EVM — Introduction & Concepts

• progress % needs to be accurate

• for accurate % complete the schedule needs to be understood

• for the schedule to be understood requires the whole project team to be on-board and own the schedule

• Planned Value (PV): Also known as Budgeted Cost of Work Scheduled (BCWS), it represents the total cost of work planned to be completed by a certain date. It’s the approved budget assigned to scheduled work.

• Actual Cost (AC): Also known as Actual Cost of Work Performed (ACWP), it represents the actual cost incurred for the work performed on an activity up to a particular point in time.

• Earned Value (EV): Also known as Budgeted Cost of Work Performed (BCWP), it represents the value of work actually completed to date compared to the planned value or budget. It’s the approved budget for the work actually completed by the specified time.

NAME	DESCRIPTION	SIMPLIFIED DESCRIPTION
Budget at Completion (BAC)	The sum of all budgets established for the work to be performed.	Total Planned Work
Planned Value (PV)	The approved budget assigned to the scheduled work.	Work planned as of the data date.
Earned Value (EV) also known as BCWP (Budgeted Cost of Work Performed)	The measure of work performed, expressed in terms of the budget approved for that work.	Work done as of the data date.
Actual Cost (AC)	The realised cost incurred for the work performed during a specific time period.	Money spent as on the data date.
Schedule Variance (SV)	SV=EV-PV. The amount by which the project is ahead or behind the planned delivery date as on the data date.	+ve = ahead of schedule. -ve = behind schedule. Zero = on schedule.
Cost Variance (CV)	CV= EV-AC The amount of budget deficit or surplus as on the data date.	+ve = Under Budget. -ve = Over Budget. Zero = On budget.
Schedule Performance Index (SPI)	SPI=EV/PV. A measure of schedule efficiency.	>1 = Ahead of Schedule. <1 = Behind Schedule. Zero = On schedule.
Cost Performance Index (CPI)	CPI=EV/AC. A measure of the Cost Efficiency	1 = Under Budget. <1 = Over Budget. Zero = On Budget

EVM Formulas

EVM employs several formulas to assess project performance, including:

Implementation of EVM

To implement EVM, a project must have:

Benefits of EVM

Challenges in Implementing EVM

In summary, Earned Value Management is a powerful and effective technique for monitoring and controlling project performance. By providing a comprehensive view of project health through objective metrics, EVM enables project managers to deliver projects on time, within budget, and to scope, thereby increasing the likelihood of project success.

Utilising Earned Value Management is a well-established method for assessing project performance. It is a reliable, data-driven, and well-respected method for figuring out how the task is progressing. Before you begin using it, there are a few things you should know, though, as with any strategy.

Every system has its limits, and EVM is not an exception. When a team is new to earned value, they face three primary challenges:

As a matter of fact, these are the restrictions you will encounter regardless of how long you have been using EVM! Let’s take a closer look at those.

NOT THE WHOLE STORY IS TOLD BY THE NUMBERS

EVM is highly favoured by many due to its data-driven approach to project progress display, which completely eliminates the subjective and arbitrary nature of status reporting. An effective earned value management system depends on the underlying facts to offer an unbiased image, so there is no need to worry about the project team “massaging” the report and exaggerating progress measures.

When someone reports a task as 80% accomplished for the third week in a row, there are no questions asked because the data supports the report.

That being said, the data does not tell the entire tale. If the folks in your audience are unfamiliar with earned value or have not previously seen the report, you will need to provide some background information and story to help them understand what the EVM report implies.

EVM is not a judge; although your data may indicate that you are ahead or behind schedule, being behind doesn’t always imply “bad.” The data may be reported for a variety of reasons, so you’ll need to apply your professional judgment to provide context for those who require it.

YOU REQUIRE ACCURATE DATA.

Since earned value computations depend on data, your EVM metrics will also be inaccurate if your numbers are off. Unfortunately, even if the measures were derived using shaky data, some people will still regard them as gospel.

When an organisation begins to use earned value seriously, this is frequently the largest obstacle. For the underlying data to yield meaningful EV computations, its quality must be reliable and fast enough.

