Essentially, Earned Value Management (EVM) is a project management methodology that integrates schedule, costs, and scope to measure the performance of a project. EVM is the method used in predicting the future based on planned and actual values. This enables the project managers to adjust accordingly. The system uses EVMS (Earned Value Management Systems) which refers to the software, the processes, the tools and the templates used for EVM.
Earned Value Analysis (EVA)
One other technique used in this context is Earned Value Analysis (EVA). This is the quantitative e technique used to evaluate project performance by way of computing the variances of schedule and cost. EVM, which is larger in scope, uses EVA as one of its tools. While EVA does not use computation, EVM is all about using the data in both the trends analysis and forecasting. As a project management function, EVM deals with both the data itself and the actions taken in light of that data. To some project managers, EVM can be intimidating because of the numerous terminologies associated with it. It has, however, some smaller concepts that play key roles in improving project performances. All of these concepts are easy to understand.
The basic and important principle of Earned Value Management is that the value of the piece of work is equal to the amount of funds budgeted to complete it.
Planned value is the approved budget for the work scheduled to be completed by a set date. Earned value is the approved budget for the work actually completed by a specified date. .
Actual costs are those costs that were actually incurred for the work completed by the specified date.
In describing your project’s schedule and cost performance with EVM, there are indicators to follow.
The schedule variance is a measure of the difference between the works that was actually done against the amount of work that was planned by
Schedule variance (SV) is a measure of the difference between the work that was actually done against the amount of work that was planned to be done. Using this, it can be shown that the project is on schedule or not.
Cost variance (CV) is the measure of the difference between the amount of that was budgeted for the work meant to be done and the amount that was actually spent for the work performed. This shows if the project is on budget or not.
Schedule performance index (SPI) is the ratio between the budget that is approved for the work that is performed to the budget that is approved for the budget that is approved for the work that was planned in the first place. This is the measure of the project’s time efficiency.
Cost performance index (CPI) is the ratio between the approved budgets for the work that is performed to the budget that was actually spent for the stipulated work. This is the relative measure of the cost efficiency of the project and can be used to estimate the cost of the remainder of the task.
Five fundamentals of EVM
In essence, Earned Value Management is all about measuring and benchmarking against a well-defined plan. One can only perform this in organizations with certain key elements in place.
There are 32 guidelines that discuss in detail the fundamental processes and systems in the implementation of EVM. These guidelines are outlined in five broad principles.
- Organization and Scope of Project
The start is by identifying the “what” element of these projects with requirements collection and scope definitions. The five guidelines recommend that we create three important documents.
Work breakdown structure (WBS): Create WBS dividing the high-level deliverables into smaller work packages.
Organizational breakdown structure (OBS): In creating OBS, which is a form of an organizational chart, will show the people, teams and departments that are involved , along with their hierarchy, roles and responsibilities.
OBS addresses the “who” element.
Responsibility assignment matrix (RAM) .One has to interpose the WBS and the OBS to create a RAM. This defines exactly which task shall be performed by whom. Each of these mappings or control accounts will be the measure in future stages. Responsibility assignment matrix (RAM): Interpose the WBS and OBS to create a RAM, defining exactly which task will be performed by whom. Each of these mappings or control accounts will be measured in future stages.
2. Planning, Scheduling, and Budgeting
The objective of the guidelines is to help people define the project baseline in concrete terms. These are the parameters against which the object which will be monitored and controlled throughout the lifecycle is set. The WBS is a good starting point for the planning stage. The multiple activities are grouped into a single work package and these work packages are grouped under a single control account.
3. Accounting for Actual Costs
The focus of this activity is to measure the actual costs. It is important to have systems in place that can track costs at a work package level. If not, it will be difficult to measure progress accurately. It could also be that the actual costs had been plaid, but a portion has to be allocated much earlier to calculate the earned value. To avoid booking lags, accounting accruals are emphasized.
4. Project Performance Analysis and Reporting
This section describes in detail the calculations of PV, EV, AC and its variances and indexes. The idea is to report these numbers with consistency so that team members, senior leader and customers have visibility into the project’s progress. The focus is also on identifying the corrective actions to be taken as the measurement against the baseline and reporting numbers. The guidelines recommend defining the variance thresholds. When the cost performance reports will show a threshold breach in a control account, one can check down to look for the problematic tasks.
5. Revisions and Data Maintenance
The five guidelines here recognize that the project baseline is not rigid, especially when problem areas are uncovered in the middle of the project.
A baseline cannot be revised every time you overspend or there is a delay in a task.
After these, the work continues onto the time-phased budget allocation, apportioning trhe total budget at the level of each activity within the work package. Included here are costs like labor, materials and subcontracting. There will an assigning of methods of progress measurement to each work package. This will decide how EV will be calculated at a later point for a task-in-progress.