What is Earned value management system (EVM)

Earned value management system (EVM) is a practice which project management professionals developed to evaluate performance & progress of a project. Implementation of this system in a project can provide several benefits.

what are the advantages of the Earned value management system?

  • An early indication of budget or time overrun
  • More sensitive data for effectual decisions.
  • Enhance the process of planning
  • Indicate potential risks
  • Increases accountability of project
  • Make clear & consistent communication to all management levels.

Key elements of the Earned value management system (EVM) can be identified as follows,

Planned value [PV]

Expected budget estimated (as per the work) based on the work breakdown structure is called as planned value. This should be identified based on the project schedule. Values should be identified in accordance with the project time frame. Based on the project programme each month planned value should be derived.

Earned Value [EV]

This is the Key element of Earned value management system(EVM). Project manager should be determining the actual accomplishment of work on a given date based on the work breakdown schedule.

Actual Cost [AC]

This is the actual cost of the each element based on the work breakdown schedule.

Cost variance [CV]

This indicates the cost performance of the project, particular work or element. CV is the difference between Earned value & actual cost [CV =EV- AC]. If cost variance is a positive value it shows complimentary indication of the project, particular work or element.

Cost performance index [CPI]

This shows cost efficiency of the project, specific work or element. Formula to derive CPI is EV/AC (ratio between earned value & actual cost). If this value is equal or greater than the one it means efficiency of expenditure of the project, specific work or element is good.

Scheduled variance [SV]

This shows whether the project is achieving the baseline schedule or not (whether project, work or element is behind the schedule or ahead the schedule) in accordance with the WBS. Formula to scheduled variance is difference between the EV and PV.

Schedule performance index [SPI]

this shows work efficiency of the project or work element. Formula to derive SPI is EV/PV (ratio between earned value & planned value). If this value is equal or greater than the one it means efficiency of work done of the project or the specific work is good.

Estimate to complete [ETC]

This is the cost required to complete all the balance work of the project or specific work. Calculation of ETC should be more accurate and it can be difficult.

Estimate at completion [EAC]

EAC is the value of actual cost plus estimated to complete (EAC= AC+ETC) or the anticipated total cost of the completion of the project or the work element.

For the implementation of the Earned Value Management system (EVM), Project Manager should make a comprehensive plan for both budget & time of the project. This should be planned & implement before the project starts, budget and time should be according to the work breakdown structure (WBS).

Major works should be identified by the project manager, and time and cost should be allocated among each element following the work schedule. At the execution period, PM should get asses below three things to assess earned value.

  1. Value should have done at any date given as per the project plan
  2. Produced value at the time
  3. Amount of money spent

Work breakdown structure for EVM system

Preparation of work breakdown structure or the WBS is an important process in construction project management. This is the process of identification of major elements in a project and distributing the time and cost among these major elements according to the work programme. Sample work breakdown structure prepared to use in Earned Value Management system (EVM) is as follows,

Above graph the works has been segregated in to major categories in building construction. In detailed WBS schedule these work should be more categorize under these major headings. Simple example of excavation works for small 3 building construction as follows,

As per above graph it is clearly showing this work has been delayed for 11 days. Management can easily identified where the delay occur (item nr 2.3 has delayed 2 days, item nr 2.4 has delayed 4 days & item nr 1 has delayed 2 days. Due to these delays commencing dates of other works such as cleaning & clearing also delayed). But the good thing is that work has been finished within the original budget.

Further to the above example, below shows how EVM can used for track time & cost of a project. These examples has given for compete project (on month of May status).

As per the below example 1- planned value is 130,000, ETC is 170,000 and project programme has exceeded from 12 months to 14 months. Earned value as per month of May is 40,000.

  • Graph 1

As per above graph 1,

  • Planned value of the project is 130,000.00
  • Estimated at completion is 173,000.00
  • As per May 2018 earned value is 40,000.00 & actual cost is 68,000.
  • Which as per the planned value on May is 55,000.00
  • There for schedule variance is EV-PV (40,000-55,000=-15,000) is a negative value which is progress is behind the baseline schedule.
  • Cost variance is EV-AC (40,000-68,000= -28,000) is a negative value which means project completion date is going to be seriously delayed.
  • Cost performance index- as per above graph is EV/AC (40,000/68,000=0.58) lesser than the 1.
  • Schedule Performance Index will be EV/PV ((40,000/55,000=0.72) is also lesser than the 1.
  • As per above two points it indicates that, Project is not running in expected efficiency. Serious control to budget and time acceleration should be done.

As per the below example 2- planned value is 130,000, ETC is 170,000 and project programme has exceeded from 12 months to 14 months. Earned value as per month of May is 58,000.

  • Graph 2

As per above graph 2,

  • Planned value of the project is 130,000.00
  • Estimated at completion is 173,000.00
  • As per May 2018 earned value is 58,000.00 & actual cost is 68,000.
  • Which as per the planned value on May is 55,000.00
  • There for schedule variance is EV-PV (58,000-55,000=3,000) is a positive value which is progress is ahead the baseline schedule.
  • Cost variance is EV-AC (58,000-68,000= -10,000) is a negative value which means project completion date is going to be slightly delayed and expenditures is more than the planned budget.
  • Cost performance index as per above graph is EV/AC (58,000/68,000=0.85) lesser than the 1.
  • Schedule Performance Index will be EV/PV ((58,000/55,000=1.05) is Higher than the 1
  • As per above two points it indicates that, Project is running in expected efficiency but should be focused on cost controlling. If still project manager need to finish the project on expected date as per initially agreed, should be need to consider time acceleration.

As per the below example 2- planned value is 140,000, ETC is 130,000. Earned value as per month of May is 58,000.

  • Graph 3

As per above graph 3,

  • Planned value of the project is 140,000.00
  • Estimated at completion is 130,000.00
  • As per May 2018 earned value is 58,000.00 & actual cost is 50,000.00
  • Which as per the planned value on May is 55,000.00
  • There for schedule variance is EV-PV (58,000-55,000=3,000) is a positive value which is progress is ahead the baseline schedule.
  • Cost variance is EV-AC (58,000-50,000= 8,000) is a positive value which means project running well within the estimated budget & time.
  • Cost performance index as per above graph is EV/AC (58,000/50,000=1.15) greater than the 1.
  • Schedule Performance Index will be EV/PV (58,000/55,000=1.05) is Higher than the 1
  • As per above two points it indicates that, Project is running smoothly well within the estimated cost & time.

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