Glossary
Earned Value Management System Basics
Last updated:
Feb 29, 2024
Earned Value Management System Basics
Ezgi Aydın
The Earned Value Management (EVM) method emerges as a potent compass leading projects through the complexities of cost, time, and performance in the world of project management, where accuracy and control are crucial.
EVM, at its heart, is a systematic process that elevates project supervision to a data-driven art, empowering project managers and stakeholders to measure, evaluate, and monitor project progress with uncanny precision.
The integration of the three primary project metrics—Planned Value (PV), Earned Value (EV), and Actual Cost (AC)—lays the groundwork for the Earned Value Management system. These metrics encompass the project's time- and money-related aspects, enabling a thorough knowledge of how the project is progressing in relation to the original plan.
Scope Definition
The foundation for the whole project is laid at the crucial project management step known as scope definition. It entails a thorough and exact definition of the project's parameters, goals, deliverables, and restrictions.
Scope definition offers the framework within which a project develops, just like an artist's canvas specifies the area within which a masterpiece takes shape. This vital procedure not only ensures that everyone involved has a clear knowledge of what the project will include, but it also acts as a checkpoint during the project's lifespan to make sure it stays on track with its initial goals.
Scope definition avoids uncertainty, lowers the risk of scope creep, and supports efficient project planning and execution by establishing the parameters and expectations from the beginning. In essence, it serves as the compass that points the project team and stakeholders in the direction of a fruitful and clearly stated goal.
Defining the Project Scope
A crucial phase in project management is defining the project scope, which entails carefully detailing the parameters, goals, deliverables, and restrictions of a project. Setting clear expectations for all engaged stakeholders involves defining what will and won't be included in the project.
This process, which is analogous to sketching a map's boundaries, creates the parameters within which the project will work and makes sure that everyone is aware of its purpose and objectives.
Gathering needs from stakeholders and carefully comprehending the project's objectives are the first steps in the scope defining process.
The project's general objective, the particular features or functions it will provide, any constraints or exclusions, and a clear and succinct scope statement are all outlined in this material. The scope statement serves as a roadmap to keep the project on track and minimize unneeded detours.
For various reasons, an effective scope definition is essential. It lessens the chance of scope creep, which is the propensity for project needs to go above the initial understanding, resulting in schedule and financial overruns. Project managers may better manage stakeholders' expectations and avert changes that could derail the project's course by outlining the project's scope in detail up front.
A clearly defined scope also helps with resource allocation, risk management, and project planning. It offers a base for formulating precise timelines, calculating expenses, and detecting possible difficulties that can appear over the course of the project.
The established scope acts as a benchmark against which project progress is assessed throughout its entire lifespan. It aids in figuring out whether the project is moving forward and in line with its initial objectives. To provide transparency and an accurate assessment of their effects, modifications or deviations from the scope should be managed through a formal change control procedure if they are essential.
Utilizing WBS and OBS to Define the Scope
The organizational breakdown structure (OBS) and work breakdown structure (WBS) are two fundamental tools that are required for determining a project's scope. These frameworks aid in decomposing the projectinto manageable parts, outlining roles, and making sure all project-related expenses are appropriately recorded.
Work Breakdown Structure (WBS):
A hierarchical breakdown of the project into more manageable, smaller work items is called a WBS. It offers a methodical manner to divide the project scope into deliverable-focused parts, making it simpler to plan, carry out, and keep track of the project.
Starting with the overall project, the WBS gradually divides it into smaller, more manageable tasks or work packages. Each work package corresponds to a particular project activity, deliverable, or component.
Project managers and teams may make sure that no part of the project is ignored by developing a WBS. As each work package may be connected to particular resources, timeframes, and expenses, it also makes it easier to allocate resources, schedule tasks, and estimate expenditures. The WBS provides the framework for project planning, risk analysis, and progress monitoring.
