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 day after Monday?
Notify me of new comments via email.
Remember my form inputs on this computer.

Seven Key Principles of Project Management

Hand holding a key with success written on the fob

If you're looking for guidance to help you manage your project with added confidence, then this article will help you.

Coming to Terms With the Finish Date

Colourful calendar pages

Every project has a finish date. This article looks at how the finish date for a project is derived and how a project team comes to terms with that date.

PMP Exam Day Tips

PMI logo

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

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

Duncan commented on…
10 Rules of Highly Successful Project Management
- Mon 26 September 7:50am

John Corbett commented on…
10 Rules of Highly Successful Project Management
- Mon 19 September 1:36pm

London Management Centre commented on…
Get Maximum Benefits of Merging Top-down and Bottom-up Project Management
- Mon 19 September 11:29am

Latest tweets

General Project Management • Re: Software Product Delivery Plan for an Agile project https://t.co/qlwUTdDgAa #pm #projectsmart about 13 hours ago

General Project Management • Re: Best/cheapest online PRINCE2 Foundation course with exam included https://t.co/qRvyY1ZXVj #pm #projectsmart about 13 hours ago

Here are some basic rules of reporting status that you can use to further your reputation https://t.co/eOfIohem8R #projectsmart #pmot about 1 day ago