A simple approach to understanding Earned Value Management
- 2. As a PROJECT MANAGER, did you ◦ Prepare “Regular Project Status Reports” ? ◦ Understood the “Performance Variance” ? ◦ Attempt to highlight the “Current Project Performance” ? ◦ Derive and communicate “Project Forecast” ? If your answers to any of above is “NO”, Please continue to read on…….. ProPM Academy - Project Management Training And Consulting
- 3. EVM is one of the widely used scientific approach to measure, analyze, integrate project data to accurately report on current project performance and forecast the required performance for completion. ProPM Academy - Project Management Training And Consulting
- 4. Relies on assumptions, interpretations based on high level work status Lack of any measured data and facts Project Health (Red/Amber/Green) is debatable and subjective Relies on measured values derived from triple constraints – Scope, Time and Cost Project Status reported based on defined matrix Unambiguous, No Assumptions Easily understandable by Stakeholders Green OR Red ? What IF…?? ? Can defend the current Project Status Assertive ProPM Academy - Project Management Training And Consulting
- 5. Scope Cost ---- ---- ---- ---- Timeline Project’s performance based on information On Scope, Cost and Time at a given point in time. This is compared against Scope Baseline, Cost Baseline and Schedule Baseline. ProPM Academy - Project Management Training And Consulting
- 6. So, What is Earned Value (EV)?
- 7. Objective method to measure project progress. Helps to determine if a project is on track. Indicator of current project performance. Provides early warnings and trends on any cost and/or schedule over runs. Helps to derive the Project Forecasts on Cost and Timelines. ProPM Academy - Project Management Training And Consulting Earned Value is an
- 8. Indicates how much of “Value” you have “Earned” on the project at any given point of time. Helps determine variance against Planned Value (PV). ProPM Academy - Project Management Training And Consulting
- 9. EVM - Key measurement components Planned Value (PV) – Is the “Authorized Budget” to be expended for an activity, work package, Milestone or to the project at a given point. Budget At Completion (BAC) – “Total Planned Value (PV)” at the end of the project Earned Value (EV) – The “Value of Work Performed” expressed in terms of the Authorized Budget Actual Cost (AC) – “Cost Incurred or Expended for the Work” performed at a given point to complete an Work Package or accomplish a Milestone. ProPM Academy - Project Management Training And Consulting
- 10. Earned Value – Key Components PV = Planned % complete X BAC EV = Actual % complete X BAC AC = Cumulative money spent till date Performance Reviews Variances Analysis Schedule Variance (SV) = EV – PV (SV > 0, Good) Cost Variance (CV) = EV – AC (CV > 0, Good) Variance At Complete (VAC) = BAC – EAC (VAC > 0, Good) Performance Indicators Schedule Performance Index (SPI) = EV / PV (SPI > 1, Good) Cost Performance Index (CPI) = EV / AC (CPI > 1 Good) ProPM Academy - Project Management Training And Consulting
- 11. A Forecast Helps to determine Revised likely Budgets using performance measurements. Helps to determine “Estimate At Complete (EAC)” . This indicates the revised BAC and may requirea approval from sponsor if variance between BAC and EAC is quite marginal “Estimate To Complete (ETC) ”. This indicates the amount required to to complete the rest of the project. “To-Complete-Performance-Index”. This is an indicator of how much speed(performance) is required to be applied in order to catch up with the plan in the remaining period of the project ProPM Academy - Project Management Training And Consulting
- 12. EAC – Three methods ◦ EAC = AC + BAC – EV (when initial assumptions were flawed) ◦ EAC = BAC / cumulative CPI (assuming similar CPI would continue) ◦ EAC = AC + ((BAC – EV) / cumulative CPI X cumulative SPI ) (trying to factor both schedule and cost performances) ETC = EAC-AC To-Complete-Performance-Index ◦ TCPI = work remaining / funds remaining ◦ TCPI = (BAC - EV) / (BAC - AC) Based on BAC ◦ TCPI = (BAC - EV) / (EAC - AC) Based on EAC ProPM Academy - Project Management Training And Consulting
- 13. Time (in Weeks) Deliverables 1 2 3 4 5 6 7 A B C D E 100% 75% 50%, $500 $2000 $800 $5000 $600 20% 0% PV= $4900 $600 $2500 $600 $2000 EV= $3400 AC= $5700 $0 ProPM Academy - Project Management Training And Consulting BAC= $8900
- 14. Let us consider the following example to understand the concepts better An ERP implementation project for ABC company is estimated to cost $500,000 with an estimated duration of 40 weeks. At the end of 10 weeks the project is 20% complete with $150,000 being already spent on the project. Exercise: 1. Identify what is BAC and AC 2. Calculate PV, EV, CV, SV, CPI, SPI, EAC, ETC, TCPI, VAC Please Watch our next video for explanation of this Exercise. ProPM Academy - Project Management Training And Consulting
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