Exploring trends and developments
in project management today.
What is Earned Value?
Current performance is the best indicator of future performance, and therefore using trend data, it is possible to forecast cost or schedule overruns at an early stage in a project. The most comprehensive trend analysis technique is the Earned Value method.
In a nutshell, Earned Value is an approach where you monitor the project plan, actual work, and work-completed value to see if a project is on track. Earned Value shows how much of the budget and time should have been spent, with regard to the amount of work done so far.
Here are five other definitions:
- Englert and Associates, Inc define it as, "A method for measuring project performance. It compares the amount of work that was planned with what was actually accomplished to determine if cost and schedule performance is as planned."
- Project Magazine defines it as, "A methodology used to measure and communicate the real physical progress of a project taking into account the work complete, the time taken and the costs incurred to complete that work."
- The user guide for Microsoft Project 2003 defines Earned Value as, "A method for measuring project performance. It indicates how much of the budget should have been spent, in view of the amount of work done so far and the baseline cost for the task, assignment, or resources."
- Field Operative defines it as, "The physical work accomplished plus the authorised budget for this work. The sum of the approved cost estimates, (which may include overhead allocation), for activities, (or portions of activities), completed during a given period, usually project-to-date."
- NASA defines it as, "An integrated management control system for assessing, understanding and quantifying what a contractor or field activity is achieving with program dollars. EVM provides project management with objective, accurate and timely data for effective decision making."
Earned Value differs from the usual budget verses actual costs incurred model, in that it requires the cost of work in progress to be quantified. This allows the project manager to compare how much work has been completed, against how much he expected to be completed at a given point.
The project manager needs to agree the project scope, create a Work Breakdown Structure ¹ (WBS) and assign budget to each work package ², the lowest level of the WBS. Next he or she will create a schedule showing the calendar time it will take to complete the work. This overall plan is baselined (this is the planned value) and used to measure performance throughout the project. As each work package is completed (earned) it is compared with planned value, showing the work achieved against plan. A variance to the plan is recorded as a time or schedule deviation.
It is necessary to get the actual costs incurred for the project from the organisations' accounting system. This cost is compared with the earned value to show an overrun or under run.
Earned Value provides the project manager with an objective way of measuring performance and predicting future outcomes. This can enable him or her to report progress with greater confidence and highlight any overrun earlier. This in turn, enables the management team to make cost and time allocation decisions earlier than would otherwise be the case.
It is true that past performance is a good indicator of future performance. Earned Value is a useful tool for predicting the outcome of projects in terms of time to completion, cost to completion and expected final costs.
Earned Value is also known as Performance Measurement, Management by Objectives, Budgeted Cost of Work Performed and Cost Schedule Control Systems.
Definitions
- A Work Breakdown Structure (WBS) is a hierarchical structure used to organise tasks for reporting schedules and tracking costs.
- Work Packages are a small-defined set of tasks or activities that form part of an overall project scope, usually the lowest level of the Work Breakdown Structure.
Related Articles
How to Implement Earned Value
Earned value (EV) is one of the most sophisticated and accurate methods for measuring and controlling project schedules and budgets. Earned value has been used extensively in large projects, especially in government projects. PMI is a strong supporter of the earned value approach because of its ability to accurately monitor the schedule and cost variances for complex projects.
Earned Value, Clear and Simple
The term "Earned Value" is gaining in popularity around project management circles as if it is some wonderful new concept to be embraced. Yet, it has been in use since the 1960s when the Department of Defence adopted it as a standard method of measuring project performance. Today, it is both embraced and shunned, often in response to prior experience or stories told "in the hallway." The opponents will generally cite the cost and effort to make it work, and the limited benefit derived from its implementation. The proponents will cite the cost savings to the project overall, the improved analysis, communication and control derived from its implementation. No doubt, the two camps have vastly different experiences to formulate their perceptions.
Earned Value Management Explained
Earned Value Management (EVM) helps project managers to measure project performance. It is a systematic project management process used to find variances in projects based on the comparison of worked performed and work planned. EVM is used on the cost and schedule control and can be very useful in project forecasting. The project baseline is an essential component of EVM and serves as a reference point for all EVM related activities. EVM provides quantitative data for project decision making.
The Secrets to Earned Value Management Success
Earned Value (EV) is a management tool for tracking and communicating a project's status. Earned Value Management (EVM) will let you know the actual state of the project by comparing your current project performance against your plan. Knowing the project's performance will let you take actions needed to ensure that the project is completed on time and within budget. Like any tool, in order for EVM to be successful, it very important that it is used correctly.
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Yuda you might be best to ask your sub to submit a schedule of valves
thanks a lot
Please send me some more article to sjai99@gmail.com.
Really big thanks to you.
I would add that in order to be robust WBS, it must include some additional key addendums at a minimum - an associated project scope definition, staffing associated with the work packages (it may take a junior person longer than a senior for the same work), critical path analysis, and risk analysis and monitoring.
Good Article.
As i am Preparing for PMP can you Please share with me some Good documents.(c.as.santosh@gmail.com)
For good article and permission! :)
Author of HelpfulPMP
http://sites.google.com/site/helpfulpmp/
Thank oyu for clear EV explanation!
Please let me know if i can translate to Russian and put to my blog part/all of your article, keep reference to this page?