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).