{"id":80,"date":"2016-12-07T11:58:00","date_gmt":"2016-12-07T11:58:00","guid":{"rendered":"https:\/\/i3works.bluetree.uk\/news\/?p=80"},"modified":"2019-12-08T21:40:21","modified_gmt":"2019-12-08T21:40:21","slug":"a-closer-look-at-earned-value-management","status":"publish","type":"post","link":"https:\/\/www.i3works.co.uk\/news\/2016\/12\/a-closer-look-at-earned-value-management\/","title":{"rendered":"A closer look at ‘Earned Value Management’"},"content":{"rendered":"\n

In this blog Nick Rowles explores how EVM works and some examples of how you can use it<\/p>\n\n\n\n

Author: Nick Rowles Consultant at i3Works<\/em><\/p>\n\n\n\n\n\n\n\n

Earned Value Management is a metrics-based P3 performance measurement\n discipline. It was developed by the US Department of Defence in the \n1960s to unify the three pillars of P3M performance –  scope, cost and \ntime. More explicitly it compares, at a certain point in the life of a \nproject, how much of the scope of work has been completed (or earned), \nhow behind or ahead of schedule it is, and finally how much more or less\n has been actually spent than we planned for a certain level of scope \ncompletion.<\/p>\n\n\n\n

Traditionally those three variables were often looked at separately \nbut this could give a misleading impression, for example being under \nbudget by a certain date may seem like a good thing but if the work \ncomplete is less than planned for that spend then the project is \nactually over budget. Properly applied EVM can knit these three \nvariables together.<\/p>\n\n\n\n

Key to EVM is the establishment of a project baseline, sometimes \ncalled the Performance Measurement Baseline. This requires a project \nschedule which encapsulates the entire scope of work being budgeted for,\n mapped in discreet activities against time. A logical Work Breakdown \nStructure then allows EVM to be applied lower down the WBS level, as \nwell as potentially at the project, programme and portfolio level. \nFurthermore, costs must be mapped in such a way that they accrue either \ndirectly in the schedule or can be mapped to accounting systems in some \nway that is directly proportional to work completion.<\/p>\n\n\n\n

The simplest way to do this is to have all work and cost tracked with\n the same place i.e. a comprehensive project schedule. However, many \norganisations (particularly larger ones) are reluctant or unable to \ncommit full project cost details into project schedules. In such \norganisations the achievement of work scope needs to be mapped to costs \nthrough the use of Control Accounts, which are responsible for both. In \nthis way data can extracted from two systems and the EVM calculations \nmade. Of course it also requires progress and costs in these systems to \nbe updated accurately as the work progresses.<\/p>\n\n\n\n

So how does it work? Well EVM is based around three values which go \ninto two formulas to give two performance indicators – cost performance \nand schedule (time) performance.<\/p>\n\n\n\n

  1. Cost performance<\/strong> – Cost performance is perhaps the more accurate figure and tells you how much your work is costing.<\/li>
  2. Schedule performance – <\/strong> Schedule performance \nreflects how early or late you are, but is expressed usually in monetary\n terms. EVM figures are traditionally expressed in currency for both \nmeasures. In effect the Schedule Variance (SV) is an expression of how \nmuch the time variance will cost or save you. However, the assumptions \nin the calculation may not be accurate for certain projects.<\/li><\/ol>\n\n\n\n

    EVM also uses indices where Cost Variance or Schedule Variance are converted into a single figure:<\/p>\n\n\n\n

    • 1 for a project completely on plan for cost and time,<\/li>
    • < 1 for behind baseline,<\/li>
    • > 1 for ahead of baseline,<\/li><\/ul>\n\n\n\n

      Although the three key values to perform EVM are all usually \nexpressed in currency, they can be expressed in any other proportional \naccrued value, for example hours. They are:<\/p>\n\n\n\n

      Planned Value<\/strong> \u2013 The planned cost of the planned completion level at this point in time<\/p>\n\n\n\n

      Actual Cost<\/strong> \u2013 The actual amount spent to the actual completion level at this point in time<\/p>\n\n\n\n

      Earned Value<\/strong> \u2013 The planned cost of the actual completion level at this point in time.<\/p>\n\n\n\n

      The Planned Value is the project baseline. The Actual Cost is \nstraightforward. The key figure is Earned Value. The other two figures \npivot around the Earned Value in the relevant formulas.<\/p>\n\n\n\n

      A simple way to think of these three values is that PV is a \npurely planned figure, AC is a purely actual figure and EV is a \ncombination of both.<\/em><\/p>\n\n\n\n

      • Cost Variance is then measured as (EV \u2013 AC). A positive figure is \nunder budget (In EVM all positives are good and negatives bad).<\/li>
      • Schedule Variance is measured as (EV \u2013 PV). Again, a positive value is ahead of schedule.<\/li>
      • The Cost Performance Index is (EV\/AC) where greater than 1 is under budget.<\/li>
      • The Schedule Performance Index is (EV\/PV) where greater than 1 is ahead of schedule.<\/li><\/ul>\n\n\n\n

        EVM calculation A simple example<\/p>\n\n\n\n

        A 10-month project, with a total planned cost of \u00a3100,000, planned to\n accrue evenly across the project so at the 5-month point, planned \ncompletion is 50%, and planned cost is \u00a350,000.<\/p>\n\n\n\n

        At the 5-month point in reality we have spent \u00a360,000 but only done 40% of the work.<\/p>\n\n\n\n

        Values at 5 months are therefore:<\/p>\n\n\n\n

        PV = \u00a350 000
        \nAC = \u00a360 000
        \nEV = \u00a340 000<\/p>\n\n\n\n

        Our cost performance is therefore. \u00a340 000 – \u00a360 000, meaning we are \u00a320 000 over budget.<\/p>\n\n\n\n

        Our schedule performance is \u00a340 000 – \u00a350 000, meaning we are also \u00a310 000 \u2018behind schedule\u2019.<\/p>\n\n\n\n

        CPI is 40 000\/60 000 = 0.67
        \nSPI is 40 000\/50 000 = 0.8<\/p>\n\n\n\n

        The two indices CPI and SPI can then be used to extrapolate to the \nend of the project to theoretically give cost\/schedule variance at \ncompletion and an informed estimate of total project cost at completion.\n The acronyms used for these various figures are below.<\/p>\n\n\n\n

        ETC \u2013 Estimate to completion<\/p>\n\n\n\n

        EAC \u2013 Estimate at completion<\/p>\n\n\n\n

        BAC \u2013 Budget at completion<\/p>\n\n\n\n

        VAC \u2013 Variance at Completion<\/p>\n\n\n\n

        The calculation of these figures can be done in different ways \ndepending on whether we wish to combine or disregard cost and schedule \ntrends and is a subject for another blog. Finally, there are some \nlimitations in accuracy of EVM particularly of the Schedule Variance \nfigure as project nears completion. Again that\u2019s the subject of another \nblog\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

        In this blog Nick Rowles explores how EVM works and some examples of how you can use it Author: Nick Rowles Consultant at i3Works<\/p>\n","protected":false},"author":1,"featured_media":143,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-80","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles"],"_links":{"self":[{"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/posts\/80"}],"collection":[{"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/comments?post=80"}],"version-history":[{"count":2,"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/posts\/80\/revisions"}],"predecessor-version":[{"id":188,"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/posts\/80\/revisions\/188"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/media\/143"}],"wp:attachment":[{"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/media?parent=80"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/categories?post=80"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.i3works.co.uk\/news\/wp-json\/wp\/v2\/tags?post=80"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}