What is Earned Value Management ?

Earned value management is a project management technique for measuring project performance and progress in objective manner. It has the ability to combine measurements of the project management triangle:

• Scope of works
• Time (Contract/agreed Duration)
• Project Cost

In a single integrated system, Earned Value Management is able to provide accurate forecasts of project performance problems, which is an important contribution for project management.

EVM is performed by different variances & indexes as mention below.

1) SV (Schedule Variance) = EV-PV

SV greater than0 is good (ahead of schedule). The SV will be0 at project completion because then all of the planned values will have been earned. Schedule Variance (SV) measured through EVM method is indicative only. To know whether a project is really behind or ahead of schedule (on time completion), Project Manager has to perform critical path analysis based on precedence and inter-dependencies of the project activities.

2) SPI (Schedule Performance Index) = EV/PV

SPI greater than1 is good/favourable (ahead of schedule)

3) CV (Cost Variance) = EV-AC

CV greater than0 is good (under budget)

4) CPI (Cost Performance Index) = EV/AC

EV=Earned Value at data date

PV= Planned Cost at data date

AC=Actual Cost at data date

CPI greater than1 is good/favourable (under budget):CPI<1 means that the cost of completing the work is higher than planned (bad);CPI=1 means that the cost of completing the work is right on plan (good);CPI>1 means that the cost of completing the work is less than planned (good or sometimes bad).Having a CPI that is very high (in some cases, very high is only1.2) may mean that the plan was too conservative, and thus a very high number may in fact not be good, as the CPI is being measured against a poor baseline. Management or the customer may be upset with the planners as an overly conservative baseline ties up available funds for other purposes and the baseline is also used for manpower planning.

5) Estimate at completion (EAC)

EAC is the manager's projection of total cost of the project at completion.

Earned Value Management EVM helps project managers to measure project performance. It is a systematic project management process used to find variances in projects based on the comparison of worked performed and work planned. EVM is used on the cost and schedule control and can be very useful in project forecasting.

Some benefits of calculating Earned Value in P6 are the ability to caluclate activity percent complete and view in graphical form to predict obstacles early in a project schedule; forecasting project progress more effectively; and developing an early understanding of progress according to budget and schedule to identify problems as they arise.

Actual Cost (ACWP)

Actual Cost (ACWP) is the actual total cost incurred on the activity as of the project data date. ACWP is the same as the Actual Total Cost.

• ACWP = Actual Labour Cost + Actual Non-Labour Cost + Actual Material Cost + Actual Expense Cost

Budget At Completion (BAC)

This is always the Total cost from the Baseline, calculated using the Baseline Budgeted Values or Baseline At Completion values depending upon the ‘Earned Value Calculation’ setting (Admin, Admin Preferences, Earned Value).

If the ‘Earned Value Calculation’ is set to ‘Budgeted Values with Planned dates’ or ‘Budgeted Values with Current Dates’:

• BAC = BL Budgeted Labour Cost + BL Budgeted Non-Labour Cost + BL Budgeted Material Cost + BL Budgeted Expense Cost.

If the ‘Earned Value Calculation’ is set to ‘At Completion Values with Current Dates’:

• BAC = BL At Completion Labour Cost + BL At Completion Non-Labour Cost + BL At Completion Material Cost + BL At Completion Expense Cost.

Cost Performance Index (CPI)

A CPI greater than 1 means that Earned Value is greater than the actual amount spent. A CPI of less than 1 means that the Earned Value is less than the actual amount spent.

• CPI = EV / Actual Cost

Cost Variance (CV)

Cost Variance is the difference between the Earned Value and the actual cost of that activity.

• CV = EV – Actual Cost

Earned Value Cost (BCWP or EV)

Earned Value Cost (EV) is the portion of the budgeted total cost of the activity that is actually completed as of the project data date. Also known as the Budgeted Cost of Work Performed for the activity. The method for computing the performance percent complete depends on the Earned Value technique selected for the activity’s WBS.

• EV = BAC * Performance % Complete

Estimate At Completion (EAC)

EAC is the estimated cost at completion for the activity.

• EAC = Actual Cost + ETC.

Estimate to Complete (ETC)

Estimate to Complete is the estimated cost left to complete on the activity. The calculation can be customized at the WBS level (On the ‘Earned Value’ tab in the WBS view).

It can be computed as either:

• ETC = Remaining Total Cost for the activity
• ETC = PF * (BAC – EV)

Where ‘PF’ is a multiplier to weight the ETC calculation.This can be either ‘1’, ‘1/CPI’ or ‘1/(SPI * CPI)’ or user defined amount.

Planned Value Cost (BCWS or PV)

Planned Value Cost (PV) is the portion of the budgeted total cost of the activity that is scheduled to be completed as of the project data date according to the baseline dates. Also known as the Budgeted Cost of Work Scheduled for the activity. The Schedule % Complete specifies how much of the activity’s original duration has been completed so far based on the baseline dates.

• PV = BAC * Schedule % Complete

Schedule Performance Index (SPI)

A SPI greater than 1 means that Earned Value is greater than the Planned Value. A SPI of less than 1 means that the Earned Value is less than the Planned Value.

• SPI = EV / PV