Earned Value Management (EVM) is a methodology that combines scope, schedule, and cost to assess the project performance and progress. It is project management techniques which can be applied to all projects in any industry.EVM develops and monitor 3 key dimensions for each work package and control account: PV, EV and AC.
| Acronym | Term | Description |
| PV | Planned Value | Work planned at the starting with respect to time. Example –If total time planned to do the work is 10 months ,then after 5 months the planned value is 50% work |
| EV | Earned Value | Value of work actually completed |
| AC | Actual Cost | Cost actually spent to complete the work |
| BAC | Budget At Completion | Total estimated budget of the project. This Value is fixed and Constant |
| EAC | Estimate At Completion | Current Estimate of the total project cost. This value keeps on changing |
| ETC | Estimate To Complete | From this point how much more the project would cost to complete |
| VAC | Variance At Completion | How much over or under budget the project would be at the time of completion. Difference between actual Budget and Planned Budget |
| Acronym | Term | Description |
| Cost Variance(CV) | EV – AC | +ve implies Earned value > Actual cost, project is under budget-ve implies EV<AC ,project is over budget |
| Scheduled Variance (SV) | EV – PV | +ve implies Earned value > Planned Value, project is ahead of schedule-ve implies EV<PV ,project is behind the schedule |
| Cost Performance Index (CPI) | EV/AC | Greater than 1 implies that project is under budget |
| Schedule Performance Index (SPI) | EV/PV | Greater than 1 implies that project is ahead of schedule |
| ETC | EAC – AC | How much more project will cost at this point |
| VAC | BAC – EAC | How much over or under budget the project would be at the time of completion |
To explain the earned value concept more clearly 2 case studies are taken up below
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Case Study I
A project consists of 4 phases Phase I Requirement Gathering, Phase II Design, Phase III Manufacturing and Ph IV Quality Check. Phase I and II to take 1 month each to complete and Phase III and IV to take 2 months each. It is estimated to cost $10,000 per phase (Phase I and II) and to cost $20,000 per phase (Phase III and IV).The phases are completed one after the other. After end of 4TH month, calculate CPI and SPI of the project
| Project phases | Month1 | Month2 | Month3 | Month4 | Month5 | Month6 | Status at the end of 4th month |
| Phase I | S——–F | Complete spent $10,000 | |||||
| Phase II | S——– | –F | Complete spent $11,000 | ||||
| Phase III | S———- | –PF | 75% done, spent $16,000 | ||||
| Phase IV | Not started |
Solution
| Term | Calculation | Result | Explanation |
| PV | $10,000 + $10,000 +$20,000 | $40,000 | By fourth month we should havedone work worth $40,000 |
| EV | $10,000 + $10,000 +$15,000(75% of 20,000=$15,000) | $35,000 | We have actually accomplishedonly work worth $35,000 |
| AC | $10,000 + $11,000 +$16,000 | $37,000 | We have actually spent $37,000 |
| CV | $35,000 – $37,000 | -$2,000 | We are over budget by $2,000 |
| SV | $35,000 – $40,000 | -$5,000 | We are behind schedule |
| CPI | $35,000/$37,000 | .95 | We are getting .95 out of everydollar spent |
| SPI | $35,000/$40,000 | .875 | We are progressing at 87.5% of therate originally planned |
Case Study II
Same as Case study I, with the following difference. After the end of 5TH month, calculate CPI and SPI of the project the data given below
| Project phases | Month1 | Month2 | Month3 | Month4 | Month5 | Month6 | Status at the end of 5th month |
| Ph I | S——F | Complete spent $10,000 | |||||
| Ph II | S——– | –F | Complete spent $9,000 | ||||
| Ph III | S——— | ———– | –F | Complete spent $19,000 | |||
| Ph IV | S—PF | 25% done, spent $5,000 |
Please do this exercise and check the result.
Solution
| Term | Calculation | Result |
| PV | $10,000 + $10,000 +$20,000+ $10,000 | $50,000 |
| EV | $10,000 + $10,000 + $20,000 +$5,000(25% of $20,000=$5,000) | $45,000 |
| AC | $10,000 + $9,000 +$19,000+$5,000 | $43,000 |
| CV | $45,000 – $43,000 | $2,000 |
| SV | $45,000 – $50,000 | -$5,000 |
| CPI | $45,000/$43,000 | 1.04 |
| SPI | $45,000/$50,000 | .9 |
Questions & Answers
- You are a contract project manager for a wholesale flower distribution company. Your project is to develop a website for the company that allows retailers to place their flower orders online. This project involves coordinating the parent company, growers, and distributors. You are preparing a performance review and have the following measurements at hand: PV = 350,000; AC = 200,000; and EV = 280,000. What do you know about this project?
- A. The EAC is a positive number, which means the project will finish under budget
- B. You do not have enough information to calculate CPI.
- C. The CV is a negative number in this case, which means you’ve spent less than you planned to spend as of the measurement date.
- D. The CV is a positive number in this case, which means you’re under budget as of the measurement date
Correct Answer: D. the CV is a positive number and is calculated by subtracting AC from EV as follows: 280,000– 200,000 = 80,000. A positive CV means the project is coming in under budget, meaning you’ve spent less than you planned as of the measurement date.
- You are a contract project manager for a wholesale flower distribution company. Your project is to develop a website for the company that allows retailers to place their flower orders online. This project involves coordinating the parent company, growers, and distributors. You are preparing a performance review and have the following measurements at hand: PV = 320,000; AC = 210,000; and EV = 250,000. What is the CPI of this project?
- A. 1.19
- B. 1.25
- C. 1.5
- D. 0.83
Correct Answer: A. CPI is calculated as follows: EV / AC. In this case, 250000 / 210000 = 1.19
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