Understanding Earned Value Management and Formulas

One of the most crucial things to grasp for a project control expert is the fact that there are tons of different formulas that, if used appropriately, may make your life a lot simpler on a regular basis.

Did you ever devote many hours of your valuable time to attempt to determine whether the project's worth matches the sum of money required to execute it? With Earned Value management and the accompanying phrases and formulas, you'll never need to worry as you can be more assured.

What is Earned Value Management?

Schedule, expenses, and scope are all integrated into the project management approach known as Earned Value management, or EVM, to monitor project performance. EVM forecasts the future based on intended and actual values, allowing project managers to make adjustments as necessary.

The software, procedures, tools, and templates utilized for EVM are referred to as Earned Value Management Systems, or EVMS.

In this sense, Earned Value analysis, or EVA, is another crucial word. Evaluating cost and schedule variations is a quantitative approach used to assess project performance.

EVA is one of the tools used by EVM; however, EVM is more comprehensive. EVM is all about applying the data to trend analysis and forecasting, whereas EVA stops at the computing component. Due to the fact that EVM is a project management function, it handles both the data and the decisions made in response to that data. /p>

EVM implementation is not, however, constrained by the EIA 748 standard. The idea that EVM is challenging and burdensome has been influenced by all of those requirements and the policies that surround them. The best part is that EVM measurements are actually pretty simple, and you may build your EVM process using as little or as much precision as your specific projects call for.

Earned Value Formulas

Due to the numerous terms involved with EVM, some project managers may find it intimidating. So let's first divide this up into more manageable, smaller concepts. Each of these ideas is essential for enhancing the performance of a project.

1. Earned Value (EV)

The term Earned Value describes the cost of finished work as represented by the performance budget value allotted to that job. It represents the worth that has been acquired by doing the activity, not merely the expense of doing the work. The budgeted cost of work accomplished, or BCWP is another term that is frequently used throughout the construction industry to refer to this. The Earned Value is determined by multiplying the Budget At Completion (BAC) by the percentage of completed work.

• EV = BAC x % Complete

2. Planned Value (PV)

This phrase refers to the authorized spending plan for projects that have a deadline for completion. The difference between Earned Value and Planned Value is that Earned Value looks at how much you need to spend to complete the task by a specific deadline, whereas Planned Value takes a proactive approach by looking at the amount you need to spend to reach the deadline. Another name for planned value is Budgeted Cost of Work Scheduled (BCWS).

At any stage in the project, sum up all of your anticipated costs to determine the Planned Value. Your estimated expenses are frequently compared to the baseline of a project.

• PV = Planned % complete x BAC

3. Actual Cost (AC)

Actual Cost, as the name indicates, represents the sum of money you genuinely spent to complete a job by a specific deadline. This is often referred to as the ACWP, Actual Cost of Work Performed, or simply AC by many industry experts.

Actual Cost is indeed a cumulative value that increases over time, much like Planned Value.

• The total cost for the specified time period.

4. Budget At Completion

The total sum of money you anticipate spending to complete a specific job or the whole project is known as the Budget At Completion or BAC. This figure can be obtained by combining all of the estimations and assumptions you've made regarding timelines and necessary work, among other factors.

5. Schedule Variance (SV)

A measure of how much time you anticipated an activity would take compared to how long it really takes and how that is related to your expenditure is called schedule variance. Start by deducting the Planned Value from the Earned Value of the work to arrive at this figure. The amount that remains is how much money delays have already cost you and your staff.

• SV = EV − PV

6. Cost Variance (CV)

Cost Variance enables you to examine the difference between the value you received for a task and the original cost that was incurred to do it. To get this figure, subtract the Earned Value from the Actual Cost.

• CV = EV − AC

7. Schedule Performance Index (SPI)

You may examine a project's ultimate schedule effectiveness more closely using the Schedule Performance Index. It provides an answer to the question of whether you are utilizing your time wisely. SPI offers a real−time status update on the project's timeline at any time. SPI is calculated by dividing the task's or project's Earned Value by its planned value.

• SPI = EV / PV

8. Cost Performance Index (CPI)

With the help of the Cost Performance Index, you can examine both the total cost of a project and the efficiency with which that money is being spent. CPI offers a quick assessment of cost performance during any stage of the project. Divide the Earned Value of your activity or project by the Actual Cost to get to this number.

• CPI = EV / AC

9. Estimate at Completion (EAC)

Knowing the estimate at completion figure is useful since it enables you to calculate the current cost of a task while accounting for the work you've already completed. Subtract the cost variance for the entire work you've already completed from the budgeted amount you possess for the full endeavor. The remaining number is your EAC.

• EAC = BAC / CPI

10. Estimate to Complete (ETC)

The amount that expresses precisely how long it will take to complete a certain task, taking into account all of the work you've already done, is known as the Estimate to Complete. In terms of applying Earned Value, there are a number of different formulas you may use to calculate the work required to perform a task.

For the Estimate to Complete (ETC), there is a conventional formula. ETC is simple to complete if you have already computed EAC. Subtract the Actual Costs to Date from the Estimate at Completion. This is the most popular ETC formula being used in Earned Value.

• ETC = EAC − AC

Conclusion

The Earned Value Management (EVM) technique combines schedule, technical scope, cost, and risk together into a project performance management system. This helps evaluate performance against a baseline, detects issues, and uses that knowledge to anticipate costs (including schedule, to some degree) after completion.