Earned Value Management (EVM) is a project management technique used to assess project performance by comparing the planned progress with actual progress. EVM provides objective data on cost and schedule performance, allowing project managers to make informed
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decisions.
1. What is Earned Value Management (EVM)?
EVM is a performance measurement system that integrates cost, schedule, and scope to give project managers a clear picture of how the project is performing. EVM compares the Earned Value (EV), Planned Value (PV), and Actual Cost (AC) to calculate key performance indicators like:
- Cost Performance Index (CPI): Measures cost efficiency.
- Schedule Performance Index (SPI): Measures schedule efficiency.
- Variance at Completion (VAC): Predicts future performance.
2. Key EVM Formulas
a) Planned Value (PV):
PV is the value of the work that was planned to be completed by a certain time. It is calculated as:
- PV = (Planned % of work) × Budget at Completion (BAC)
b) Earned Value (EV):
EV is the value of the work actually completed by a specific time. It is calculated as:
- EV = (Actual % of work completed) × BAC
c) Actual Cost (AC):
AC is the actual expenditure incurred for the work performed by a given time.
d) Cost Performance Index (CPI):
CPI measures cost efficiency:
- CPI = EV / AC
e) Schedule Performance Index (SPI):
SPI measures schedule efficiency:
- SPI = EV / PV
3. Example:
Let’s assume the following values for a project:
- BAC = $1,000,000
- Planned Completion = 50% at the halfway mark
- Actual Completion = 45% at the same point
- Actual Cost = $480,000
Now calculate the following:
- PV = 50% × $1,000,000 = $500,000
- EV = 45% × $1,000,000 = $450,000
- CPI = $450,000 / $480,000 = 0.94 (indicating cost overrun)
- SPI = $450,000 / $500,000 = 0.90 (indicating schedule delay)
4. Conclusion
EVM is a powerful tool that allows project managers to track project health, predict future performance, and take corrective actions if necessary. By monitoring CPI, SPI, and other key metrics, you can ensure that your project stays within budget and on schedule.