Planned Value vs. Earned Value 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.

Planned value and earned value are calculations used in project management to help assess a project's delivery. In this lesson, we look at how they are calculated and used.

Planned and Earned Values

Imagine you were starting to build a new house. You would probably start off with a budget and a list of known work items, such as creating a foundation, framing the exterior walls, adding some landscaping, and so on. All of these, and more, would be items you would list and put into a planned schedule. As you actually worked through your plan, what would be the best way to measure how you were progressing compared to your schedule? In project management, the concepts of planned value and earned value are used to make exactly these kinds of comparisons. Let's take a look first at how these values are derived and then look at how they can be used.

Deriving Planned Value

Planned value provides a way to represent the value of a project that is planned to be delivered measured over time. It can be calculated if a project has a budget and a schedule of work activities. The starting point for the calculation is the list of activities that make up the delivery plan, often referred to as the work breakdown structure (WBS). During the project planning stage the effort involved in delivering each of the WBS activities will be estimated and will also be placed into an expected delivery schedule.

Since the level of effort has been estimated for each of the WBS items, a percentage of the overall effort can also be allocated to each of the individual items in the plan. Then, by stepping through the schedule and accumulating the individual percentages associated with each item planned for completion, we can derive the total planned percent complete that should be delivered at any scheduled date.

It is a simple matter to tie this percentage to the overall budget for the project on any schedule date. If, for example, the project budget total is $500,000, and your WBS and schedule show that you will be 20% complete on a certain day, then the planned value on that day would be $500,000 x 20%, or $100,000.

Given these calculations, the planned value can be plotted for the entire schedule. The value will start at 0 on day 1 and then rise to the value of the total budget at the planned completion date. The actual plot is not a straight line but will depend on the value of the individual work items that are delivered as the schedule progresses. This graph essentially represents the value of the planned project if it is running on schedule.

Deriving Earned Value

While having a planned value is a great starting point, a project manager will want to comprehend how the project is progressing over time, relative to the original schedule and cost. This is where calculating the earned value is useful. Earned value is accrued during the project delivery as the individual WBS items are completed. This value is derived in the same way as the planned value calculation but the summation of value is only made for items that are delivered and are truly complete.

Note that in some cases the entire amount for each WBS item will be counted as earned once that item is completely delivered but in other cases it may be more realistic to accrue a partial value of work as it is delivered. In this case, it is important that quantifiable and measurable objectives are included as part of the WBS. It is also important that all the project stakeholders agree to these objectives and to the way they will be valued or counted in accruing earned value.

Graphing Planned and Earned Value

The most useful way to view planned and earned value is to plot them on the same graph against time, or schedule, as shown here:

Example plot of planned value, earned value, and actual cost.
eva graph

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