Basic Earned Value Management (EVM)

January 4, 2011 | Author: PM Hut | Filed under: Cost Estimating, Cost Management

Basic Earned Value Management (EVM)
By Robert Kelly

Earned Value Management (EVM) is a method of reporting project status in terms of time and money. It gets us away from best effort or ‘guesstimates’ and provides a way to give solid information to your stakeholders. The below example is not mine and for the life of me, I can not find where I got it from…very sorry. However, I think it is a very easy, basic way to explain this to you.

Job Description: Paint 5 rooms
Budget: $1,000 per room
Duration: 1 Room per day
Current Status: End of Day 3, 2.5 rooms have been completed, at $2,800

1-5 are somewhat standard and most other calculations are based built from these. While this example can be ‘eyeballed’ for numbers, I am trying to keep it very basic.

  1. (PV) Planned Value – Planned Cost of Planned Work is 3 days at $1,000 = a PV of $3,000
  2. (EV) Earned Value – Actual completed budget is $1,000 * 2.5 days = an EV $2,500
  3. (AC) Actual Cost – Actual cost of actual work done is $2,800
  4. (BAC) Budget at Completion = 5*$1,000 = $5,000
  5. (CV) Cost Variance – Difference between planned and actual cost of work done = EV - AC = $2,500 – $2800 = -$300 (negative is over budget)
  6. (CPI) Cost Performance Index = We get $_.00 of work out of every dollar we put into the project = EV/AC = $2500/$2800 = $.8928 or We get $.89 of work out every dollar we put in.
  7. (EAC) Estimated to Cost at Completion (based on performance so far, what will it now cost) = BAC/CPI = $5000/.89 = $5,617
  8. (ETC) Estimated to Complete- How much more money do we need to complete = EAC – AC = $5,617 – $2800 = $2,817

Cost Performance Index and Estimated to Complete tend to be the ones that get the most feedback…a negative CPI can get some executives stirred up when they see a negative there. As for ETC, many executives are bottom line kind of folks…”okay, we had a hiccup. What will it cost from this point forward to make this right?”

Now for a time view….

  • (SV) Schedule Variance – Difference between work actually done & planned to be done (0 is good) = EV-PV – 2500 – 3000 = -500 (behind schedule)
  • (SPI) Schedule Performance Index – Progressing x% of plan rate (<1 behind, >1 ahead) = EV/PV – 2500/3000 = .8333 less than 1.0 so they are behind (*100 = 83% progress rate)

There are many other calculations that can be made in this space, but in my experience these are have been the ones that have stirred debate, received feedback/attention from the execs, and simply get the point across.

I would love to hear your feedback…am I missing a key calculation? Did I miss something here?

Robert Kelly, PMP, is a program/project manager that does not simply track projects & populate templates, but adds-value by taking ownership and driving results. During his 10 year career, he has managed complex, multinational projects with teams of four through thirty team members at all levels of the organization (Intern through Vice President). You can read more from Robert on his blog, Kelly’s Contemplations

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4 people have left comments

Hi, I am puzzled. In step 7 of the EVM case where we solve for EAC, using Excel,I arrive at the amount of $5618, rather than the $5,600 shown.

It seems as if the process is correct, but the math is wrong. Or am I doing something wrong? I used the formula =sum(5,000/.89) and the result came up 5617.9.

Anyone else come up with that number, too?
Thx
Caitlin

Caitlin wrote on January 7, 2011 - 10:30 pm | Visit Link

Hi Caitlin,

You’re right, it was just a simple rounding of the number. I have fixed the number above.

PM Hut wrote on January 7, 2011 - 10:34 pm | Visit Link

Hi,
Aside from the possible glitch I mentioned below, I think this is a fine, clear explanation of the basics of EVM.

It clarified my comprehension of EVM calculations.
Thx
Caitlin

Caitlin wrote on January 7, 2011 - 10:49 pm | Visit Link

Caitlin:

Thanks for visiting the post and sorry for the rounded numbers. EVM has some other calculations that are helpful, but this is the extent that I have had to exercise it.

Have a great!

PM Hut, thanks for updating Caitlin.

Robert Kelly wrote on February 2, 2011 - 4:37 pm | Visit Link

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