Earned Value Management—An “Overhead” View (PART 1: EVM Basics)
Despite being one of those topics that put project management students into the doldrums, earned value management remains the most effective way for monitoring project performance. It is a project management methodology used by the U.S. Department of Defense and by many private companies all over the world. Besides a PMBOK chapter and the U.S. Department of Defense EVM Implementation Guide, many other resources cover this topic.
This article—structured in two parts—outlines earned value management in an attempt to provide a starting point for anyone interested in exploring the topic or wanting to decide if it is something his or her organization might use.
EVM, EV, EVA, and EVMS—Not Interchangeable Acronyms
According to the authors of the PMBOK, earned value management (EVM) “integrates project scope, cost, and schedule measures to help the project management team assess and measure project performance and progress.” EVM is a system for project management control that uses earned value as a criterion.
PMBOK defines earned value (EV) as “the value of work performed expressed in terms of approved budget assigned to that work for an activity or work breakdown structure component. It is the authorized work that has been completed, plus the authorized budget for such completed work.”
Earned Value Analysis (EVA) and Project Performance Indices
A quantitative technique that is part of EVM, earned value analysis (EVA) relies on a set of mathematical formulas that require information on planned value, earned value, and actual cost, to yield quantitative estimates of a project’s progress. These formulas are available in the PMBOK and in almost all project management books, so I will not repeat them here. Just know that two indices use EV to calculate the variation of schedule and cost from the planned ones: the schedule performance index (SPI) and the cost performance index (CPI). Both indices are representative of the “health” of a project. Should the project become “unhealthy”, key stakeholders can use the results of the EVA analyses to justify changes to the project budget or schedule.
Besides helping to compare planned with actual project work to identify negative risks (schedule delays or cost overruns) and opportunities, EVA also acts as a forecasting tool. The SPI and CPI help a project manager predict the cost and schedule variations of his or her project. If a project is planned properly and all requirements are well defined, the project team needs to spend minimal extra effort to conduct EVA.
As a word of caution, although the EVA technique is in essence easy, without integrating it in a proper earned value management system (EVMS), the results will be useless. Having an EVMS in place includes using project management tools, processes, and procedures to control a project.
EVM is a methodology that uses a quantitative technique (EVA) based on earned value (EV) to help track project performance and predict its outcome in terms of cost, schedule, and work accomplished. If the results of the EVA analysis show that a project’s cost or schedule deviates from the plan, managers can take timely corrective measures to bring the project back on track.