Project Control with Earned Value Management November 3, 2008

What is Earned Value Management?

Earned Value Management (EVM) is a systematic project management process used to indicate variances in projects in an objective manner, based on the evaluation of the work performed compared to the work planned. When properly applied to a project, EVM provides and early warning indication of project performance issues.

EVM uses principles of Earned Value (EV), which is a project management tool used to measure project performance. EV is essentially an approach for project managers to monitor the project plan, actual work, and work completed to verify if the project is performing as expected.

In simple terms EV compares the actual project performance to the planned performance with respect to budget and schedule at any point in time during the project.

Why Use Earned Value?

Earned Value can be a valuable project management tool, but the utility of it must be understood for it to be used correctly. EV indentifies the variances in a project and informs a project manager on what is occurring in a project, but does not identify the "source" or "cause" for the variance, nor does it address the required action necessary for the "correction" of the variance.

Earned Value provides an objective assessment of project performance and once introduced can provided a common understanding and perspective among project mangers regarding the metrics of project performance.

The other major benefit to using EV is the ability to evaluate the performance of a project at any point during the project's life cycle, not just at the completion of a project. How many times have you come to the end of a project and learned that the project performance did not meet expectations? By the end of the project it is too late to take any corrective action. Earned Value allows project managers to evaluate and monitor their project through out the project life cycle, which will allow for better project control.

Key Components to Earned Value

There are three key components to EV that are used when evaluating projects for EVM.

Project Budget - The budget has two values that are used for EV, which are;

Budgeted Cost of Work Schedule (BCWS) - BCWS is the baseline cost up to the current date.
Actual Cost of Work Performed (ACWP) - ACWP are the actual cost required to complete all or some portion of the tasks to the current date.
Project Schedule - The project schedule has two values that are used for EV, which are;

Scheduled Time for Work Performed (STWP)
Actual Time of Work Performed (ATWP)

Value of Work Performed - This is the value earned (reported percent complete) by the work performed and is referred to as the Budgeted Cost of Work Performed (BCWP).

Earned Value Graph

The final outcome of an EV analysis is a three line graph showing cost over time for a project, which helps visualizes the key values used in EV. The three lines indicated are the BCWS, ACWP, and BCWP as described above. From reading the graph you can determine project variances as identified in Figure 1.

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Figure 1

In this example looking at the data date the project is behind where it should be as indicated by the variance between BCWP and BCWS, and the project is over budget as indicated by the variance between the ACWP and BCWS.

Responding to Earned Value

Earned Value is great, but they are not more than performance indicators and don't tell the whole story, make decisions, or take action on a project, so that is where the project manager must intervene and regain control over the project. The project manager should not only question cost and schedule overruns, but should also question cost and schedule underruns as identified below.

Cost / Budget Variances

A positive variance indicates that the project is ahead of schedule or under budget. Positive variances might enable you to reallocate money and resources from tasks or projects with positive variances to tasks or projects with negative variances.
A negative variance indicates that the project is behind schedule or over budget and you need to take action. If a task or project has a negative CV, you might have to increase your budget or accept reduced profit margins.

written by Shane Nault, P.E.