Understanding Earned Value, or EVM. Earned Value Management is a practical tool for understanding the value of a project. Lets start with common definitions:
ACWP – Actual Cost of the Work Performed.
BCWP – Budgeted Cost of the Work Performed. This is also known as the Earned Value.
BCWS – Budgeted Cost of the Work Scheduled. This is also known as Planned Value.
Cost Variance (CV) – The difference between the work completed and the cost to complete the work to date. Or, the difference between Earned Value (BCWP) and Actual Costs.
Schedule Variance(SV) – The difference between the work scheduled and the work actually completed. Or, the difference between Earned Value (BCWP) and Planned Value.
Cost Performance Index (CPI) - (Earned Value/Actual Costs) A measure of project performance in terms of costs. A measurement greater than 1.0 indicates the project is under budget.
Schedule Performance Index (SPI) - (Earned Value/Planned Value) A measure of project performance as it relates to value earned at the current date.
Budget at Completion (BAC) – The approved budget for the project.
Earned Value Management is an effective tool for determining a project’s true status and projecting or estimating the remainder of the project. As you will see, there are a number of variables used in determining a projects status. Earned Value itself is merely the value of the work completed. For example, if a building has four walls and each wall is valued at $100, then once a single wall is completed it is said that the project has earned $100 worth of value. The Earned Value is then compared to the Planned Value and the Actual Costs to determine the health of the project.
Let’s take a look at an example based on this chart. We can derive the following information from the example:
Planned Value = $115,000
Earned Value = $150,000
Actual Costs = $100,000
From these numbers we can determine the health of the project.
Cost Variance = Earned Value – Actual Costs
CV = $150,000 – $100,000
CV = $50,000
This project is $50,000 under budget.
Schedule Variance = Earned Value – Planned Value
SV = $150,000 - $115,000
SV = $35,000
This project is $35,000 ahead of schedule.
Cost Performance Index = Earned Value/Actual Costs
CPI = $150,000/$100,000
CPI = 1.5
Schedule Performance Index = Earned Value/Planned Value
SPI = $150,000/$115,000
SPI = 1.30
As you can see, by using these techniques, you can easily quantify the status of a project and its value to an organization.