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Earned value is one agregate of the Monitoring and Information Systems.
Earned value is the completed works (% exact measured quantity), at a define time of the project life cycle, multiplied by the unit rate or price (as estimated and budgeted at the begginning of the project).
There are several conventions used to aid in measuring/estimating percentage for earned value calculation:
1- The 50-50 rule: 50 % of the works is completed when the task begins, and the remaining 50 % when the task is completed. (50% credit is given to help the Contractor go on with the works this represent an advantage for the Contractor);
2- The milestones/gates rule: it can vary from one project to another. Example: 0% at the start, 25% when design is ready and approved; 25% when equipments deliveres, 25 % at the completion of insatllation and 15 % at the successful testing and commissioning and 10% at the contract closeout and disccharge certificate’. Common used for consulting offices. Balanced in the favor of the Client.
3- The 0-100 rule : 0% is considered untill the works are done and completed 100%. This is a a very conservative rule, goes always in the favor of the Client. (I pay only when the job is completed) the Client is secured that no losses shall be encured; however the contractor may have financial difficulties during the execution of the works and japordize timelly completion of the works;
4- Critical Input use rule: it assigns task progress according to the amount of a critical input that has been used (simillar to proportional rule but not related to time), balanced rule for the Client and the Contractor not taking into consideration time (is the project delayed or ahead?)
5- Proportional rule: the % is as executed quantity but uses time as critical input. It devides the actual time by the budgeted time to calculate the executed %. (Or task cost-to-date devided by the task total budgeted cost to date). Advantage for Client.
The essential importance and advantage of using the Earned value monitoring aggregate is to evaluate the ferformance and the cost to date of the project.
Some other calculations to be made and compared to the earned value such as AC (Actual Cost), PV (Planned Value), AT (Actual Time), ST (Scheduled time ) .
Cost variance : EV-AC (overrun or over budget if negative)
Schedule Variance : EV-PV (behind schedule /delayed if negative)
If Any of these values is equal to Zero (or near to zero) then the project is healthy and on the planned track and the management will not go for each task detailed analysis which shall be needed when the difference exceeds a value earlier established by the management. Based on the results of variances calculations and namely cost variace the project a- can keep going on, cand be corrected to meet the minimum accepted variances, or can be killed and terminated.
There are many other indexes and calculation that can help to monitor and rectify the performance of the project. (cost performance index CPI, schedule performance index SPI and time performance index TPI)
The basic advantages are that all these values, indexes and variances, earned value technics shall help to:
1- Ensurethe Client that the Contractor shall fulfil its contractual obligations (EV measurement rules)
2- Enable the Client and the Contractor to monitor the performance of the project and take the necessary corrective decisiona and actions to minimize losses, delays and performance.
3- Budget is a budget it never changes during the whole life cycle of the project (it is the basic for comparision, monitoring and decision taking). Contract price, Man/hour shall be affected if there will be delays and additional costs (to both parties) .
During the EV calculations for various projects, Usually we find difference Schedule variance, cost variance, SPI, and CPI depend on the measurement basis. Some activities measured with high Man-Hour but Low Budget / Otherwise some activities has low Budget but high contract price - my question regarding that issues which affecting the all EV measurements. Which preferred one, When we use, and what is the advantages and disadvantages.
