Project Management Articles
What is Earned value Management (EVM)
I’ve been taking many workshops and get a feeling that people just fear EVM as a topic.
I do understand that there are many technical terms, however if you have been managing projects and is slightly aware of the overall concepts then this should be a piece of cake 🙂
To understand and know EVM, let’s first try and understand as why is EVM so important? How does it help?
What is EVM (Earned value management):
As per Guide to PMBOK®:
Earned value management (EVM) is a methodology that combines scope, schedule, and resource measurements to assess project performance and progress.
EVM help understand project progress wrt project Schedule and project cost.
EVM terms (If you understand them – you will have no problem understanding EVM)
So lets start:
BAC: Budget at Completion.
It simply is the overall budget or cost baseline, which is approved for your project.
There is no formula. This is arrived or allocated to you.
PV: Planned Value
This is the amount of WORK, which should have been completed as per the project plan.
Formula:
PV = BAC * Planned % complete
EV: Earned Value
This is the amount of WORK, which is actually completed.
Can it happen on you project that you are supposed to complete a module in 4 days and you completed only 75% by end of the 4th day? That’s the normal scenario – Right 🙂
So net net EV can be more or less then PV. We as project Manager would be very happy if EV = PV i.e. we did what we planned for.
Formula:
EV = BAC * Actual % complete
AC: Actual Cost
This is the overall money, which have been spent on the project while getting the project done.
This would be calculated by using Work Information Data (WPD)
Revising Again:
|
Name
|
Formula
|
|
|
BAC
|
Budget at Completion
|
No formula
|
|
PV
|
Planned Value
|
PV = BAC* Planned % Complete
|
|
EV
|
Earned Value
|
EV = BAC * Actual % Complete
|
|
AC
|
Actual Cost
|
No Formula
|
Lets pick up an Example:
A project manager is preparing the weekly status report. She was given allocated 200 hours to complete the project. She spent 100 hours and has completed 40% of the work so far. As per the plan she should have completed 50% of the work.
Now calculate:
BAC = 200 Hours.
AC = 100 Hours
PV = BAC * Planned % complete = 200 * 50% = 100
EV = BAC * actual % complete = 200 * 40% = 80
So far we have known few basic EVM terms and applied them.
Lets see how to use EVM and project progress:
So basically there are few formulas, which help understand the project progress wrt Schedule and Cost.
SPI (Schedule Performance Index):
How is your project doing wrt to schedule (behind/ahead or at par)
CPI (Cost Performance Index)
How is your project doing wrt to Cost (Spending More/Less or at par)
SV (Schedule Variance)
How much more or less is your project behind or ahead
CV:
How much more or less is your project spending?
Summarizing Key Formulas:
|
Name
|
Formula
|
|
|
SPI
|
Schedule Performance Index
|
SPI = EV/PV
|
|
SV
|
Schedule Variance
|
SV = EV-PV
|
|
CPI
|
Cost Performance Index
|
CPI = EV/ AC
|
|
CV
|
Cost Variance
|
CV = EV – AC
|
Lets understand how is project in example is doing?
Lets understand how well the project in example performing:
SPI = EV/PV = 80/100 = .8
CPI = EV/AC = 100/100 = 1
SV = EV- PV = 80 -100 = -20
CV = EV – AC = 100 – 100 = 0
So how is this project doing?
CPI is 1, which means that the project is spending as per the plan. ON Budget
SPI is less then 1, which means that project has earned lesser, then planned. Behind Schedule.
Lets recap few important concepts:
|
CPI < 1
|
CPI = 1
|
CPI > 1
|
|
Over Budget
|
On Budget
|
Under Budget
|
|
SPI < 1
|
SPI = 1
|
SPI > 1
|
|
Behind Schedule
|
On Schedule
|
Ahead of Schedule
|
There are few more concepts but lets revise them in next post.
Before I leave – let me give you another question to solve:
Question2
You are working on a project, which is planned for 6 months. You are currently looking at the work completion status. The work was divided in 4 WBS items and the status is as follows:
|
Sno
|
WBS Item
|
Total Hours
Allocated
|
Actual Hours Spent
|
% Completion as per plan
|
% Completion
On actuals
|
|
1
|
WBS1
|
100
|
40
|
40%
|
30%
|
|
2
|
WBS2
|
200
|
110
|
60%
|
50%
|
|
3
|
WBS3
|
50
|
60
|
100%
|
100%
|
|
4
|
WBS4
|
150
|
100
|
70%
|
80%
|
Please find out SPI, SV and CPI, CV in the given question.
