Earned Value Analysis in Project Management

Instructor: Bob Bruner

Bob is a software professional with 24 years in the industry. He has a bachelor's degree in Geology, and also has extensive experience in the Oil and Gas industry.

Earned Value Analysis is a project management tool that monitors the amount of work accomplished and compares this to the original plan to help determine if a project is on track.

So You Want to Build a House

Suppose you wanted to build a house. After securing funds, you might go find a piece of land and just start building, adding on a bit more every day. This might work out if you are both conscientious and lucky, but without paying attention to what you are spending, you are just as likely to get part way through your construction project before running out of funds.

You would definitely have part of a house on your land, but it would be much less valuable than what you had originally intended.

A more realistic approach would be to create a plan of work and assign a budget to each of the tasks in your plan. In project management, using Earned Value Analysis (EVA) provides a useful way to then monitor how well you are doing against your overall plan and budget over time. This analysis can help you make critical decisions that will affect the value you ultimately receive from your efforts.

The Earned Value Analysis Baseline

Once a project gets approval to begin work, using Earned Value Analysis starts with the creation of a Work Breakdown Structure, commonly referred to as the WBS. The WBS comprises a list of tasks and milestones that you will use to monitor the progress of the project.

A simple example of a WBS in our house construction example might look like this:

  • Buy land
  • Clear land
  • Build the foundation
  • Build the exterior framework
  • Rough in the utilities
  • Finish the exterior
  • Finish the interior
  • Furnish and decorate

Once the WBS is created, each entry is assigned a value that attempts to quantify the cost of delivering the item. In some cases the value will be directly tied to the project budget by assigning a percentage of the overall budget to each WBS item.

Value can also be biased by other factors though. For example, if you want your house to be on a lake front, you might consider the value of obtaining the right property to be much greater than simply what it will cost.

Once values are assigned, they are combined with the estimated schedule delivery dates. The cumulative value plotted over time forms a baseline for the subsequent analysis portion of the EVA process.

Completing Work Items

As work progresses, the value of the completed work items are considered to be earned, and can be accumulated and plotted against the EVA baseline. This comparison of value planned to actual value delivered provides the basic measure of the cost and schedule performance of the project delivery.

Plot of cost, planned value, and actual value
eva graph

Note that in assessing earned value some work items may simply be Yes/No answers indicating whether or not the work was entirely completed. Other work items might require interim milestones, or may need to be broken into finer detail in the work breakdown structure.

For example, imagine the house you are building is at the end of a long and steep access. In this case you might expect to accumulate a partial credit for clearing the land for the access road itself, even though everything else might not be cleared.

It is important to obtain agreements on how value will be earned and accumulated prior to starting work, particularly when working with contractors or if someone outside your own organization is financing the project. The earned value needs to be quantified against specific, measurable completion criteria in order to avoid disputes about the value calculation.

Quantifying and accumulating earned value makes this process different than simply comparing budget and costs measured over time. It provides a way to communicate the progress of a project in terms that more accurately reflect actual work completed.

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