Earned Value Management (EVM) is a widely used project management process and technique to measure project performance. It is also an extremely important part of the PMP exam.
Back to Basics (Part 4): Use Earned Value Management to Measure SuccessLinh Tran, Thursday 21 April 2016 | Reading time: unknown
Project managers use EVM to control costs and schedule by comparing planned effort/costs with actual effort/cost in a given time frame. It helps you identify if you’re spending your time and funds well, or if you’re just wasting it, and ultimately offers the necessary data to make an informed decision.
Project managers wanting to get certified need to understand what EVM is. This is why created this concise 'cheat sheet'.
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The official PMBOK Guide defines Planned Value (PV) as “the authorized budget assigned to work to be accomplished for an activity or WBS component.” The PV serves as the baseline of your project, so it’s a control instrument which helps you measure the project’s progress. The overall PV is the budget at completion (BAC).
The formula is simple: The planned percentage of completion multiplied by the project budget (BAC).
PV = Planned % completion x total budget
Earned Value is defined as “the value of work performed expressed in terms of the approved budget assigned to that work for an activity or WBS component” (PMBOK Guide). EV shows you how much work you’ve completed so far and how much value that work has generated.
To calculate the EV, you’ll take the actual percentage of completion and multiply it with the total budget of the project.
EV = Actual % completion x total budget
The PMBOK guide defines Actual Cost (AC) as “the total cost actually incurred in accomplishing work performed for an activity or WBS component.” In short, AC is the actual amount of money you’ve spent so far. Which is why there’s no formula for AC because you can just look it up.
You can measure various variances and performance indexes with these three basic elements which will help you determine whether your project is progressing as planned.
Schedule Variance & Schedule Performance Index
The Schedule Variance (SV) & Schedule Performance Index (SPI) tell you how much ahead or behind the planned schedule you are.
The formula for the Schedule Variance is as follows: SV = EV – PV
If your result is negative, then you’re behind schedule. If it’s positive, then you can consider yourself very fortunate, because you’re ahead schedule.
The formula for the Schedule Performance Index: SPI = EV ÷ PV
If the result is >1 then you’re ahead of schedule, but if it’s <1, you’re behind schedule.
Cost Variance & Cost Performance Index
Cost Variance (CV) and Cost Performance Index (CPI) help project managers analyze how much over or under budget their project is.
The formula for the Cost Variance: CV = EV – AC
If your result is negative, then you’re over budget. If it’s positive, then it’s under budget.
The formula for the Cost Performance Index: CPI = EV ÷ AC
If the CPI is <1, then you’re over budget, if it’s >1, you’re under budget.
Also read other articles from this series: