Earned Value Management (EVM): Definition & Example

Earned Value Management (EVM): Definition & Example
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  • 0:03 What Is Earned Value…
  • 0:25 Components Used in EVM
  • 4:05 Interpreting the Results
  • 4:34 Examples
  • 5:36 Lesson Summary
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Lesson Transcript
Instructor: Mike Miller
In this lesson, you'll learn about earned value management (EVM). Earned value management combines schedule, financials, and resources into an easily identifiable resource to determine the status of a project.

What Is Earned Value Management?

Earned value management is a method that combines scope, resources, and schedule to asses project progress and performance. Earned value management requires that a baselines of schedule, financials, and scope. As the project progresses, future earned value calculations when compared to the baseline will determine the project's health or status.

Components Used in EVM

To understand earned value, a project manager should have the basic understanding of schedule and budget. The original schedule, also known as the baseline schedule, is used in comparison to judge the project's health. The original budget is also known as the baseline budget and, like the baseline schedule, it will be used in calculations to determine the health of the project.

The first component needed to determine the health of the project is planned value, which is the authorized budget given to the scheduled work. This is the budget that is assigned to an activity's planned work in the work breakdown structure. Planned value is referred to as PV.

Following PV, the project manager needs to know budget at completion. This is the planned value for each activity in the work breakdown structure is summed up. Budget at completion is referred to as BAC.

The first calculation in the earned value method is earned value. Earned value is the measure of work performed expressed in terms of the budget authorized for the work activity. Earned value is used to calculate a percentage of work completed. Project managers calculate earned value at given intervals and at the end of the project to determine current status and long-term performance trending. Earned value is designated as EV.

While the project manager monitors the project's budget, he or she cannot forget to see what is being spent. The amount spent is known as actual cost. Actual cost is the realized cost for the work that is performed on the activity during a given time period. Unlike a budget, actual cost can have no limit, and some projects, depending on the organization, will allow the PM to dig themselves into a deep hole regarding actual costs. Actual cost is designated as AC.

As the project progresses, the project manager will be able to determine if the activities are starting and finishing ahead of or behind schedule. The difference is called schedule variance. Schedule variance is the difference between EV and PV. Simply put, this calculation determines if the project is behind or ahead of schedule for a given point in time. Schedule variance is designated as SV. The formula is straightforward:

SV = EV - PV

The project manager will evaluate the project's budget with the amount being spent, this is known as cost variance. Cost variance is calculated to determine if the project is ahead (surplus) or behind (deficit) of the budget. Cost variance is designated as CV. The equation to calculate CV is:

CV = EV - AC

Now that the project manager has a lot of information gathered or calculated, the project manager needs to determine the health of the project. To determine if the project is ahead, on, or behind schedule, the project manager needs to calculate schedule performance index. This expressed as a ratio of earned and planned value. This ratio expresses how the project team is using their time, either efficiently or inefficiently. Schedule performance index is designated as SPI. To calculate SPI, use the following formula:

SPI = EV / PV

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