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Earned Value Management

The first step in effectively managing a project is to develop a comprehensive plan for that project. Once you begin carrying out the plan, however, the challenging part begins, as you will need to perform regular reality checks to determine whether or not you are making the desired amount of progress. In addition, it is not only about being late or early; it is also about the progress made with the budget and the effort.

Earned value management, also known as EVM, is a method that may be used to evaluate the success and development of a project. During the lifecycle of a project, it is a tool that assists project managers in making decisions that are well informed. There is not just one formula that project managers can use to determine how far along their projects are. Quite frequently, such measurements fall under the category of the subjective approach to establish the percentage of completion for each project task when there are no ground rules.

The negative aspect is that each person will view success in a unique way and will often be motivated by incentives that are in direct opposition to one another. Because of this, it is essential to make use of a method that has been well explored, examined, and validated.

In order to make effective use of the EVM approach, it is necessary to fulfil the following minimal requirements:

A plan for the project that details everything that has to be done.
A calculation or evaluation of the worth of planned work is referred to as the planned value (PV).
Earning rules, also known as earned value (EV), are used to quantify the amount of work completed.
Calculations of actual costs, often known as “Actual Cost of Work Performed” (ACWP) or simply “Actual Cost” (AC), are made.
The cumulative expenditures of the project plotted against the amount of time. For a better understanding of the early and late date curves

The aforementioned requirements are not exhaustive; in fact, they are typically expanded in the event that the project is very vast or complicated. Here are some examples of additional things that you should have:

Indicators of how well costs were managed (whether they were over or under budget).
Indicators of whether or not the schedule is being met (either behind or ahead of schedule).

At first glance, it may appear as though all three of these names are relatively comparable to one another; nonetheless, there are significant distinctions that exist between them.

Planned Value is the estimated monetary value for work that has been planned.
Earned value is the estimated monetary value for the work that has already been completed.
Actual cost is the actual value of the work that has been completed.

When we compare earned value to planned value to actual cost, we are essentially looking at the same period of time from three separate perspectives: earned value, planned value, and actual cost.

What was the value that was expected to be associated with the job that was going to be finished – PV?
What was the value that was estimated for the work that was actually finished – EV?
What exactly is the value that may be placed on the work that has been finished – AV?

PV, EV, and AC are key elements that can be used to calculate and measure projects performance over time.

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While like any technique EVM has its own cost of implementation, it does bring the following advantages:

Early identification of project performance issues
EVA compares anticipated value, earned value, and real cost to give project managers a thorough knowledge of a project’s performance. This makes it possible for project managers to spot differences and act promptly to fix them, minimising the impact of problems on project outcomes.
Better Forecasting Project managers can use EVA to predict a project’s eventual costs and schedule based on how it is performing right now. This enables project managers to make wise choices and implement corrective measures to guarantee that the project is finished on schedule and within budget.
Improved Decision Making EVA offers fast and reliable information on a project’s performance to project managers. Instead of depending on assumptions or insufficient information, this enables project managers to make decisions based on the project’s current situation.
Effective Communication with Stakeholders EVA gives project managers and stakeholders a consistent way to talk about a project’s performance. The stakeholders in the project benefit from improved communication, greater transparency, and increased trust as a result.
Increased Accountability and Responsibility EVA gives project managers a clear awareness of their duties and accountability for the success of their projects. This makes it easier to make sure that project managers are held accountable for completing the project on schedule, on budget, and in accordance with the necessary quality standards.
Improved Risk Management EVA can be used to track possibilities and hazards in a project. This aids in risk identification and management, lowering the possibility of problems affecting project outcomes.
Effective Resource Management Project managers can monitor the progress of specific tasks or work packages inside a project using EVA. In order to accomplish the project on schedule and within budget, it is important to deploy resources in an effective and efficient manner.

How to calculate earned value?

EV = Total Project Budget * Completed % of Project Budget

Earned value management formulas

There are many more formulas than just a single EV. Closer to the final list looks like the following table.

There are many different approaches to project management, as well as tools that can be used on their own, that can lead project managers to deliver successful projects. EVM is only one of the instruments that should be utilised due to the many benefits it offers while sensibly evaluating the various other options that are currently available. Overall, it is still recommended to make use of such strategies in order to remove people’s bias towards different outcomes and protect stakeholder interests both internally and externally.