The project team may need to make significant behavioural and mental adjustments as a result. In order to establish reliable baselines, they will need to start providing updates on their progress in real time and work harder at planning ahead.

Furthermore, projects that move quickly may cause the EVM numbers to become outdated very soon. Even with correct data, it can be difficult to enter it into the system and make use of it if the numbers lose their meaning quickly.

Working with out-of-date data is a major challenge because the primary goal of EVM reporting is to identify patterns and take action before they become problems. That means that instead of being a helpful management tool, your EVM data becomes a historical record of project performance.

Strong reporting tools ensure that you have the procedures in place to provide you with reliable data in a timely manner, which will help you establish the conditions for success.

MAKING EVM WORK

There are limitations to any strategy and business instrument, including EVM. They don’t stop you from using it, and we contend that by being aware of the system’s limitations, you may make greater use of it. You can utilise EVM to help project delivery in a suitable and efficient manner if you understand what it can achieve for you.

Example

Creating Earned Value Management (EVM) curves involves plotting the key metrics of EVM (Planned Value, Actual Cost, and Earned Value) over time to visually represent the project’s performance. These curves provide a quick and intuitive way to assess whether the project is on track, ahead of schedule, or behind schedule, and whether it is under budget or over budget.

To illustrate, let’s create a hypothetical example of a project with a duration of 12 months and a total budget (BAC – Budget at Completion) of $120,000. The project is planned to progress linearly, meaning an equal amount of work (and thus cost) is expected to be completed each month. However, the actual progress and costs will vary. We’ll plot the Planned Value (PV), Actual Cost (AC), and Earned Value (EV) over time.

For simplicity, let’s assume:

The project spends $10,000 per month as per the plan (PV).

Actual Costs (AC) and Earned Value (EV) will be varied to show typical project scenarios.

Let’s plot an example with the following specifics:

Months 1-4: The project progresses as planned, spending exactly $10,000 each month, and completing the planned work.

Months 5-8: The project encounters issues, leading to higher costs ($12,000 per month) and slower progress (only $8,000 worth of work completed per month).

Months 9-12: The project implements corrective actions, reducing costs ($9,000 per month) and catching up on progress ($11,000 worth of work completed per month).

We’ll generate EVM curves based on these assumption

The EVM curves plotted above represent the hypothetical project’s performance over 12 months, based on the provided assumptions:

Planned Value (PV) Curve (Green): Shows a linear progression, indicating that the project was planned to spend $10,000 per month, reflecting a steady planned progress toward project completion.

Actual Cost (AC) Curve (Red): Initially matches the PV curve, indicating that actual spending was as planned. However, between months 5 and 8, the curve rises above the PV, showing that the project experienced higher actual costs due to encountered issues. In the last four months, the curve’s slope decreased, reflecting the implementation of corrective actions to reduce costs.

Earned Value (EV) Curve (Blue): Starts off matching the PV curve, indicating that the project was progressing as planned. However, during months 5-8, the EV curve falls below the PV curve, demonstrating that less work was completed than planned, despite the higher costs. In the final months, the EV curve’s steeper slope indicates that the project began to catch up on progress, though it did not fully meet the planned value by the project’s end.

This visualization allows project managers and stakeholders to quickly assess the project’s health. The period where AC exceeds PV and EV indicates cost overruns and schedule delays. The latter improvement in EV relative to AC and PV suggests effective corrective actions, though challenges in fully catching up are evident. This graphical representation is invaluable for communicating project status and supporting decision-making in project management. ​

Challenges of using EVM

Even though Earned Value Management is a valuable tool, mega construction projects can present some specific challenges:

Data Quality and Availability:

Scope Creep and Baseline Changes:

Lack of Expertise:

EVM requires a good understanding of the methodology and interpretation of the metrics. Large teams with varying levels of experience may not all be well-versed in using EVM effectively.

Pressure to meet performance targets can sometimes lead to manipulation of data to present a rosier picture. This can mask underlying problems and hinder corrective actions.

Integration with Complex Scheduling:

Mega projects often have intricate scheduling with interdependencies between tasks. Accurately reflecting this complexity in the EVM model can be challenging.

Here are some ways to address these challenges: