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Understanding Earned Value Management Formulas

Introduction to Earned Value Management (EVM)

Being a project manager comes with the burden of having to work within the confines of a budget and a schedule. A project manager requires various instruments aimed at ensuring the effective allocation of resources, tracking advancement and expectations. Misc severely, it focuses one such instrument that, without any doubt, assists to manage and monitor projects. This article outlines some great details on EVM from its roles to its formulas, metrics, methods, practices, applications and in general, what EVM is all about.

What is Earned Value Management?

EVM or Earned Value Management is a unique method of assessment of a project that uses several indicators: scope, schedule and cost. In order to review the development of such monitoring projects in real time you need a metric approach. As such Earned Value Management (EVM) is an integrative project control measure that makes use of cost, schedule and technical performance all in one construct. This system helps the project manager to identify potential problems beforehand and implement corrective actions.

Significance of EVM in Project Management

EVM is important because it helps in assessing project performance and project progress in a more transparent and quantifiable way. Here are a few key reasons why EVM is important in project management:

• Objective Measurement: Measurement of the performance of a project with EVM is also known to be more objective because it eliminates perception based analysis.

• Early Detection of Problems: It also allows monitoring project processes with EVM metrics which save the project managers from problems rather early and can act to avert the problem before it gets out of hand.

• Better Decision-Making: It is also possible for managers to evaluate and make rational decisions on the progress of the project with an accurate assessment of the amount of cost and schedule differences that existed.

• Improved Communication: As EVM presents empirical numbers, there are no chances that may lead to miscommunication of project progress.

Key Components of EVM

EVM is rest on a few fundamental concepts each of which are combined to derive implementable conclusions. The key components include:

• Planned Value (PV): “Planned Value” is the value of the work that ideally a project should have completed to this extent.

• Earned Value (EV): “Earned Value” is the value of the work that has been accomplished and recorded at a given time.

• Actual Cost (AC): Actual Cost is defined as the cost that has been incurred in respect to the work done at a set time.

These factors assist in understanding the several performance and predictive metrics that we shall look into deeper and it is important to note that these are not all the factors.

Important Techniques in Earned Value Analysis

This is the theoretical aspect and the basic EVM components will help you cross over. However, if you wish to maximize the use of EVM, the primary calculations that involve these components must be understood. These calculations assist to determine the effectiveness of the project regarding the time and money utilization.

Planned Value (PV)

Planned Value (PV), Budgeted Cost of Work Scheduled (BCWS), type of cost associated with the work in its planned duration to have been completed on a particular date. It is a standard to which earned value and actual cost may be compared to.

Formula: [PV = Planned %Complete × Total Project Budget]

Example:

In case your project is budgeted at a total of $100,000 and for the fifth month you had intended to complete 50% of the work then the PV would be: [PV = 0.50 × 100000 = $50,000].

Earned Value (EV)

Earned Value (EV), in regards to Budgeted Cost of Work Performed (BCWP), is the value of the work completed as of a particular time. It accounts for the budget value that is substantiated because of the portion of the work that is complete.

Formula: [ EV = Percentage of Completion * Total Project Cost ]

Example:

If you should happen to be in the fifth month of this work and still, you fully complete 45% of that work for $100,000 project by that time, the EV would be: [ EV = 0.45 x 100,000 = $45,000 ]

Actual Cost (AC)

Actual Cost (AC) or Actual Cost of Work Performed (ACWP) is described as a total cost that will be incurred for all the work that has been done by a specific date. It shows how the costs were spent.

Formula: [ AC = Total costs made at a given time ]

Example:

If by the fifth month you could use $55,000 dollars and complete only 45% percent of the work, then the AC would be: [ AC = 5500 ].

Performance Measurement Metrics

The metrics developed through the application of the EVM have a lot to tell about the extent to which time and performance and cost management plans are followed within the project. This research focuses mainly on Cost Vela, schedule Vela, Cost Performance Index and schedule performance Index.

Cost Variance (CV)

Cost variance (CV) indicates the difference between Control value C and Actual Cost C. Thereby it provides a comprehension of cost efficiency measure.

Formula: [ CV = Specialty vaRegistrational: ] Variabili

Example:

Using the previous example values: [ CV = 45000 - 55000 = -10000 ] A negative Cost Variance means there are cost overrun for the project and hence, the project is over the budget.

Schedule Variance (SV) CSV helps in measuring schedule performance by showing relation of earned value with planned.

Formula: [ SV = EV – PV]

Example: Using the example values: [SV = 45000-50000= -5000] A negative value of SV indicates the project is off the schedule.

Cost Performance Index (CPI) Cost Performance Index (CPI) is the ratio between Earned Value and Actual Cost which depicts cost effectiveness in the project.

Formula: CPI = EV/AC

Example: Using the example values: [CPI = 45000/55000 = 0.82] A ratio of CPI less than one depicts wastage of funds.

Schedule Performance Index (SPI )Schedule Performance Index (SPI) determines the schedule status by relating the EV with the PV.

Formula: SPI EV/PV

Example: Using the example values: [SPI = 45000/50000 = 90] A ratio of SPI which is less than one means that hushed activity schedule is adhered to.

Predictive EVM FormulasIn predicting the future performance indicators of the project, EVM advances several formulas. They are Estimate at Completion, Estimate to Complete, and Variance at Completion.

Estimate at Completion (EAC)In relation to the current performance, the Estimate at Completion (EAC) is the forecast of how much the project will cost once completed.

Formula (often used): [ EAC = Budget at completion (BAC) / Cost performance index (CPI) ]

For example, EAC is calculated by proportionally spending $100,000 and looking at the CPI = 0.82: EAC = 1210000 CPI = Base \ CPI = 100000 \ Each Total = 0 I also get CPI 0.82 CPI = 100000 ]

Estimate to Complete (ETC)

Estimate to Complete (ETC) determines the value remaining in the budget and the approximate time to finish the project.

Formula: [ ETC = EAC - AC ]

Example:

If EAC is of $121,951 and AC is $55,000: [ ETC = 121,951 – 55, 000 = 66, 951 ]

Variance at Completion (VAC)

Variance at Completion (VAC) is used to measure the difference between the budget set for the project presuming there weren't any delays and the estimated cost when the project is completed

Formula: [ VAC = Total Project Budget – EAC ]

Example:

For example EAC equal to 1217521 Let us assume that this was spent but excluding any overheads. Delayed costs Total Project Budget = 100,000 = $121, 951 VAC = 100,000 – 121, 551951. BAC is controlling, management is wholly responsible for deflections.

Delayed costs, after almost all the budget has charged, can be rapidly closed. -Vacations. The cost is equal to new construction costs.

Practical Application of EVM

By adapting EVM concepts in wayward, shaping it up into your project management techniques and methodology you can improve the processes of control of the projects in terms of time and performance quality. This is how you can utilize EVM in the most efficient way.

How do you implement EVM in your project

EVM has a detailed description of several basic actions within the project for its implementation:

• Define the Scope: Present the project scope as well as the deliverables in detail.

• Develop a Work Breakdown Structure (WBS): Divide the project into parts that can be executed.

• Assign Budgets: Set appropriate budgets to each activity or work element.

• Set a Baseline: Set the baseline for the Planned Value (PV).

• Track Performance: Continually record the PV, EV and AC.

• Analyze Variances: Use metrics of EVM to look into the variances.

• Take Corrective Actions: Corrective actions should be taken in case any variances are detected.

Managing Project with Tools that Incorporate EVM

Scrumbuiss is a benefit that helps in the execution of EVM. Scrumbuiss also provides the functions of task management, budget and timelines tracking and progress monitoring in real time. Adding EVM metrics into Scrumbuiss software will help the management and lead to positive outcomes of the projects.

Typical Problems and Ways to Solve them

Despite the numerous advantages presented by EVM, there are also issues experienced:

• Difficult to grasp Metrics: EVM metrics take some time and practice to figure out. Solution: Train first and at best manage projects with tools that will do the math for you.

• Quality of Data: EVM is not useful unless the data collected to support the technique is within the proper bounds. Solution: The data collection processes and the audits must be tightened.

• Fear of Changes: Resistance to new processes by teams. Solution: Show them the advantages of EVM and let them participate in its implementation.

Best Practices for Using EVM with a Project Control System.

For the most effective use of EVM, some of the best practices are outlined below.

Regular Monitoring and Reporting

Work Performance Measure Update Frequency: Update PV, EV, and AC frequently throughout a project.

Prompt Reporting of Current Status: EVM and metric analysis results must be disclosed out to relevant parties.

Training and Educating Your Team

Train your team: Your team should have proper knowledge about EVM formulae and concepts.

Support Optional EVM education Persistence: Team members should be learning all the time with respect to EVM.

Exactly how Do EVM Betters?

• Review EVM Data: Items like daily EVM data collection log reports must be periodically analyzed.

• EVM action Points: Next on concerns, risks, and opportunities always integrate learnings and time-tested approaches in EVM usage.

The EVM method is one of the tools that should enhance your level of project management activities. All this can be achieved when adequate tools, training, and processes are brought on board that will help project managers to adopt EVM which is critical for successful project execution.