EVM – Earned Value Management
EVM is a standardized method to monitor and control a project. This analysis method involves a number of project data and formulae in order to establish or forecast project performance and health. It is evident that a project’s success depends on 3 factors all together:
These triple constraints are essential and must adhere to a project management plan or baselines. Any one of these triple constraints are interrelated and if failing can derail the entire project. Practicing project managers will agree that a project that is missing its schedule will cost more to deliver than originally budgeted for and likewise a project with scope management issues is possibly having issues like scope creep or change management thereby impacting both cost and time. EVM is an effective method to periodically analyze project performance since it takes into account all the 3 factors in objectively calculating project health.
EVM implementation involves project metrics like
- PV – Present Value is measured in units of currency and is determined by work planned to be completed and budgeted cost for this planned amount of work.
- EV – Earned Value is the measure of actual work performed and the budgeted cost of this work performed
- AC – Actual Cost, is self explanatory, it is the actual expense incurred
- SV – Schedule Variance is the variance in planned value of work scheduled and Earned Value of work performed
- CV – Cost Variance is the difference between Earned Value and Actual Cost
The formulae for EVM are enumerated below
- CV = AC – EV
- SV = EV – PV
- CPI = AC / EV
- SPI = EV / PV
- EAC = AC + BAC – EV
- EAC = BAC / CPI
- EAC = AC + (BAC – EV) / (SPI * CPI)
CPI is Cost Performance Index and a measure of 1 or higher means that project is optimally performing with respect to cost. SPI is Schedule performance Index and a measure of 1 or higher means that project is on track with respect to schedule and has a good chance of being delivered on time. However, a score lesser than 1 is an indicator that corrective actions must be taken and this is true for both SPI and CPI.
Other terms that are used in formulas and otherwise in EVM are:
- EAC – stands for Estimate at Completion implying final cost of project at completion
- ETC – stands for Estimate to Complete and it is the remaining cost required to complete the project
There are multiple formulae that can be used to calculate EAC, but it is important to determine which formula to apply in which scenario such as if a project is performing at budgeted rate then use equation EAC = AC+BAC-EV.
It is noteworthy that while EAC, ETC, BAC, are useful in forecasting performance, Variance analysis resulting in CV, SV, SPI and CPI are used in performance reviews and analysis. EVM all together is an effective way to professionally manage and control projects, project managers and stakeholders alike can trust the forecasted delivery dates and cost estimate forecasts resulting from this method of analysis.