Earned Value Management

Earned Value Management (EVM) is a project control process based on a structured approach to planning, cost collection and performance measurement. It facilitates the integration of project scope, time and cost objectives and the establishment of a baseline plan for performance measurement.

Earned Value Analysis (EVA) is a proactive way of managing and controlling projects and is used extensively in a range of industries and is increasingly being used as a project management tool in construction. In principle EVA compares the amount of work planned and its budget against the amount of work actually carried out, its budget and its actual cost. The measurement of this can be used to show the current status of a project in terms of cost and time measured against the baseline plan and also to forecast the outturn positions.

Preparation for using EVA should commence at the outset of a project. Initially a Work Breakdown Structure must be developed breaking down the work into appropriate elements reflecting the way the project is to be managed. Typically this will be in trade packages. The work elements are then developed, quantified and priced and resources allocated to activities on the programme schedule. This schedule forms the baseline for monitoring and control of the project using EVA.

During the implementation of the project, progress percentages are assessed at regular intervals for each activity along with resource utilisation taken from allocation sheets and cost data taken from cost reports. Comparing the actual information collected in this manner against the baseline plan will allow the following indices to be calculated:

  • Earned Value (EV) = % Complete x Budget for each activity
  • Schedule Performance Index (SPI) = Earned Value / Planned Value
  • Cost Performance Index (CPI) = Earned Value / Actual Cost
  • Schedule Variance (SV) = Earned Value – Planned Value
  • Cost Variance (CV) = Earned Value – Actual Cost

EVA highlights trends and allows outturns to be predicted and has been shown to be a very accurate project management tool. Much of the reason for this is that it imposes good project management disciplines. In the development phase it requires detailed pre-planning and the preparation of a resourced programme linked to the price or budget for the project. Subsequently during the implementation phase, it requires the collection of as-built records and the analysis of actual performance against the plan.

Practical difficulties, such as a potential reluctance by trade contractors to provide required information, must be anticipated and pre-empted. Tender documentation should be drafted to include a stipulation that detailed cost and resource information must be provided and in this way EVA can be used to manage trade packages as well as the project as a whole.

Below is an example that will elaborate a simplistic explanation of EVM principle and application, it uses the PMBOK-4th edition acronyms.

Tricia is the Planner in charge of 20 miles of sidewalk project.

According to your plan, the cost of construction will be $15, 000 per miles and will take 8 weeks to complete.

2 weeks into the project, you have spent $55, 000 and completed 4 miles of sidewalk, and you want to report performance and determine how much time and cost remain.

Solution:

BAC = [How much we originally expected this project to cost]-BUDGET
= [20 miles of sidewalk] x [$15,000 per mile]
= $300, 000.00

PV = [How much work was planned for this point in time]
= Planned % complete x BAC
= [2 weeks completed on an 8 weeks schedule] x BAC
= 2/8 x 300,000
= $75, 000.00

EV = [How much has been earned on the project]
= Actual % complete x BAC
= [4 miles of sidewalk has been completed as against 20 miles] x BAC
= 4/20 x 300, 000
= $60,000

AC = [The amount of cost you have incurred so far on the project]
= $55,000.00

After establishing these parameters, you can now calculate the following;

1. CV = EV – AC (CV= Cost Variance)
= 60,000 – 55, 000
= $5000

2. SV = EV – PV (SV = Schedule Variance)
= 60,000- 75,000
= -$15,000

3. CPI = EV/AC (CPI = Cost Performance Index 1 >= We are doing good on cost <=1; we are overspending)
= 60000/55000
= 1.09

4. SPI = EV/PV (SPI = Schedule Performance Index; >=1; we are on schedule, <=1; we are behind schedule)
= 60000/75,000
= 0.8

5. EAC = BAC/CPI
= 300,000/1.09
= $275,229.36 ETC = EAC – AC
= 275,229.36 – 55, 000
= $220,229.36

6. ETC = EAC – AC
= 275,229.36 – 55, 000
= $220,229.36

7. VAC = BAC – EAC
= 300000 – 275,229.36
= $24770.64

8. This is the latest inclusion that has always been overlooked; TCPI= To Complete Performance Index; it means in order to stay within budget, what rate must we meet for the remaining of the work ("this project crystal ball")

TCPI = BAC - EV / BAC - AC
= 300,000 - 60, 000 / 300,000 - 55, 000
= 240,000/245,000 = 0.98 ~98% (so we must be maintaining 98% of the activity progression with EV, AC and PV so to complete the project on time and within budget)

Apply it you will always see the benefits, this a core fundamental truth that everyone in the Planning field should try to understand.

If you want to learn more, buy the PMI book on EV, it was written by the Primavera guys Mr Quentin and Mr Koppell

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