The Organizational Breakdown sStructure (OBS):
It depicts the duties and responsibilities of different persons or groups within the project, is a hierarchical depiction of the project's organizational structure. It synchronizes the project team's responsibility with the task packages from the WBS. The OBS aids in making clear who is responsible for each project component and how the project team is organized.
For projects involving several departments, teams, or outside partners, the OBS is very helpful. It guarantees that each project component has a designated owner who can decide how to spend resources, assign tasks, and monitor their effective fulfillment.
Integration for Scope Definition:
Combining the WBS and OBS offers a strong foundation for thoroughly specifying the project scope and assuring successful execution. The project's "what" is defined by the WBS, which divides it into manageable work packages and deliverables. By defining the "who" of the project and designating roles and owners for each work item, the OBS establishes its "what."
Project managers may easily identify which people or teams are in charge of completing each work package listed in the WBS by merging the two models. The project team members and stakeholders benefit from a shared knowledge of the project's objectives, activities, and responsibilities as a result of this alignment.
Establishing Baselines for Cost, Scheduling, and Performance Measurements
Establishing baselines for cost, scheduling, and performance measurements is a critical aspect of project management that provides a foundation for monitoring, controlling, and evaluating project progress. Baselines serve as reference points against which actual project performance is measured, allowing project managers to identify deviations and take corrective actions when necessary. Let's explore the process of establishing these baselines:
Cost Baseline: The cost baseline represents the approved budget for the project. It encompasses all the estimated costs associated with various project activities, resources, materials, and other expenses. The cost baseline is created by aggregating the individual cost estimates for each work package or task identified in the Work Breakdown Structure (WBS).
To establish the cost baseline:
Compile the cost estimates for each work package or task.
Sum up these estimates to calculate the total project budget.
Obtain approval from stakeholders for the budget, ensuring alignment with project objectives and constraints.
The approved budget becomes the cost baseline against which actual expenditures will be measured.
Schedule Baseline: The schedule baseline outlines the approved project schedule, including start and end dates for each task or work package. It reflects the planned timeline for completing different project components and achieving milestones. The schedule baseline is developed based on the project's Work Breakdown Structure and critical path analysis.
To establish the schedule baseline:
Develop a detailed project schedule by assigning start and end dates to each task or work package.
Determine the critical path, which represents the sequence of tasks that determine the shortest possible project duration.
Obtain approval for the project schedule from stakeholders, ensuring that it aligns with project goals and constraints.
The approved schedule becomes the schedule baseline against which actual progress and delays will be measured.
Performance Measurement Baseline: The performance measurement baseline encompasses the key performance indicators and metrics that will be used to assess project progress and performance. This baseline includes metrics such as Earned Value, Planned Value, Actual Cost, Cost Performance Index, Schedule Performance Index, and more. These metrics are used to gauge whether the project is on track, ahead, or behind schedule and budget.
To establish the performance measurement baseline:
Define the specific performance metrics and indicators that will be used to measure project progress.
Determine how these metrics will be calculated and tracked throughout the project.
Obtain consensus from stakeholders on the selected performance metrics and calculation methods.
The agreed-upon metrics and methods form the performance measurement baseline against which project performance will be evaluated.
Budget at Completion (BAC) and Cost Variance (CV) Analysis
The terms Budget at Completion (BAC) and Cost Variance (CV) Analysis are crucial in the field of project management since they are used to evaluate a project's progress, finances, and adherence to budgets. These resources give project managers and stakeholders crucial information on the financial facets of project execution, assisting them in making wise decisions that will lead to successful project results.
Understanding BAC and CV Calculations
Budget at Completion (BAC) and Cost Variance (CV) are important concepts in project management that help assess project performance in terms of cost control and management. Let's delve into BAC and CV analysis:
Budget at Completion (BAC): The Budget at Completion (BAC) represents the total approved budget for the entire project. It is the sum of all estimated costs for completing all project tasks, work packages, and deliverables. BAC serves as a reference point for evaluating the overall financial scope of the project.
BAC is established during the project planning phase and is used to:
Set the financial target for the project.
Compare with the final actual cost to determine if the project is under or over budget.
