In the project management context, certain key measures are considered important to control the cost, time, and scope of projects. A popular method for monitoring these variables is Earned Value Management, which is a project management strategy that covers the scope, time, and cost factors. It is indispensable to understand EVM if one aims to be a PMP or to control projects’ performance proficiently if you are already an experienced project manager. In this guide, we will explore EVM and how it simplifies project control for the project manager.
What is Earned Value Management (EVM)?
Earned Value Management is a project management tool that can be used to evaluate the execution and progress of a project effectively. Specifically, it helps project managers know the extent of the work done at a specific time compared to the plan and the cost. EVM is the consolidation of the project scope, schedule, and cost into one framework that gives an overall assessment of the project. Project managers are capable of making decisions concerning future actions. Moreover, it provides an objective measure for assessing the health status of a project and sharing this finding with the relevant parties to promote transparency and accountability.
Why is EVM Important in Project Management?
Any project manager has to be able to understand an aspect of how the project is in terms of time and cost of the project. This is helped by EVM in giving the project manager a realistic view of the condition of the project at a certain point in time. This enables the project managers to look for difficulties that may be seen ahead to contain them hence preventing them from becoming greater setbacks in the project since this would also be expensive. In addition, EVM facilitates effective communication of the project managers with the stakeholders because the latter can easily comprehend the numbers presented by the former. It also increases the credibility of the project since the activities implemented are fully transparent and the members and other stakeholders are assured that the decisions made relate to real information.
1. Monitoring Project Performance
In EVM, it shows the planned and actual completion, timeliness of a project, and whether it is expensive or economical. Since this plan helps in outlining the expected overall project performance, comparison with actual completion can indicate if the project is on track or if there are issues to be dealt with. It also makes it easier to make alternatives to stay on course with the aim and objectives; this provides a feedback loop that can be used to improve the quality of the project.
2. Improving Decision-Making
To guarantee that project managers can make wise decisions based on the gathered data, employees are held responsible for their performance. EVM applications in project control provide the quantitative means of measuring and reporting on performance in terms of efficiency and effectiveness, thereby allowing managers to make informed decisions on corrective action, resource allocation, or schedule changes. While employing intuition or using partial data, EVM provides managers with accurate information to support their choices, which lowers the risks of failure in projects.
3. Controlling Costs
Another advantage of EVM is that it helps the project managers correct any cost deviation by providing actual time cost control. This is especially important in large or complicated projects where increased costs can easily add up rapidly. EVM helps the project managers to know how much is available for funding the project or how much is required to fund the project at any one point in time The project managers are then able to rectify the situation by right-sizing the project, cutting down on the scope, or otherwise before the project goes over its finance limit.
Key Concepts of Earned Value Management
Before we proceed into the details of evaluating EVM, it is necessary to explain the basic models and terms. Here are the fundamental steps for the successful usage of EVM in your projects which will provide a project management approach for calculation and analysis of data for your project. They all are part of project performance and understanding their interconnections is vital for EVM control.
1. Planned Value (PV)
It refers to the cash authorized for the planned work up to the planned time. Ultimately, PV determines how much work needs completion at a particular time. It sets the benchmark for assessing the actual progress being made. When PV lacks definition, it becomes challenging to determine a project’s progress.
2. Earned Value (EV)
BCWP, or Budgeted Cost of Work Performed, represents the actual cost of work performed compared to the original estimate. Hence, an important use of EV is in allowing the project manager to assess the cumulative percentage of accomplished work over the total amount of work estimated and budgeted for. As a result, it gives an idea of what is happening at a given time, whether the project is on schedule or not, and this alerts managers in case things are not going as planned.
3. Actual Cost (AC)
AC stands for Actual Cost of Work Performed or Actual Cost of Work Completed; they are the overall cost expanding to a certain point in time. AC assigns real costs to project spending and is crucial for variance and performance analysis. Therefore, monitoring AC ensures project costs are clear and provides a reference against planned values.
4. Cost Variance (CV)
Cost Variance (CV) is computed from the difference between the expected value (EV) and actual cost (AC). It assists in identifying whether the project is more or less costly compared to the expected or planned amount. CV reveals if the cost performance is better or worse than expected by comparing the value obtained to the costs incurred.
