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Earned Value Management

Earned Value Management

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Published by rajchatla

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Published by: rajchatla on May 25, 2009
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Earned Value ManagementProject Budget:
The most basic cost control technique is to develop a project budget and then track spendingagainst it. On a small project, this can be as simple as having a target cost goal for the totalproject. You could monitor project costs and sound the alarm if the percent of dollars spentexceeds the percent completion estimated for the project. You could also prepare a time-phased budget, as shown in the figure below, breaking the overall budget goal into intervals of weeks,months, quarters or years. This can provide a budget baseline for tracking actual costs againstperiodic budget targets. When the cumulative budget of estimated project costs are plottedgraphically over time, they usually result in the shape illustrated, which is sometimes called an"S" curve, since it looks like an inclined "S."
Budget Spend Plan Tracking:
A simple technique for tracking project costs is to develop a weekly or monthly cumulative budget spend plan and then track actual costs against the plan. The slope of the spend planindicates the project expenditure rate, sometimes called the "burn rate." By plotting actual costsagainst the budget spend plan, you can see differences between actual spending and the spendplan. This technique provides a simple, top-level view of project financial performance that can be useful for executive briefings, especially where you want to match expenditures to a fundingstream.Budget Spend PlanThe spend plan can be generated using a project management software tool. If you are usingMicrosoft Project ,you can copy the hours from the Resource Usage table into MS EXCEL, applylabor rates to each resource type, and then sum costs by week to provide an accurate resourceloading profile and spend plan. This can also be used to establish a performance measurement
 baseline of the Budgeted Cost of Work Scheduled. (See sections below on Earned ValueManagement Systems.)If the project is on schedule, the spend plan method provides the needed budget statusinformation. If the project shown were behind schedule, the project manager would no longer beable to understand project status from this graph. The budget picture would be worse than itlooks, but it would be impossible to quantify.When a project is sufficiently large or complex that it is unclear which project elements arecontributing to deviations from the budget plan, a more rigorous approach to cost and scheduletracking should be employed. This following method links cost and schedule performancetogether and presents them in a form that facilitates management analysis and presentation.
Earned Value Management System (EVMS):
Project cost and schedule performance measurements should really be managed as integratedelements and not as separate entities. If your budget spend plan shows you over spending andyour schedule shows milestones slipping, you can know you may be in trouble, but you will haveno way to make a quantitative assessment of how bad the trouble is. EVMS solves this problem by providing an accurate picture of spending and accomplishments related to a baseline plan.This enables you to quickly form conclusions about the project team's staffing levels andproductivity, as well as giving insight into areas of the WBS where the problems are occurring. Iwill never run a project without at least applying EVM principles if not having an informal orformal EVM tracking system in place.In the past, EVM has been called Cost/Schedule Control System (C/SCS) or, for the old-timers,7000.2 or C-Spec, after the DoD standards that originated the approach. Earned ValueManagement provides an integrated view of cost and schedule performance.
Unless you aretracking earned value, you really have no idea what is going on with your project
Understanding the Basics of EVM:EVM compares three pieces of information:
How much work you planned to have accomplished by now (in dollars or hours) calledthe
Planned Value
How much you have actually spent by now (in dollars or hours), called
Actual Cost
; and
The value, in terms of your baseline budget, of the work accomplished by now (in dollarsor hours), called the
Earned Value
!The first two pieces of data are compared to the Earned Value in terms of differences and ratios,to result in variances and performance indexes. That is the essence of EVM; the rest is details.
The Dreaded EVM "Formulas":
Thinking of EVM calculations in terms of remembering formulas, or for you Latin scholars -formulae, is a way to make things more complicated and obscure, although some may find it
comforting to memorize formulas until they understand. If you understand the followingexplanation, you will not need to think in terms of formulas.The thing to remember is that
Earned Value
is the new kid on the block, so all the basiccalculations involve differences or ratios with respect to Earned Value.The difference between Earned Value and your plan (PV) is Schedule Variance,The difference between Earned Value and your spending (AC) is Cost Variance,The ratio of Earned Value to plan (PV) is your Schedule Performance Index,The ratio of Earned Value to cost (AC) is your Cost Performance Index.You can figure out what is subtracted from what by remembering that positive variance isfavorable (good) and negative is unfavorable (bad).You can figure out what is on top of an EVM ratio, by remembering that >1 is favorable and <1 isunfavorable.So much for the basic formulae!
Interpreting EVM Computations:
When you take a ratio of what you have done by now (EV) to what you have spent (AC),you get a reading on productivity called a cost performance index (CPI).
When you compare where you are by now (EV) with where you planned to be (PV), youget a reading of progress called the schedule performance index(SPI).
If instead of ratios, you take the differences, then they are called cost and schedulevariances.You can look at these cumulative to date or for the last period. You can also look at these at thetotal project level and for lower levels of the WBS.
If you have good productivity and slow progress, then you are understaffed.
If you have low productivity, then either you have too much unplanned work or youhave estimated poorly and the project has more work content than you thought.
Earned Value Implementation (Informal Approach)
To determine earned-value performance measurements for your project, you need to accomplishfour steps:1.Establish a performance measurement baseline in dollars (or hours) (this will determinethe "budgeted cost of work scheduled" for the life of the project);2.Determine "earned value" for work accomplished to date (earned value is the "budgetedcost of the work performed");

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