Calculate various cost performance indicators, such as Cost Performance Index (CPI) and Estimate at Completion (EAC).
Cost Variance (CV): Cost Variance (CV) is a measure of the cost performance of a project at a specific point in time. It quantifies the difference between the Earned Value (EV) and the Actual Cost (AC) incurred to complete the work up to that point. CV indicates whether the project is under or over budget at a particular moment.
The formula for calculating Cost Variance is: CV = EV - AC
Interpretation of Cost Variance:
Positive CV (+CV): Indicates that the project is under budget, meaning that the value of the work completed (EV) is greater than the actual costs incurred (AC).
Negative CV (-CV): Indicates that the project is over budget, meaning that the actual costs (AC) exceed the value of the work completed (EV).
Zero CV: Indicates that the project is on budget, with the actual costs equal to the value of the work completed.
CV Analysis: Cost Variance analysis is essential for understanding how well a project is managing its costs and whether it's adhering to the budget set in the BAC. Positive CV indicates efficient cost management, while negative CV suggests potential cost overruns. A consistently positive CV over time is a positive sign of cost control.
CV analysis, when combined with other performance metrics like Cost Performance Index (CPI) and Schedule Performance Index (SPI), provides a comprehensive view of the project's financial health and progress. These metrics collectively guide project managers in making informed decisions, implementing corrective actions, and ensuring that the project stays within budget while delivering value to stakeholders.
Schedule Performance Index (SPI) and Schedule Variance (SV) Analysis
To help project managers and stakeholders navigate the temporal aspect of project execution, the Schedule Performance Index (SPI) and Schedule Variance (SV) Analysis come into play. These crucial tools provide a transparent view into a project's adherence to its anticipated timetable, allowing for informed evaluations of whether the project is advancing on time or encountering time-related issues.
Understanding SPI and SV Calculations
Schedule Performance Index (SPI) and Schedule Variance (SV) Analysis are vital tools in project management that offer insights into a project's time-related performance, helping project managers and stakeholders gauge whether the project is on track with its planned schedule. Let's explore these concepts in more detail:
Schedule Performance Index (SPI): The Schedule Performance Index (SPI) is a metric that measures the efficiency of a project's time utilization. It quantifies the ratio of the Earned Value (EV), representing the value of work completed, to the Planned Value (PV), representing the planned value of work scheduled to be completed. SPI indicates whether a project is ahead of schedule, behind schedule, or on schedule at a specific point in time.
The formula for calculating Schedule Performance Index is: SPI = EV / PV
Interpreting SPI values:
SPI > 1: Indicates that the project is ahead of schedule. More work has been completed than planned.
SPI = 1: Indicates that the project is on schedule. The work completed aligns with the planned schedule.
SPI < 1: Indicates that the project is behind schedule. Less work has been completed than planned.
Schedule Variance (SV): Schedule Variance (SV) measures the difference between the Earned Value (EV) and the Planned Value (PV) of work completed up to a specific point in time. SV indicates whether a project is ahead or behind schedule at that point.
The formula for calculating Schedule Variance is: SV = EV - PV
Interpreting SV values:
Positive SV (+SV): Indicates that the project is ahead of schedule. The value of work completed (EV) is greater than the planned value (PV).
Negative SV (-SV): Indicates that the project is behind schedule. The value of work completed (EV) is less than the planned value (PV).
Zero SV: Indicates that the project is on schedule. The value of work completed (EV) equals the planned value (PV).
SPI and SV Analysis: SPI and SV Analysis provide valuable insights into a project's time-related performance. When used together, they allow project managers to assess how efficiently work is progressing compared to the project schedule. These metrics help identify potential schedule delays or advancements, enabling project managers to take proactive actions to realign the project with its planned timeline.
By integrating SPI and SV Analysis with other performance indicators and metrics, project managers gain a comprehensive understanding of project progress, helping them make informed decisions, adjust schedules, allocate resources, and ensure that the project stays on track to meet its time-related goals.