This article explains earned value management and explores how the metric can be used to improve project and business processes.
Experienced project managers utilize a technique called earned value management (EVM) to assess a project's progress over time and allow project teams to understand the health and performance of their projects. EVM is also a good metric to share with management. According to the Project Management Body of Knowledge:
Earned Value Management (EVM) is a method for integrating scope, schedule, and resources for measuring project performance. It compares the amount of work or effort that was planned with what was actually earned and spent to determine if cost and schedule performance are as planned.
By comparing planned value (the ideal progress of the project) to the earned value (the value of the project to date based on work or effort expended), a project manager can detect early if the project is going awry. If the schedule performance index (explained later in this article) is less than 1.0, then the project is in danger of going over schedule. If the cost performance index (also explained later in this article) is less than 1.0, then the project is in danger of going over budget. By monitoring and reviewing these metrics, a project manager can report these statistics to management so they can determine whether to continue with the project. The process may be revised for similar projects by learning from the statistics and modifying expectations.
Earned Value Technique
Earned value is a technique for monitoring project performance based on a project's percentage complete. In most organizations, projects are measured against a budget by looking at actual dollars spent and the project's percentage complete. In most cases, this percentage complete is a guess and does not take into consideration re-estimates on what it will take to complete the project. Earned value will give project managers a more accurate measurement of a project's status.
Using Percentage Complete
There are two constants in project management-people will take all of the time given to them to complete their task, and people are terrible estimators. Understanding these two constants will assist a project manager in determining how to measure performance on the project.
Measuring performance solely as a percentage complete has inherent risks. For example, if a task has a planned duration of ten days with thirty hours of work effort, and five days have passed, typically the performer will state that he is 50 percent complete. The problem is that the project manager cannot tell from this estimate if the duration or the work effort is 50 percent complete.
As a best practice, several variables need to be considered-work effort expended, remaining work left to perform, and a re-assessment of remaining duration. By providing these variables, a more accurate percentage complete and an assessment of the schedule impact can be derived.
In our example above, after five days, only ten hours of work have been performed. The re-estimate determines that an additional thirty hours is needed in order to complete the task, but the performer feels confident he will be able to finish the task in the remaining five days. Instead of 50 percent complete, the task is actually only 25 percent complete and the schedule, at present, is not going to be impacted.
A project schedule and resource plan is only as good as an organization's ability to adjust to changes and obtain an accurate assessment of completed work. A work authorization system and accurate time-tracking system can facilitate the collection of work performance and flow of information to the project manager so she can respond quickly to changes.
Key Terms in Earned Value Technique
The planned value (PV) is the baseline value