Earned Value Management Explained for project managers.

1. Earned Value Management
FAISAL HUSAINI
M.Arch. (Building Services)
Jamia Millia Islamia, New Delhi

2. Earned value management (EVM) is a methodology that
combines scope, schedule, and resource measurements to
assess project performance and progress. It is a commonly
used method of performance measurement for projects. It
integrates the scope baseline with the cost baseline, along
with the schedule baseline, to form the performance
baseline, which helps the project management team
assess and measure project performance and progress.
Tools and Techniques: Earned Value Management
Earned Value Terminology
1. Planned Value (PV): Planned value (PV) is the
authorized budget assigned to scheduled work. The relationship analysis of EV,
PV and AC:
2. Budget at Completion (BAC): Based on your original
baselined plan, what you planned to spend to
complete the entire project. Think of it as the Planned
Value of the entire project.
3. Actual Cost (AC): Based on your current progress to
date, what did you actually spend by this time.
4. Earned Value (EV): The value of the work actually
performed to date. Based on your original baselined
plan AND the activities you've actually completed to
date, what you should have spent to complete those
activities.
PV and AC:
1. Earned Value = Planned
Value on schedule
2. Earned Value = Actual
Cost on budget
3. Earned Value < Planned
Value behind schedule
4. Earned Value < Actual
Cost over budget
5. Earned Value > Planned
Value ahead of schedule
6. Earned Value > Actual
Cost under budget

3. PROBLEM: to construct a wall of 1000 bricks
• Planned cost: 50000 Rs
• Planned Time: 10 Days
• 800 bricks were Laid after 10 Days
• Using 45000 Rs
Budget at Completion (BAC): 50000 Rs
Planned Value (PV): 50000 Rs
Actual Cost (AC): 45000 Rs
Earned Value (EV): 40000 Rs
We can conclude
EV < PV behind schedule
EV < AC over budget
Try a problem on: Earned Value Management
EV < AC over budget

4. Variances from the approved baseline will be monitored:
Once we've determined our PV, AC, and EV, we can now perform some calculations to tell
us about the performance of our project in terms of schedule and cost.
The first set of calculations are variances:
Cost Variance: CV = EV - AC
The Cost Variance (CV) is "the amount of budget deficit or surplus at a given point in time,
expressed as the difference between the Earned Value and the Actual Cost." CV is the
difference between the Actual Cost of work done and the Earned Value of work done.
Schedule Variance: SV = EV - PV
Tools and Techniques: Earned Value Management
Cost and Schedule Variances
Schedule Variance: SV = EV - PV
The Schedule Variance (SV) is the difference between the Planned (baseline) Value of work
done and the Earned Value of work done.
Negative variances are bad. If the CV or SV are negative, this means that we are over
budget or behind schedule, respectively.
PROBLEM: to construct a wall of 1000 bricks
• Planned cost: 50000 Rs
• Planned Time: 10 Days
• 800 bricks were Laid after 10 Days
• Using 45000 Rs
Budget at Completion (BAC): 50000 Rs
Planned Value (PV): 50000 Rs
Actual Cost (AC): 45000 Rs
Earned Value (EV): 40000 Rs
SOLUTION:
• Cost Variance:
CV = EV-AC
CV = 40000-45000
= -5000 (Over Budget)
• Schedule Variance:
SV = EV – PV
SV = 40000-50000
= -10000 (Behind Schedule)

5. Cost Performance Index: CPI = EV ÷ AC
The Cost Performance Index (CPI) tells us how efficient we are at managing our budget.
CPI =1.0 On Budget
CPI >1.0 Under Budget
CPI <1.0 Over Budget
Schedule Performance Index: SPI = EV ÷ PV
The Schedule Performance Index (SPI) tells us how efficient we are at managing our
schedule.
SPI =1.0 On Schedule
SPI >1.0 Ahead of Schedule
Tools and Techniques: Earned Value Management
Cost and Schedule Performance Indices (CPI & SPI)
SPI >1.0 Ahead of Schedule
SPI <1.0 Behind Schedule
PROBLEM: to construct a wall of 1000 bricks
• Planned cost: 50000 Rs
• Planned Time: 10 Days
• 800 bricks were Laid after 10 Days
• Using 45000 Rs
Budget at Completion (BAC): 50000 Rs
Planned Value (PV): 50000 Rs
Actual Cost (AC): 45000 Rs
Earned Value (EV): 40000 Rs
SOLUTION:
• Cost Performance Index (CPI):
CPI = EV/AC
CV = 40000/45000
= 0.9 (Over Budget)
• Schedule Performance Index (SPI) :
SPI = EV / PV
SPI = 40000/50000
= 0.8 (Behind Schedule)

6. The final calculations we can make with Earned Value are for our Estimate to Complete
(ETC) and Estimate at Completion (EAC). These calculations tell us how much money we will
spend to complete (finish) our project assuming we continue our project at the same
performance level we are currently operating.
Estimate to Complete: ETC = (BAC - EV) ÷ CPI
Estimate to Complete: (ETC) will tell us how much money is required to complete the
remaining work on our project.
Estimate at Completion: EAC = AC + ETC
Estimate at Completion (EAC) will tell us the total amount of money we will spend to
Tools and Techniques: Earned Value Management
Estimate to Complete / Estimate at Completion
Estimate at Completion (EAC) will tell us the total amount of money we will spend to
complete the entire project based on our performance to date.
PROBLEM: to construct a wall of 1000 bricks
• Planned cost: 50000 Rs
• Planned Time: 10 Days
• 800 bricks were Laid after 10 Days
• Using 45000 Rs
Budget at Completion (BAC): 50000 Rs
Planned Value (PV): 50000 Rs
Actual Cost (AC): 45000 Rs
Earned Value (EV): 40000 Rs
SOLUTION:
• Estimate to Complete (ETC):
ETC = (BAC - EV) ÷ CPI
ETC = (50000-40000)/0.9
= 11111 Rs
• Estimate at Complete (EAC) :
EAC = AC + ETC
EAC = 45000+11111
= 56111 Rs

7. Tools and Techniques: Earned Value Management
Earned Value over Time

8. The goal of Project control is "comparing actual performance with planned performance,
analyzing variances, assessing trends to effect process improvements, evaluating possible
alternatives, and recommending appropriate corrective action as needed.“
CORRECTIVE MEASURE FOR COST PERFORMANCE:
Project Manager will consider:
• Adjust resource levels or resources to ensure the proper skills are being utilized.
• Evaluate scope of work to ensure no "out of scope" work has found its way into the project
(i.e. Scope Creep).
• Evaluate new risks and determine response strategies.
Tools and Techniques: Earned Value Management
• Evaluate new risks and determine response strategies.
• Ensure issues are promptly reviewed and closed.
• Using less expensive resources than planned in order to recover some budget decline.
• Adjusting the time frame to complete the work.
• use less expensive resources (note that this may impact the schedule performance).
• Ensuring your plan is optimized for resources, and no new resources are regularly joining
the team and dragging down productivity.
• Implementing productivity improvement ideas offered by the project team.