Training

Earned Value Management 101 – Lesson #01

Planned Value Curve - PFC

At some point in time, everyone who is involved in project management has heard of Earned Value Management (EVM). The term “Earned Value” has gained popularity around project management circles. But currently not all projects implement the Earned Value management methodology for reporting cost and schedule performance.

In order to understand the benefits and importance of implementing Earned Value Management in most projects, we need to familiarise ourselves with the EVM provenance, terminologies, all the elements of the Earned Value method and implementation techniques.

Through a series of posts I will try to be clear and simple by giving you my understanding of EVM and how it can be implemented so we all can get better outcome of our projects with the implementation EVM techniques. And the main objective is to help anyone trying of thinking about applying this useful project management tool.

To properly implement EVM on any project, some questions such What, Why and How? will need to be understood.

What is Earned Value (EV)?

Earned Value Management (EVM) is a project management technique for measuring project performance and progress. EVM has the ability to combine measurements of the project management “triangle”:

  1. Scope of work
  2. Time to complete the work
  3. Costs/Man-hours allocated to complete the scope of work

Earned Value Management is able to provide accurate forecasts of project performance problems, which is an important contribution for project management.

The most basic requirement of an Earned Value Management (EVM) system calculation is that it quantifies progress using Planned Work (baseline “BCWS”) and Completed Work (current progress “BCWP”).

Where did Earned Value Management (EVM) come from?

The American Department of Defence adopted this methodology back in 1960 as a standard method of measuring performance on major projects.

Earned Value management is now a central part of the Cost/Schedule Control Systems Criteria (C/SCSC). Now Earned value is used in most private sector projects and major government contracts.

Why should we use Earned Value?

Earned Value is an important and significant project management tool that uses a 3 dimensional analysis (“planned work”, “actual work” and “the cost of the actual work” at any given time) to calculate the project performance. Earned Value is therefore a uniform unit of measuring project performance.

We may ask ourselves “What is so great about a uniform unit of measuring progress performance?”

Let’s suppose that we have a project to erect a property boundary fence. Now this is the status at day no. 5 out of 7 days:

  1. Setting out of the fence is complete (100%) in 1 day as planned
  2. Digging/excavation for installation of posts for the fence is complete (100%) within 2 days as planned.
  3. We’ve completed (50%) 1 day out of 2 days of concrete pour for placing the posts
  4. And we’ve installed (50%) 1 day out 2 days of erecting the fence.

Does that mean we are 71% or 75% (average) complete? It’s possible but, we don’t know.

Activity ID

Activity Description

Original Duration (days)

% Complete

Remaining Duration

FC-001

Setting out for post

1

100%

0

FC-002

Excavation for post

2

100%

0

FC-003

Pour concrete and place posts

2

50%

1

FC-004

Erect fence

2

50%

1

         
 

Total

7

 

2

     

71%

 

What we need is to know what each activity is worth. Assigning a “budget” to each activity would establish a weighting factor for task.

In the table below we can now see that we are currently 57% complete when using the Earned Value Methodology. When you manage your project performance by just comparing planned to actual progress, you could easily be on time but over budget according to your plan.

Activity ID

Activity Description

Original Duration (days)

% Complete

Remaining Duration

Budgeted Unit

Actual Unit

Remaining Unit

At Completion

FC-001

Setting out for post

1

100%

0

60

60

0

60

FC-002

Excavation for post

2

100%

0

500

500

0

500

FC-003

Pour concrete and place posts

2

50%

1

1500

750

750

1500

FC-004

Erect fence

2

50%

1

2000

1000

1000

2000

                 
                 
 

Total

7

 

2

4060

2310

1750

4060

                 
     

71%

   

57%

   

Earned Value can be employed whenever your project involves specific tasks and can be used in various industries (construction, process, manufacturing, finance, etc.).

How to the Use Earned Value Methodology?

To be able to implement EVM, we would need to complete the following:

  1. Develop a schedule and establish the Work Breakdown Structure (WBS). Please read my previous post for a refresher.
  2. Assign/allocate time-phased resources to the activities that represent the project. This is done by allocating the cost/man-hours to all performing project activities (direct labour). Due to some complexity, project sensitivity, variations and other factors, in a lot of projects, it’s easier to use the allocated man-hours to project activities instead of costs for EVM calculations (plan the works).
  3. Develop your Earned Value reporting table (assign the objective measure of performance) which would include all EVM calculations, forecast etc.., as shown below.
    PFC Earned Value and its Elements
  4. Work the plan
  5. Analyse project performance data
  6. Incorporate the EVM data into your project/company reporting dashboard
  7. Implement project control mechanisms.

Contact me to find out more about Earned Value implementation

I will dive into each of the above sections in subsequent posts

Next post: Earned Value Management jargon.

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