Basic Earned Value Management (EVM)

Happy Monday!  I hope you all enjoyed your weekend and are ready to start another great week!  I want to jump right into this week as I am going to try and cover a topic that has a wide range of comfort levels, actual usage/implementation, and degrees of sophistication.  I am going to focus on the latter and keep this very un-sophisticated.

Earned Value Management (EVM) is a method of reporting project status in terms of time and money.  It gets us away from best effort or ‘guesstimates’ and provides a way to give solid information to your stakeholders.  The below example is not mine and for the life of me, I can not find where I got it from…very sorry.  However, I think it is a very easy, basic way to explain this to you.

Job Description: Paint 5 rooms
Budget: $1,000 per room
Duration: 1 Room per day
Current Status: End of Day 3, 2.5 rooms have been completed, at $2,800

1-5 are somewhat standard and most other calculations are based built from these.  While this example can be ‘eyeballed’ for numbers, I am trying to keep it very basic.

  1. (PV) Planned Value – Planned Cost of Planned Work is 3 days at $1,000 = a PV of $3,000
  2. (EV) Earned Value – Actual completed budget is $1,000 * 2.5 days = an EV $2,500
  3. (AC) Actual Cost – Actual cost of actual work done is $2,800
  4. (BAC) Budget at Completion = 5*$1,000 = $5,000
  5. (CV) Cost Variance – Difference between planned and actual cost of work done = EV-AC
    1. $2,500 – $2800 = -$300 (negative is over budget)
  6. (CPI) Cost Performance Index = We get $_.00 of work out of every dollar we put into the project = EV/AC
    1. $2500/$2800 = $.8928 or We get $.89 of work out every dollar we put in.
  7. (EAC) Estimated to Cost at Completion (based on performance so far, what will it now cost) = BAC/CPI
    1. $5000/.89 = $5,600
  8. (ETC) Estimated to Complete- How much more money do we need to complete = EAC – AC
    1. $5,600 – $2800 = $2,800

Cost Performance Index and Estimated to Complete tend to be the ones that get the most feedback…a negative CPI can get some executives stirred up when they see a negative there.  As for ETC, many executives are bottom line kind of folks…”okay, we had a hiccup. What will it cost from this point forward to make this right?”

Now for a time view….

  • (SV) Schedule Variance – Difference between work actually done & planned to be done (0 is good) = EV-PV – 2500 – 3000 = -500 (behind schedule)(SPI)
  • Schedule Performance Index – Progressing x% of plan rate (<1 behind, >1 ahead) = EV/PV – 2500/3000 = .8333  less than 1.0 so they are behind (*100 = 83% progress rate)

There are many other calculations that can be made in this space, but in my experience these are have been the ones that have stirred debate, received feedback/attention from the execs, and simply get the point across.
I would love to hear your feedback…am I missing a key calculation? Did I miss something here?

Additional Resources:
Impress Your Friends By Understanding SPI and CPI by Derek Huether
Cost Evaluation by The PM Hut
Earned Value Management Explained by Project Smart

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5 thoughts on “Basic Earned Value Management (EVM)

  1. Laura, thanks for the comment and I hope my readers do stop over at Steelray and check out SPA…I will be.

    Glenn…thank you! You always bring a deeper explanation and clarity I know my readers enjoy. It is an interesting line to walk…trying to keep it high level for those new/accidental PMs or get deep and talk topics in detail for career PMs. Do you have a link to some EVM topics, kind of tough to explain a bit more in comments here?

    Thank you again!

    -Robert

  2. Good post. Just a few things to remember.

    1. The vast majority of the EV Engines use the DoD notation (BCWS, BCWP, ACWP). These terms are baked into multi-million dollar software systems. The DoD’s Contract Performance Report also uses these terms.

    2. The linear aspects of the SPI/CPI used for forecasting future performance is rarely the case. So the TCPI index assumes this linear relationship.

    3. The cumulative terms are great for examples, but in actual use computing BCWP, SPI, CPI and others at the project (program) level (even thought the CPR reports them there) is very sporty. One of the pieces of advice from Huff’s “How to Lie with Statistics” is to aggregate variances through summation. EV at the work package and maybe task level allows you to manage the project and not just report past performance.

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