Project Smart ~ Exploring trends and developments in project management today

Calendar iconNot recorded
Adobe PDF icon

What is Earned Value?

~ By Duncan Haughey

Big metal British pound symbol with small blue percent symbol

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, considering the amount of work done so far.

Here are five other definitions:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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 general budget versus actual costs incurred model, in that it requires the cost of work in progress to be quantified. Earned Value allows the project manager to compare how much work has been completed, against how much he expected to be finished at a given point in time.

The project manager needs to agree on the project scope, create a Work Breakdown Structure¹ and assign a budget to each work package², 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 the 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 underrun.

Earned Value provides the project manager with an objective way of measuring performance and predicting future outcomes. Earned Value can enable him or her to report progress with greater confidence and highlight any overrun earlier. This, in turn, allows the management team to make cost and time allocation decisions sooner 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, the cost to completion and expected final costs.

Earned Value is sometimes known as Performance Measurement, Management by Objectives, Budgeted Cost of Work Performed and Cost Schedule Control Systems.

Definitions

¹ A Work Breakdown Structure (WBS) is a hierarchical structure used to organise tasks for reporting schedules and tracking costs.

² 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.


Enjoyed this article? Now read 21 Ways to Excel at Project Management


Comments (1)

Topic: What is Earned Value?
4/5 (2)
Gravatar
Full StarFull StarFull StarEmpty StarEmpty Star
24th February 2015 7:22am
David (Bristol) says...
People use lots of fancy words to dress EVM up, which results in a loss of sight as to what it really is; a method to help you know if you are winning, drawing or losing and if so by how much. Get people to accept these basics and do not confuse CEO's with masses of techno speak then they may be encouraged to adopt it.

Add a comment



(never displayed)



 
2000
What is the day after Friday?
Notify me of new comments via email.
Remember my form inputs on this computer.

Extreme Project Management

The running back dives for the first down with the defender on his back

Three war room strategies to try when you need to bring life back to a dead project, or save an engagement that is on the brink of disaster.

The Art of Project Scheduling

Project plan and schedule

The art of project scheduling is based on experience and the more experience you have, the more accurate your schedule will be.

PMP Exam Day Tips

PMI logo

Tips for passing the PMP Exam that should help calm your nerves and ensure success.

My Budget is 10% Over, Now What?

10 percent red wood sign with golden background

Suffering a budget overrun? Here's three key things you can do mid-stream on a project to help get the budget back in line with the original plan.

PROJECT SMART is the project management resource that helps managers at all levels improve their performance. We provide an important knowledge base for those involved in managing projects of all kinds. With weekly exclusive updates, we keep you in touch with the latest project management thinking.

WE ARE CONNECTED ~ Follow us on social media to get regular updates and opinion on what's happening in the world of project management.


Latest Comments

Aimee Windmiller-Wood commented on…
Top 10 Qualities of a Project Manager
- Thu 23 February 5:06am

Liam commented on…
High Anxiety: Managing Projects With Your Pants Down
- Fri 17 February 9:27pm

Daniela commented on…
Better Coaching Using the GROW Model
- Thu 2 February 3:21pm

Latest tweets

General Project Management • Help With My Project Management Dissertation https://t.co/EoVJgBqYum #projectsmart #pmot about 5 days ago

General Project Management • Prince2 Advice https://t.co/pP7mAnGTJP #projectsmart #pmot about 6 days ago

General Project Management • Re: Interview Help 30-60-90 Plan https://t.co/BNA7TTqz1I #projectsmart #pmot about 6 days ago