Earned Value Management

Many of you might be intrigued by the odd choice of title of this blog. It was chosen, believe it or not, not because evm.blogspot.com and earnedvalue.blogspot.com were unavailable (at least this is not the only reason) but because the scope of this blog is not confined to earned value alone. Here we will also be discussing and analysing the earned value extension known as earned schedule.

As all of you must know, or will be interested in finding out, earned value management is a project management technique used to measure project performance. EVM distinguishes itself from ordinary, run-of-the-mill accounting techniques by using three dimensions in its calculations: scope, cost and schedule. Now, the more attentive reader might be asking himself / herself, how do you compare three different dimensions when the units are completely different? EVM quite simply translates all three into a common unit. That unit is money.

Let's have a look at each one individually:

Earned Value: EVM defines that the total cost baseline is equal to the total scope baseline. Therefore, 100% of my scope is equal to my total budget x 100%. But how do we measure scope? We don't really, what we do is to define the progress of the project in relation to how much of the project scope has been completed and how much still needs to be done. In other words here we are measuring how much of our project is complete or, considering each project is an investment how much we have earned by allocating our resources to the project. This first indicator is called Earned Value (EV), or Budget Cost of Work Performed (BCWP).

Actual Cost: The cost indicator is quite simple, as its name suggests it measures how much money has actually been spent to date. Going back to those dreadful weeks studying the PMBoK Guide, you will all remember that all project costs come from resources. Therefore, our actual cost is the amount of hours or usage (in the case of material resources) invested by each user multiplied by their rate. Actual Cost is also referred to as Actual Cost of Work Performed (ACWP)

Planned Value: This is a tricky one and is also root cause of our funny title. Planned Value was designed to analyse schedule, however, as previously mentioned, it is in fact measured in money. For those of you who are first being introduced to EVM, it can be quite tricky to wrap your mind around measuring time with money, but please be patient as I will do my best in explaining the mechanics of this indicator and by the time you have finished reading the next few sentences you will realise it is actually incredibly simple. Too simple to be true even, as we will see further on. Planned Value looks at what you were supposed to have spent to date according to your cost baseline. This tells us how much of our scope (budget) we were meant to have completed at a given date. Now if you compare your Earned Value with your Planned Value, will have the difference between how much you have accomplished and how much you were meant to have accomplished letting you know whether you are ahead or behind schedule. Planned Value is also known as Budget Cost of Work Scheduled.

These three elements are the base of EVM. With these, we can calculate up to 40 different indicators with varying degrees of precision and usefulness. The most common of these are the variance indicators.

Cost Variance is calculated by subtracting Actual Cost from Earned Value. EV-AC=CV. This tells us how much below or above budget we are currently at.

Schedule Variance is calculated by subtracting Planned Value from Earned Value. EV-PV=SV. This tells us how far behind or ahead we are currently at. Or does it? Why is PV too good to be true? The answer is that it cannot be used on its own to measure schedule variance or performance.

At the end of a project, or at the completion of a given deliverable, its' PV will be equal to its' total baseline indicating that at that point in time, our task should have been completed. So what happens to EV at the end of this very same deliverable? Given that EV is equal to progress in scope, and that scope is measured according to our cost baseline, once you have completed 100% of your scope and multiply that by your baseline cost, you will end up with your baseline cost. So if we take the above formula, regardless of the fact that we have completed the task behind schedule, our Schedule Variance will always be 0 (100-100=0).

Several bright professionals have come up with fantastic solutions to fix this problem so if you ever hear someone say that EVM is no good to measure schedule, please dismiss the remark as being untrue.

Earned Schedule is one of those bright and valid methods to overcome the SV problem. ES is an extension to EVM and is the reason behind our title. I believe this is a simple and effective way of achieving valuable performance results without the use of complex formulas. ES is the moment in time where the Planned Value is equal to the present Earned Value. In other words, if our Earned Value is 100, when should we have a Planned Value equals to 100 according to our project baseline? Was it last week? Or maybe today? Whatever that number is, it represents our earned schedule and the difference between the two is the Time Variance.

I hope this article has given some of you some understanding of the basic mechanics of Earned Value Management and to others, has allowed a deeper understanding of the SV problem and of how Earned Schedule can help.