Earned value management is a systematic comparative process. It utilizes the project plan to compare the planned value with the actual values. Therefore, it’s a kind of key project performance indicator KPI.
The focus areas of the earned value management system are cost and schedule control of the project. It utilizes the project baseline parameters as a reference point.
Earned Value Management Analysis
It is a technique used by the project managers for measurement of work actually completed relative to the cost and schedule baselines. Therefore, EVA allows the project managers to measure the performance of the project in terms of cost, schedule, and quality.
So, project managers forecast the date of completion and the total cost of the project based on EVA reports. The key measure of the project’s earned value is based on trend analysis and burn rate tools.
Another term, budgeted cost of work performed or BCWP helps project managers to figure out the burn rate and performance measures of the project cost and schedule. Moreover, EVA allows analyzing how well the project is going on in reference to the project baselines and plans.
Elements of The Earned Value Management Process
There are several terms to understand in an earned value management system. Let’s briefly discuss a few of the most essential ones;
Planned Value: Planned value is the range of project cost and schedule estimates in the project work at any point. However, the project baseline of cost and schedule are linked to the physical work and approved budget. It can be calculated as cumulative and current. It’s also referred to as the Budgeted cost of the work performed.
Actual Costs: It is also known as actual expenses or expenditures. It’s the actual cost incurred for the execution of project activities. It helps to see what has been spent with reference to the planned value. These can also be computed in two ways; cumulative and current actual costs. Also; referred to as Actual Cost of the Work Performed.
Earned Value: It’s the quantitative analysis of the work performed until the date. In other words, it indicates the accomplishments of project work. Similar to PV and AC, EV can also be computed in two ways; Cumulative and Current Earned Values. Earned value can also be referred to as Budgeted Cost of Work Performed.
Performance Indexes in Earned Value Management System
There are two major performance indexes used in the earned value management system;
The Schedule Performance Index of the project is the measure of project schedule efficiency. It is computed by dividing project earned value by project planned value.
The resulting value of equal to or greater than one is desired. While less than one value is considered unfavorable.
Similarly, the measure of the project cost efficiency is known as the Cost Performance Index of the project. It’s calculated by dividing project earned value by project actual costs. Similar to SPI, CPI equal to or greater than one is desired. While the value less than one is considered unfavorable.