Earn Value Management (EVM)–What is it?

Hi,

before I explain hot to get and use data, and what is needed for EVM in MS PROJECT 2010 (which I will do in my next Post), I will explain what EVM is!

Wikipedia says: Earned value management (EVM), or Earned value project/performance management (EVPM) is a project management technique for measuring project performance and progress in an objective manner. Because EVM has the ability to combine measurements of :

• scope
• schedule
• and cost,

in a single integrated system, Earned Value Management is able to provide accurate forecasts of project performance problems, which is an important contribution for project management.”

Here are some Terms:

• Planned Value -> PV (BCWS, Budgeted Cost of Work Scheduled)
• Earned Value -> EV (BCWP, Budgeted Cost of Work Performed)
• Actual Cost -> AC (ACWP, Actual Cost of Work Performed)
• Budgeted at Completion –> BAC
• Estimate at Completion -> EAC = BAC / CPI or AC+(BAC-EV)
• Estimate to Complete -> ETC = EAC – AC
• Variance at Completion -> VAC = BAC – EAC

Here is the explanation of each Term:

Here is the Graphical sample of EVM:

Let me give you a simple example! Suppose that you have a Project with only one Task: Digging the tunnel. You should dig 1 meter per day (or one inch, who care ). So, Planed Value is green line in the picture below. You are at the end of the 5th day. And you want to measure your progress!

Suppose now, that you dug only 3 meters (see orange line in the picture below). So SV (Schedule Variance) is EV – PV = 3-5 = –2. So you are behind the schedule. Now suppose that you should spend \$1.000  per meter. At the end of the fifth day you have already spent \$7.000 (see purple line in the picture below). So CV (Cost Variance) is EV – AC = \$3.000 – \$7.000 = –\$4.000. You are spending too much! Because you have dug 3 meters instead of 5 (as was planned), you should spent only 3 meters * \$1.000 per meter = \$3.000. But you have spent \$7.000, so you have spent \$4.000 more.

But what if you have dug 7 meters at the and of the fifth day, and spent only \$500? Is it good situation? What a stupid question, hah? Who wouldn’t want to be ahead of the planned schedule and behind the planned costs! Hmmmm, well….

It is excellent situation if we are speaking about time and money. BUT! Your plan was BAD! Why? You have estimate that for 10 meters you will spend 10 days, and \$10.000, but you spent only, for example 3 days and \$500! (This will NEVER HAPPEN to your Project, don’t worry ). When you will ask your chief next time for the same type of Project (digging 10 meters of tunnel), for 10 days and \$10.000, he/she will tell you: “ARE YOU KIDDING? You know that last time it took only 3 days and the costs were \$500. That is what you can get!”

How to make EVM Calculation in MS PROJECT 2010? Read my next Post.

Regards,

Location: Zagreb, Croatia Occupation: Project Manager Interests: Project Management and MS PROJECT He was born in Zagreb, Croatia at 1963. After completing his college he started working on projects in different business areas (banking, manufacturing, automotive industry, distribution, oil companies, etc.) developing and implementing ERP systems into different companies. He has got a lot of experience working with people in different business processes and also possesses great knowledge in information technologies and financial services. Today he works as a business consultant, adn Project Manager in PERPETUUM MOBILE d.o.o. Zagreb. He is a regular lecturer for Project Management in MS Innovation Center in Varaždin, Logosoft Sarajevo in Bosnia and Herzegovina and SEAVUS GROUP in Skopje Macedonia. He was named the best lecturer of WINDAYS 2008 while his lecture was also voted as the best. In addition, he was in TOP 10 lecturers at the MS SINERGY 2009 and MS VISIA 2009, 2010. Shares first place as the best lecturer of KulenDays 2009 and 2010 and PMI Conference 2009 in Zagreb. He is also a regular lecturer in the MS Community. He is a Certified Accountant and a PMP (Project Manager Professional) and a PMI-RMP (Risk Manager Professional), MCP, MCT, and Microsoft Certified Technical Specialist - Microsoft Project 2010. From 01.01.2012 awarded with MVP (Microsoft Most Valuable Proffesional - Microsoft Project)!
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5 Responses to Earn Value Management (EVM)–What is it?

1. Pingback: Google Alert – "earned value" or "earned value management"- PTMC/APMX Building Project Management Competency

2. aseni purnima says:

Dear Sir,
I’m a quantity surveying under graduate from Sri Lanka. I’m conducting a research on EVM for Construction Industry. Please Sir, can you help me to find some published research papers on this topic. I have download some papers from the Internet but I am unable to find new research papers published on 2011 and 2012 years. thank you

Hi,

Internet is the Best source, and Pratice Standard for EVM from PMI.org

Regards,

• Raffaele says: