Earned value management (EVM)
Earned Value Management (EVM) is a project management technique that quantifies project performance by comparing the planned progress with actual progress in measurable terms, such as financial costs or hours worked. Developed in the mid-1960s and adopted by the US government for military programs, EVM has since become a widely accepted method in both public and private sectors for monitoring project outcomes. The core elements of EVM include Planned Value (PV), which represents the budgeted cost for scheduled work; Earned Value (EV), the budgeted cost for completed work; and Actual Cost (AC), the real costs incurred for that work.
By calculating cost and schedule variances, project managers can evaluate whether a project is under or over budget and if it is ahead or behind schedule. A positive cost variance indicates that a project is under budget, while a negative variance suggests overspending. Similarly, a positive schedule variance shows that the project is progressing faster than planned. EVM enhances project visibility, allowing for timely identification of issues and facilitating adjustments to keep projects aligned with their financial and scheduling goals. Overall, EVM serves as a vital tool for effective project tracking and performance assessment, fostering accountability and informed decision-making throughout the project lifecycle.
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Subject Terms
Earned value management (EVM)
Earned value management (EVM), also called earned value project management or earned value performance management, is a business technique that tracks work accomplishments in measurable units such as dollars or hours. The assigned value of the work progress can then be compared to the business budget and real costs to reflect project status in quantifiable terms. The premise behind earned value management is that the value of a work product is equivalent to the amount of funds used or allocated to complete the work. Effective use of earned value management improves project visibility and can help keep work progress aligned more closely with schedule and cost goals.
Overview
Earned value management emerged as a project management approach in the mid-1960s when the US government adopted the earned value concept as part of the requirements for US Air Force programs. Since then, the model of earned value management has become a standard approach for tracking the progress of almost any project implemented within the public and private business sectors.
Effectively monitoring a project’s performance involves determining where the work product is in relation to the project schedule and budget. Earned value management seeks to assess schedule and cost performance throughout the life of the project using the concepts of planned value, earned value, and actual cost.
Planned value, sometimes referred to as the budgeted cost of work scheduled (BCWS), is the approved budget for the work slated to be completed by a designated date. In the earned value management concept, the total planned value of a specific task is equal to the total amount of funds budgeted for the task.
Earned value, sometimes called the budgeted cost of work performed (BCWP), is the approved budget for the work that is actually accomplished by the designated completion date. Actual cost, alternately called the actual cost of work performed (ACWP), refers to the real costs incurred for the work that is finished by the stipulated completion date.
To determine how a project is performing against the budget, a cost variance is calculated by subtracting actual cost from the earned value. The cost variance will reflect whether less or more cost has been used to complete the work as of a specified date. A positive cost variance means the project is under budget and a negative cost variance indicates that the project is over budget.
Similarly, a schedule variance can be used to assess how the project is progressing in relation to the projected cost timeline. The schedule variance is calculated by subtracting the planned value from the earned value. A positive schedule variance signals that the project is ahead of schedule in terms of how much cost of the work has been completed per the schedule. A negative schedule variance means that the project is behind the specified cost schedule.
The increased visibility provided by earned value management enables project managers to identify issues and make modifications more rapidly to ensure work progress remains in line with stated cost and schedule objectives.
Bibliography
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Song, Lingguang. “Earned Value Management: A Global and Cross-Industry Perspective on Current EVM Practice.” PM Network, vol. 24, no. 5, 2010, p. 69.
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Vanhoucke, Mario. Measuring Time: Improving Project Performance Using Earned Value Management. Springer, 2009.
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