Earned Value Management Made Easy?

Earned Value Management Made Easy?

Earned Value Management, EVM, made easy? Is that possible? Perhaps much of the confusion can be found in conflicted terminology and the abstract thought of numbers. The Federal Government has a program under the Defense Acquisition Workforce Improvement Act, DAWIA, that has from the 1960's established cost performance measures of projects. The Project Management Institute, PMI, closely follows the Federal Governments methodology.  The different terminology contributes to confusion, Table 1. 

          Table 1: Earned Value Management Cross Terminology

CROSS - TERMINOLOGY
PMI		Government
Earned Value Management	EVM	BCWP	Budgeted Cost Work Performed
Planned Value	PV	BCWS	Budgeted Cost Work Scheduled
Actual Cost	AC	ACWP	Actual Cost Work Performed

The idea behind EVM is to track project schedule and cost progess in relation to the plan. Thus, EVM is only as good as the project manager's estimates and plan. If the plan is unrealistic then that has serious implications for the project manager. The trick is too manage the project schedule and cost as close to the plan as possible. The ideal project would have both cost and shedule converging on the plan at the end. However, most projects go over the planned budget and schedule for a variety of reasons most often being changes. 

Essentially, the project manager baselines the project which is the plan then tracks actual cost and time to complete work packages. This actual information, also known as actuals, is then compared the plan to determine if the project is ahead or behind schedule or if cost are under or over the planned cost. Earned Value, EV, is nothing more than the sum value of completed workpackages to date. Likewise, Planned Value, PV, is nothing more than the sum value of planned workpackages to to date.

EV = Σ (hourly rates) x (hours worked)

PV = Σ (hourly rates) x (hours planned)

The project manager looks at the relationship between EV and PV during the project to determine project status. In Figure 1 the project is behind schedule and under planned cost. Whereas, in Figure 2 the project is Over planned cost and behind schedule. A shifting of the EV curve up or down indicates either an increase or savings in cost for the project on a whole. A shift upward may be due to labor cost increases resulting from a Union strike causing an increase in pay for example. A shift downward may be caused by cost savings resulting from a renegotiated contract with outsourced services following a dispute.

From the basic relationships between PV and EV other measurements are determined. For example the Cost Performance Index, CPI, and Schedule Performance Index, SPI.  These indexes hover around 1.0.  Index values over 1 indicate more than planned cost or ahead of schedule. Indexes less than 1 indicate cost savings or behind schedule.

CPI =  EV / AC

SPI = EV / PV

Other indexes are used as well for forecasting and estimating outcomes. Once the project manager has a behavioral grasp of the concepts then the numbers and formulas become second nature. However, before these numbers can mean anything, the project manager must develop strong estimates for the planned values and have a grasp of the error in the estimates.