Earned Value (EV) is such a facet of project management most especially within Earned Value Management (EVM) framework. The most important benefit of earned value management since it offers an independent perspective of the progress made on a project at any given time. Earned Value enables project managers to track the effectiveness of a project in terms of the work and explicitly the money that has been spent on it as compared to those that have been planned.
In this article you’ll learn what Earned Value stands for. Why Earned Value is important in project management, and what formula is used to calculate it.
Understanding Earned Value (EV)
Earned Value, in this context is the value of the work done in relation to what was planned in the project. Unlike traditional progress tracking methods that rely on time or budget spent, EV gives a more accurate picture of project performance by focusing on the actual work completed, allowing managers to answer questions such as:Unlike traditional progress tracking methods that rely on time or budget spent, EV gives a more accurate picture of project performance by focusing on the actual work completed, allowing managers to answer questions such as:
How many tasks have been done till now?
To what extent it is possible to say that the project is correctly positioned relative to the time- and cost-planned estimations?
Are we paying too much or too little for the work that we are getting?
Performance can be determined by using the Earned Value and thereby, project managers can determine if the project is within the right track and if the project targets are within reach.
The importance of the use of earned value in project management
To be more specific, Earned Value is crucial for making sure that projects are to be completed in the time and cost frame that has been set. It provides several advantages:
Objective Measurement: EV helps the managers to assess the progress or accomplishments on the basis of work achieved rather than amount of money spent or days passed.
Early Detection of Issues: In another way, by monitoring EV in a regular basis, managers notice early signs of an issue such as when a project is behind schedule or when its costs are escalating out of control.
Performance Insight: It gives a perspective of the progress of the project in relation to costs and time and factors that may require changes to be made.
Earned Value Formula
The formula for Earned Value is relatively straightforward:EV = \text{% of Work Completed} \times \text{Budget at Completion (BAC)}
Where:
- % of Work Completed: The percentage of work completed at the point of measurement, based on project progress.
- Budget at Completion (BAC): The total budget allocated for the project.
Example of Earned Value Calculation
Let’s take an example to illustrate how Earned Value is calculated.
Assume a project has a total budget of $100,000. And it is estimated that 50% of the work should be completed at a specific point in time. Upon review, it is found that only 40% of the work has actually been completed.
The Earned Value would be calculated as follows:EV=40%×100,000=0.40×100,000=40,000EV = 40\% \times 100,000 = 0.40 \times 100,000 = 40,000EV=40%×100,000=0.40×100,000=40,000
In this case, the Earned Value is $40,000. This means that, although 50% of the time and budget have passed, only $40,000 worth of work has been completed, which might indicate that the project is behind schedule.
How Earned Value Relates to Other EVM Metrics
While Earned Value is a key metric in project management, it is part of a broader set of performance measures within the Earned Value Management system. These include:
- Planned Value (PV): The value of work that was planned to be completed by a certain point in the project.
- Actual Cost (AC): The actual cost incurred for the work that has been completed.
- Cost Variance (CV): The difference between Earned Value (EV) and Actual Cost (AC), calculated as CV = EV – AC.
- Schedule Variance (SV): The difference between Earned Value (EV) and Planned Value (PV), calculated as SV = EV – PV.
FAQ’s
What is the meaning of Earned Value (EV) in management of projects?
Earned Value (EV) is one of the tools frequently implemented in project management. It defines the value of the work accomplished under certain timeframe. This makes the project managers to have an indication on how far they have gone as per the planned work and cost.
In what respects is Earned Value Expected different from Planned Value (PV)?
PV is the amount of work planned to be achieved by the particular point. EV is the actual amount of work that was done in the same period of time. PV is called the plan and EV is termed as actual work done.
Why is Earned Value or often referred to as Earned Value Management System significant in project management?
Earned Value is significant since it renders quantitative assessment of project performance as compared to Scheduling and Budget controlling systems. This way one can identify problems that may cause the project to go off track at an early stage and take the necessary measures.
What is the formula for Earned Value?
Earned Value (EV) is calculated using the formula:
Earned Value (EV) is calculated using the formula: EV = Percentage of work done × BAC
For instance, once a project with a budget of $100,000 is 40% done, its EV will be 0. The company can win 40 times the $100,000 and get $40,000.
What is the relationship between Earned Value (EV) and Actual Cost (AC) ?
Earned Value (EV) is based on the evaluation results of performed work. Actual Cost (AC) refers to the amounts of money already invested in the project. Pertaining to this, variances such as Cost Variance, CV = EV – AC are used to compare these values in an effort to judge whether or not the project is on budget and to gain some measure of understanding of the cost efficiency of the project.
In what ways does Earned Value assist in determining outcome of a project?
Earned Value can be applied to the projection of cost or performance using such indicators as Estimate at Completion (EAC). Any of these forecasts assists the project manager to estimate the overall costs and time of completing the project as per the current performances.
Conclusion
Earned Value is definitely a highly effective technique since it gives a direct and accurate indication of a project performance. Understanding the EV formula helps the project managers to grasp the extent of project performance. Understand the current position in terms of schedule and cost overruns and learn ways on how to get the project back on track. Regular monitoring of EV, along with other EVM metrics, is crucial for identifying risks early. Monitoring of EV ensuring that projects are completed on time and within budget.