CV is given by the equation CV = EV – AC. In other words, a CV greater than zero indicates a lower total cost than the approved cost, whereas one below zero indicates a higher total cost. Constantly evaluating CVs helps project managers oversee financial results and make necessary changes.
5. Schedule Variance (SV)
Schedule Variance (SV) is thus determined by the following formula; SV = EV – PV. In other words, it provides a way of determining if the project is on schedule or if there is a delay. Similarly, as a component of TP, SV helps project managers understand whether tasks are being performed in more or less time compared to the plan.
A positive SV means the project is ahead of schedule, while a negative SV indicates it’s behind. Understanding SV helps project managers adjust the schedule or resources to prevent delays.
6. Cost Performance Index (CPI)
CPI is a ratio of earned value to actual costs and offers an understanding of the money spent across the project. It is one of the most critical EVM metrics because it shows how resourceful the project is. These include a high client purchasing index which implies that the client is receiving more value for the money they are spending as opposed to a low client purchasing index which may imply that the client is overspending.
7. Schedule Performance Index (SPI)
SPI measures the percentage of earned value to planned value. It gauges the effectiveness of time management. Also, shows if the project is on schedule and if tasks are delivered on time.
8. Estimate at Completion (EAC)
EAC is an estimated cost of a project and is calculated based on the current performance of a project. Depending on the assumptions about future performance there are several approaches to estimate EAC. This helps project managers estimate the final project cost and enables better planning and resource allocation.
How to Implement EVM in Your Projects
Now that we’ve covered the basics of EVM, let’s know how to plant it effectively in your projects. Planning EVM involves defining the project scope and budget, and then continuously monitoring and adjusting.
1. Define Project Scope and Break it Down
Before the implementation of EVM, the first activity is to decide on the project’s extent and create a WBS. This can be done using the work breakdown structure (WBS). The WBS breaks the project into components, making it easier to control progress and allocate budgets. A detailed WBS is crucial as it outlines all project activities. It also aids in performance and cost measurement.
2. Create a Baseline Budget and Schedule
Then, develop a baseline budget and schedule. Allocate work package costs based on your WBS budget and determine the duration of each work package. Set the PV at the project baseline. Also, Compare the baseline PV against actual progress.
It is important to make a reference point because it lays down the guidelines to follow when measuring performance.
3. Track Actual Costs
During the project, record the outcome and expenditure costs for each job done throughout the project. This will be your Actual Cost (AC). One needs to be very particular about recording these values for useful analytical purposes. Maintaining detailed records ensures you are working with accurate information.
4. Monitor Project Progress and Calculate Earned Value
While working, determine the percentage of completion of each task as the work continues. This is your Earned Value (EV). Comparing EV to PV and AC provides an unbiased assessment of project performance. It can help project managers recognize the tasks that may cause emerging problems and prevent the project from derailing.
5. Calculate Variances and Performance Indexes
Use PV, EV, and AC to estimate cost variance, schedule variance, cost performance index, and schedule performance index. These metrics help determine if your project is on track or needs adjustments. Calculate them frequently to implement control measures before issues become major problems.
6. Take Corrective Actions
If the project has fallen behind schedule or costs have exceeded the initial estimates, make changes. This could entail resource realignment, scale adjustment, or project schedule changes. Corrective actions are also essential to re-establishing the project’s goal and objectives and getting it back on track.
EVM and PMP Certification
In short, for the project managers who aim at their PMP certification, it is critical to grasp and appreciate the Earned Value Management. The Project Management Institute (PMI) recognizes EVM as an important tool in the overall Project Cost Management knowledge area. Many formulas and concepts may show up on the PMP exam and candidates need to be familiar with EVM concepts, formulas, and metrics that are utilized within this domain. Also, how to compute and analyze EVM metrics is crucial for passing the exam.
Additionally, several PMP training programs present case scenarios where EVM is utilized; thus, the candidates develop practical experience with EVM in the management of projects.
Project managers can use EVM as an important tool to keep their projects on schedule and within budget. EVM combines scope, schedule, and cost, offering clear data and timely results to identify problems and improve resource use. EVM is a crucial area that PMP candidates should thoroughly memorize to succeed in the certification exam. In the case that you would like information more about project management concepts including EVM, it will be of help to undertake a PMP Online Certification training and prepare to witness a future of successful projects.
