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)



 
1500
What is the sum of 1 + 2 + 3?
Notify me of new comments via email.
Remember my form inputs on this computer.

My Story: Working Smarter; Not Harder

Woman thinking with a light bulb drawn on a blackboard

When you realise that you have the power to change your beliefs and remove a limiting factor that has been constraining you, you have an AHA! moment.

Managing The Project Time

Man pointing at an alarm clock

Project managers should know the iron triangle of project management, sometimes called the triple constraints of project management, because all projects are constrained by these elements.

Better Risk Management With PRINCE2

Red flowchart showing risk element

PRINCE2 has always had a solid, but simple way of dealing with risk. With the latest version a number of excellent ideas and concepts have been introduced.

Capturing Those Lessons Learned

Project team reviewing lessons learned

Do you capture your lessons learned? If you do, how effectively do you capture them?

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

Samara Grantham commented on…
12 Tips for Being a Good Manager
- Thu 1 December 2:46pm

Adolfina commented on…
Introduction to Project Management
- Mon 21 November 9:52am

Edward Brown commented on…
Project Status Reports Everyone Can Understand
- Wed 16 November 3:38pm

Latest tweets

General Project Management • Re: Prioritising Change Requests https://t.co/hZ2PBgxtLN #projectsmart #pmot about 6 hours ago

General Project Management • Re: Project Resource Challenges https://t.co/ITT5p6Pnje #projectsmart #pmot about 6 hours ago

General Project Management • Re: Project Resource Challenges https://t.co/P5EYYQRLNE #projectsmart #pmot about 1 day ago