Project Management through Earned Value Management

Every project requires a method to control and manage the execution and delivery of
the project. Project managers across the globe have followed different methods of
monitoring a project.

A traditional approach of project management has been the percentage complete

method. However measuring project performance solely as a percentage complete
has inherent risks. For example, if a task has a planned duration of ten days with
thirty hours of work duration, after five days it would be deemed fifty percent
complete even though the work duration put in might be only 10 hours. So to
complete the balance work another twenty hours needs to be put in which may
require more than the balance five days since as per the plan only three hours a day
was planned for the task.

As a best practice, several variables need to be considered, work effort expended,

remaining work left to perform, and a re-assessment of remaining duration. By
providing these variables, a more accurate percentage complete and an assessment
of the schedule impact can be derived. One such technique of project monitoring is
the Earned Value Management or the EVM.

According to the Project Management Body of Knowledge:

Earned Value Management (EVM) is a method for integrating scope, schedule,

and resources for measuring project performance. It compares the amount of
work or effort that was planned with what was actually earned and spent to
determine if cost and schedule performance are as planned.

This method allows project managers to assess a project's progress over time and
allow project teams to understand the health and performance of their projects.

Earned value is a technique for monitoring project performance based on a project's

percentage complete.

Generally, projects are measured against a budget by looking at actual dollars spent
and the project's percentage complete. The key measure of percentage complete is
usually dependent upon the estimators guess and varies widely from one individual
to another. Earned value will give project managers a more accurate measurement
of a project's status.

Measuring performance solely as a percentage complete has inherent risks. For

example, if a task has a planned duration of ten days with thirty hours of work effort,
and five days have passed, typically the performer will state that he is 50 per cent
complete. The problem is that the project manager cannot tell from this estimate if
the duration or the work effort is 50 per-cent complete.

Projects today usually employ a concept known as the Work breakdown Structure or
WBS. A WBS is supposed to be a direct representation of the work scope in the
project, documenting the hierarchy and description of the tasks to be performed and
relationship to the product deliverables. Although most of the projects do employ a
WBS in scheduling a project, the use of the WBS usually stops at that,
SCHEDULING a project.

WBS in its true manifest is a hierarchical break down of all authorized work scope
into appropriate elements for planning, budgeting, scheduling, cost accounting, work
authorization, measuring progress, and management control. The WBS must be
extended to the level necessary for management action and control based on the
complexity of the work.

Each element of the WBS forms the elementary building block of the structure known
as “resource loaded and budgeted schedule of a project”. This resource loaded and
budgeted schedule then forms the bedrock of the concept known as the EVM.

Every line item of a WBS must be assigned the following three variables.

a. Duration
b. Budget
c. Resource

Assignment of the three variables to each line item of the WBS provides the
following information about the project.
 a. Project Schedule
b. Project Budget
c. Project Resource

The resource loaded and budgeted schedule of the project so obtained is used as
the reference for project execution, monitoring and reporting. This is known as the
base line schedule. This base line schedule has a value assigned to each WBS
element which is known as the budgeted cost of the WBS element. As the project
progresses, with the completion of each WBS line item, the budgeted value of the
WBS element is earned as a measure of project progress. Hence the name Earned
Value Management.

Earned Value Management allow the project manager to answer the following three
questions, as they relate to the project:

1. Where have we been?

2. Where are we now?
3. Where are we going?

In Earned Value Management, unlike in traditional management, there are three data
sources:

 the budget (or planned) value of work scheduled

 the actual value of work completed
 the “earned value” of the physical work completed

Earned Value takes these three data sources and is able to compare the budgeted
value of work scheduled with the “earned value of physical work completed” and the
actual value of work completed.

The following are key parameters as used in the Earned Value management of
project management.

1. Planned Value (PV): This is the total value of the project. This is the answer to
the question “How Much work Is to Be Done?”
2. Earned Value (EV): This is the measure of mount of work done as on a
particular instant of time. This is the answer to the question “How Much Work
has been done?”
3. Actual Cost (AC): This is the cost incurred to achieve the earned value at the
particular instant of time. This is the answer to the question “What has been
spent for the Earned Value?”

Using the above three parameters following is calculated to provide an insight to

the project status and health in terms of cost and schedule. These parameters
are calculated at a particular instant of the project life.

1. Cost Variance: Cost variance (CV) is a measure of the project performance in

terms of cost. CV is calculated as a difference between the EV and AC.
CV=EV-AC
2. Schedule Variance: Schedule variance (SV) is a measure of project
performance in terms of the project schedule. SV is calculated as a difference
between EV and PV.
SV=EV-PV
3. Cost Performance Index (CPI): CPI is a measure of the cost efficiency of the
project. This is a ratio of EV and AC. A measure of CPI provides an insight to
the final executed cost of the project.
CPI=EV/AC
4. Schedule Performance Index (SPI): SPI is a measure of the schedule
efficiency of the project. This is a ratio of EV and PV. A SPI of greater than
one indicates a favourable condition and a SPI of less than 1 indicates an
unfavourable condition. For example a SPI of 1.1 indicates the project is
slated to complete ahead of schedule.
SPI=EV/PV
The above parameters provide a dashboard to the project manager to assess
the project health at any point of time.
However for a project manager a major question is “What Would It Take to
Complete the Project?” It is the responsibility of the PM to see the project to
its logical conclusion. Hence every PM is concerned with this quintessential
question.
The answer to this question lies in the parameter EAC or Estimate to
completion.
EAC (Estimate At Completion) is a calculated estimate of the project
completion cost. It is calculated by dividing the BAC (Budget at Completion)
by the CPI. Where BAC is the Budget Cost in Dollar Terms of the PV.
EAC=BAC/CPI
EAC should be calculated at regular intervals usually every quarter and
annually also EAC should be calculated in case of any change orders on the
project.

PS: The topic of EVM is fairly big and detailed nuances of the same cannot be
brought out in a short paper. However I feel that this should help
practicing as well as aspiring project manages to get over the perceived
unsurmountable complexity of EVM. If well planned and followed, EVM
can serve to be the perfect GPS for project navigation through its
lifecycle.
References:
1. Project Management Institute. (2004) A Guide to the Project
Management Body of Knowledge (PMBOK® Guide). (Third ed.)
Newtown Square, PA: Project Management Institute
2. Project Management Institute. (2005) Practice standard for earned
value management (PMI Global Standard) (2005 ed.) Newtown
Square, PA: Project Management Institute
3. Reichel, C. W. (2006). Earned value management systems (EVMS):
"you too can do earned value management" Paper presented at PMI®
Global Congress 2006—North America, Seattle, WA. Newtown
Square, PA: Project Management Institute.