoft Excel software that provides templates, formulas, and charts to implement Earned Value Models.

Earned Value Management (EVM) Examples and Formulas

Some of the formulas of EVM in project management are as follows:

  1. Planned Value (PV) Formula: PV = Budgeted Cost of Work Scheduled (BCWS)
  2. Actual Cost (AC) Formula: AC = Actual Cost of Work Performed (ACWP)
  3. Earned Value (EV) Formula: EV = Budgeted Cost of Work Performed (BCWP)
  4. Schedule Variance (SV) Formula: SV = EV – PV
  5. Cost Variance (CV) Formula: CV = EV – AC
  6. Schedule Performance Index (SPI) Formula: SPI = EV / PV
  7. Cost Performance Index (CPI) Formula: CPI = EV / AC

Earned Value Management Systems (EVMS)

An Earned Value Management System (EVMS) consists of the processes, procedures, and tools used to implement EVM on a project.

The components of an EVMS are typically the following:

i. Work Break Down Structure (WBS):

A Work Breakdown Structure (WBS) is a hierarchical structure that provides a framework for planning, tracking and evaluating the progress of a project.

ii. Control Accounts:

A control account is a management control point of the project’s WBS. It serves as a metric for measuring/reporting project performance.

iii. Performance Management Baseline (PBM):

The Performance Measurement Baseline (PMB) outlines the planned value (PV) for each control account. The budgeted cost and schedule for each task are included.

iv. Performance Management Documents:

These documents contain data on actual cost, earned value, and other performance measures. They are used to calculate schedule variance (SV), cost variance (CV), and other EVM metrics.

v. Variance Analysis and Reporting:

In variance analysis and reporting, deviations and trends are identified by comparing earned value with actual cost and planned value. EVM reports are generated for stakeholders to review and analyze.

vi. Change Control:

An EVMS change control process maintains the project scope, schedule, and budget by evaluating changes against the performance measurement baseline and how they affect EVM metrics.

vii. Integrated Baseline Review (IBR):

An Integrated Baseline Review (IBR) is a formal method of conducting a thorough review of the baseline and EVM processes for a project to ensure that they are realistic, achievable, and well documented.

Earned Value Management (EVM) is a powerful project management technique that integrates costs, schedules, and scope into one approach. Despite its numerous advantages, EVM also has limitations, notably its complexity and limited scope.

In addition, EVM facilitates forecasting and enables effective decision-making.  While EVM has its limitations, project managers can take advantage of its benefits with the right tools and understanding of the concepts.

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Bijisha Prasain
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