An EVMS is the most commonly used performance measurement technique for managing projects. An EVMS compares the schedule and cost information at a point in time and avoids using the project manager's subjective interpretation of data.
Earned Value Analysis
The EVMS is based on the technique referred to as earned value analysis, which integrates scope, cost (or resource), and schedule measurements to assess project performance. Earned value provides a determination of whether or not work is being completed as planned.
Earned value analysis is not new. The government has used it for decades in the formal Cost/Schedule Control System (C/SCS). In its current form, the government method describes thirty-five criteria to guide effective performance measurement, and requires formal certification.
Earned value analysis is now broadly accepted as an efficient, quantitative method for assessing project status. Current project management software tools include features that incorporate earned value management techniques into project planning.
Benefits of Using an EVMS
Using an EVMS allows the project manager to integrate both schedule and cost information to gain a more comprehensive understanding of project performance. This gives the project manager a more complete view of project performance; schedule-only or cost-only comparisons do not provide the same data. This missing data could lead to misinterpretations of project performance.
An EVMS compares the scope, schedule, and cost information at a point in time. In a sense, it provides a snapshot of the Triple Constraint triangle, showing the current status of the project. This minimizes the errors and misrepresentations possible with a schedule-only or cost-only comparison. Integrating schedule and cost status lets project managers forecast project status from trend information. An EVMS requires the project management team to
For an EVMS to be effective, it is important for the project manager to ensure that the project baseline is valid, otherwise the data resulting from the calculations cannot be compared to a standard. An EVMS also allows the project manager to forecast future project performance by identifying trends and calculating results if the trend continues.
Earned Value Management System (EVMS) Terms
An EVMS uses a concept of "dollarizing" the schedule and performance data. A solid understanding of earned value concepts and terms is a prerequisite for the effective use of the associated methods.
Three fundamental EVMS terms include:
• Planned Value (PV): Agreed value of work to be accomplished in a given period; • Earned Value (EV): Agreed value of work that was actually accomplished; and • Actual Cost (AC): Real cost of the work performed.
Collecting and Analyzing Planned Value (PV)
Planned Value (PV), previously called budgeted cost of work scheduled (BCWS) in the government system, is the value of work that was scheduled to be completed as of a certain date. The PV is really a curve, or time-phased cost budget.
At the end of the project, the final PV equals the budget at completion (BAC). PV is established by time-phasing the project's budgeted costs.
When the project plan is approved, the PV becomes a fixed standard of reference. When it comes time each status reporting period to update the earned value analysis, the PV value is obtained by consulting the project baseline information for the associated time period.
Collecting and Analyzing Actual Cost (AC)
Actual Cost (AC) is another parameter that must be measured during each status reporting period. This is typically information collected by the organization's cost accounting group, using the company cost accounting system.
The cost accounting group collects all costs against the project work packages and control accounts, including labor accounting sheets, materials invoices, and other direct costs such as travel and contract labor. AC identifies what it really cost the project to operate during the reporting period, independently of what work was actually accomplished.
The AC is reported as both the new costs for the current period and the cumulative cost for the project since inception. The reporting of cost is independent of the project team and represents the expenditure of real money, unlike the earned value discussed further in the course. The only control the project manager has over AC is to ensure that work is performed efficiently, as planned, using the appropriate resources. Inaccurate accounting of labor is a common cause for cost variances.
AC is also referred to in older earned value management systems as the actual cost of
Collecting and Analyzing Earned Value (EV)
EV, the central concept in this technique, is slightly difficult to grasp at first. In very basic terms, every activity or item of work is associated with a dollar value. When you complete a particular activity, you "earn," or receive credit for, that declared value.
A frequent point of confusion is that the actual cost of the job may be different from the earned value. Earned value is the agreed value of the task, not what you actually spend on it. If a contractor submits an invoice for an unforeseen additional amount, the actual cost of the job will be the amount of the invoice, but the earned value remains the original negotiated amount. The difference between the earned value and actual cost will be an indication of cost variance.
Methods for Computing Earned Value
EV, the method for assigning value earned, is calculated based on one of several predetermined methods. In the simplest concept, the value earned is exactly the planned value of the task. However, determining when or how the value is applied may use different methods.
Keep in mind that the calculation of earned value for a task is different than an individual reporting status against the task. Status reporting and earned value analysis serve different purposes. Earned value analysis allows the project manager to measure and report the overall project health, evaluating project schedule, cost, and work performed. It provides measures to detect variances, and therefore determine the overall ability to meet project objectives.
The information presented below outlines the various methods for computing earned value along with descriptions of how earned value is assigned and their recommended uses. In practice, a project manager may elect to use only a few of these earned value techniques. They are discussed in more detail on the pages that follow.
0-100 %
How earned value is assigned for this method
No credit for the start of a task, but 100% upon completion
Recommended use of this method
When tasks are scheduled to complete within one accounting period
50-50 %
How earned value is assigned for this method
50% value when the task starts, and 50% upon completion
Recommended use of this method
When tasks are scheduled to complete within two accounting periods
Percent Complete
How earned value is assigned for this method
Value estimated by the person responsible for the task's completion
Recommended use of this method
Not generally recommended, although it may be used for longer work packages in which distinct milestones are not recognized
Weighted Milestones (WM)
How earned value is assigned for this method
Value given upon milestone completion, where interim milestones mark the completion of a longer task or work package
Recommended use of this method
For longer work packages for which discrete methods do not seem appropriate
Level of Effort (LOE)
How earned value is assigned for this method
Value earned is proportionate to the total budget of the work package and based on elapsed duration
Recommended use of this method
Minimize the use of LOE to less than 10% of the total project budget
Apportioned Effort (AE)
How earned value is assigned for this method
Value is planned and measured in relation to another (non-LOE) task
Recommended use of this method
Not recommended for frequent use but may help in instances where it is difficult to determine the exact value of the work