The Earned Value Method (EVM) is an efficient and effective technique for project management and measurement. The concept of Earned Value Management was first developed by the United States Department of Defense (DoD) in the 1950s to assist with the cost and technical performance of major programs. The DoD later amplified the method and adapted it to the needs of the commercial sector which has since adopted the procedure as a standardized and highly reliable way of cost control.
By definition, Earned Value Management is a project management system that integrates scope, schedule, and cost into a single consensus-based system. It is utilized to measure and communicate project performance to stakeholders quickly and efficiently. The key idea of Earned Value Management is to compare actual work performed with planned work over a given timeline during a project’s life cycle. This acts as a tool to identify and alert project managers of possible risks and variances from the established baseline plan so that corrective action can be taken quickly.
Most notably, Earned Value Management helps quantify and measure performance more accurately than either traditional cost or performance measurements alone could. This is essential as there is strong evidence that Earned Value Management helps shorten project duration and therefore reduces overall costs.
The Earned Value Management system consists of three main components—the planned value, earned value, and the actual cost.
The planned value (PV) is the total cost allocated to the project’s scope of work (known as the budget at completion, or BAC). It is the total amount of resources that would have been needed to achieve all the project deliverables and is an important factor when determining the overall project budget.
The earned value (EV) is the measure of work completed and is also calculated as the BAC. It represents the amount of work that has been completed up to the present point in the project timeline and is usually measured in units of resource. The earned value is then divided by the total amount of budget to obtain the percentage of the project that has been completed.
The actual cost (AC) is the measure of money that was expended for the work completed up to the current point in the project timeline. It represents the actual amount of money spent by the project. AC is then divided by the budget allocated for the project to give the true cost of project performance and is equivalent to the earned value performance measure (EVPM).
The combination of the Earned Value Management components allows for an overview of the progress of the project and the project’s performance percentage (EV - AC/BAC). This percentage can tell us how much the project is actually “earning”—or the amount of actual performance or output generated with respect to the original budget and expected goals. This can give managers valuable insight into the project’s health and allow them to adjust resources or project plans accordingly as needed.
The use of Earned Value Management can also provide perspective on the project’s schedule performance. This is measured with equations that integrate planned and earned values in a single indicator, like the schedule performance index (SPI). The SPI calculates the ratio of scheduled performance to total cost and usually includes the earned value divided by the planned value. The higher the SPI, the better the progress the project is making in terms of the amount of work per a given budget.
Earned Value Management is a powerful project management and measurement tool that can help simplify and increase the efficiency of performance assessment. By effectively combining different project components into a single system, Earned Value Management helps managers accurately measure progress and compare actual performance to budget and expectations. By enabling swift detection of variances, managers can make necessary adjustments to the project to ensure that it is completed on time and within budget.
