Earned Value Management (EVM) is a technique that measures project performance against the project baseline. The earned value calculations are studied and memorized by all project managers seeking Project Management Professional (PMP) certification. However, their use in practice is inconsistent. EVM is considered by Insight to be one of the “critical few” best practice areas for monitoring project performance from both a cost and schedule perspective.
It’s common to think about projects with binary thinking:
Both project performance factors have a direct impact on the total project cost. What will be the total cost of my project if I'm ahead of schedule but my costs are higher than expected? If I'm behind schedule but my costs are lower? EVM provides great information to help with these questions.
Software packages such as Microsoft Project can perform earned value calculations automatically, and they’re simple calculations that can quickly be performed manually as needed. Earned value calculations require the following:
With these readily available numbers, we're ready to do some calculations.
Let’s take a look at an example. Assume we’re halfway through a year-long project that has a total budget of $100,000. The amount budgeted through this six-month mark is $55,000. The actual cost through this six-month mark is $45,000.
So, in summary:
Because SV is negative and SPI is <1, the project is considered behind schedule. We’re 50% of the way through the project but have planned for 55% of the costs to be used. There will have to be some catch-up in the second half of the project.
Because CV is positive and CPI is >1, the project is considered to be under budget. We’re 50% of the way through the project, but our costs so far are only 45% of our budget. If the project continues at this pace, then the total cost of the project (EAC) will be only $90,000, as opposed to our original budget of $100,000.
These earned value calculations can help a project manager identify problems early and be more proactive as opposed to “after the fact” and reactive. EV metrics are defined in a standard manner, and the data is available to be reported regularly across the project portfolio. If you’ve never calculated earned value on your project or if it's been a while, try it out. You might be surprised by what you find.