# 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
Was it easy?

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)

#### 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.