Earned Value is a part of the Earned Value Management System (EVMS), which uses project data (in prescribed formulae to provide indications of project status. In the Earned Value Management System there are the following data sets:
- Planned Value (PV)
- Earned Value (EV) – the focus of this article
- Actual Cost (AC)
- Schedule Variance (SV)
- Schedule Performance Index (SPI)
- Cost Variance (CV)
- Cost Performance Index (CPI)
- Budget at Completion (BAC)
- Estimate at Completion (EAC)
- Estimate to Complete (ETC)
- Variance at Completion (VAC)
- To Complete Performance Index (TCPI)
What is Earned Value?
Also known as Budgeted Cost of Work Performed (BCWP), Earned Value established how much of the project budget should have been spent based on the work done to date allows a Project Manager to compare it to what has actually been spent. The result of the Earned Value Analysis (or EVA) is a determination of variance. This can be used as an early warning system for the Project Manager to implement corrective action where required in order to stay within budget constraints. It can also be used as an independent performance metric for a Project Assurance or Project Governance function to assess whether a Project is on track, at risk or off track.
Many organisations will constrain a project to a fixed budget however allow certain tolerances for the Project to work within to avoid disempowerment of the Project Manager (for example the project can manage variances to budget plus / minus 10% without escalation). Certain project methodologies such as Prince2 support such practices. Where this practice exists, it is ideal for the Project Manager to control variance and rebalance as required to keep the project within these constraints.
The formula for Earned Value
EV = % Task Complete (actual) x Task Budget
Task A is 50% complete x Task Budget of $10,000 which means EV to date = $5,000
This should be quite straightforward for most Project Managers to analyse however, like Planned Value (PV) it will only work effectively if the Work Breakdown Structure (WBS) has allowed for the required inputs. What is required is that the WBS has broken down effort (resource) and cost to task level in order to set a task budget. Calculating % Task complete can simply be time elapsed (e.g. 10 days to complete with today being 5 days in therefore we are at 50%) but ideally should be more specific and use attributes such as story points to track task completion.
Without this detail the Earned Value Analysis is likely guesswork - it can still be useful but will lack any independence and objectivity.