Earned Value Management (EVM) is an essential tool for project managers to measure project performance. It integrates cost, schedule, and scope, providing a clear picture of how well the project is performing.
1. Key Metrics in EVM:
- Earned Value (EV): The value of the work actually completed at a given point.
- Planned Value (PV): The value of the work that was planned to be completed by that point.
- Actual Cost (AC): The actual cost incurred for the work performed.
2. Formulas for EVM:
- Cost Performance Index (CPI) = EV / AC
- CPI > 1: The project is under budget.
- CPI < 1: The project is over budget.
- CPI = 1: The project is on budget.
- Schedule Performance Index (SPI) = EV / PV
- SPI > 1: The project is ahead of schedule.
- SPI < 1: The project is behind schedule.
- SPI = 1: The project is on schedule.
3. Example Calculation:
For a project with the following data:
- EV = $400,000
- AC = $500,000
- PV = $450,000
CPI = 400,000 ÷ 500,000 = 0.8 (indicating cost overrun)
SPI = 400,000 ÷ 450,000 = 0.89 (indicating schedule delay)
4. Forecasting Future Performance:
- Estimate at Completion (EAC): Predicts the total cost of the project at completion.
- EAC = BAC / CPI
- If BAC (Budget at Completion) = $1,000,000 and CPI = 0.8:
- EAC = 1,000,000 / 0.8 = $1,250,000 (project will finish $250,000 over budget).
5. Why EVM Matters:
- EVM provides early warning signs of project issues.
- It helps project managers make informed decisions about corrective actions.
- It allows for a more accurate forecasting of the final project cost and completion date.