Using Earned Value Management for Improving Processes

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for the task. So if the project manager planned to spend ten hours on task X, at a rate of $50 per hour, the PV is $500. In addition, any material expenditure or fixed cost planned should be included, so if the project manager expects to purchase Z for $100, the PV on task X is now $600.

Actual Cost
The actual cost (AC) is the actual expenditure to date, including labor and materials. For task X, five hours were spent, plus you purchased Z for $100, so the AC to date would be $350.

5 hours x $50/hour=$250
Fixed costs=$100
Total actual cost=$350

Earned Value
Earned value (EV) is defined as the physical work accomplished plus the authorized budget for this work. The sum of the approved cost estimates (which may include overhead) for tasks completed during a given period.

EV is a measurement of what has been completed against the plan. For example, if the task owner spent five hours working on task X, the project manager may want to assume the task is 50 percent complete. However, what is missing is the assessment of any remaining work on the task, which gives the project manager an adjustment to the original plan. If the task owner spent five hours working on task X and estimated that there are only five hours of remaining work, then one can effectively state that the task is 50 percent complete. However, if it was determined that the task owner originally estimated poorly and that he still had ten hours of remaining work, the performance on that task would be different. So in this case, the task owner only completed 33 percent of the original estimated plan of ten hours, or 3.33 hours, multiplied by $50 per hour or $166.50, plus the $100 for the material. The EV on task X would be $266.50.

Now, assume that the original plan of ten hours was supposed to be spread out over ten days, where the task owner was expected to spend one hour per day on task X and the task owner was expected to purchase Z on day two. After day five, the PV of task X would be $350 ($250 labor & $100 material). Your AC is $350 as stated above and your EV is $266.50. Where does task X stand? By utilizing the earned value technique, we will calculate two additional values-cost variance and schedule variance.

Without calculating earned value on task X, the project manager may be deceived into thinking that everything is just fine. The planned value equals the actual costs, so the project must be on target.

Cost Variance
Cost variance (CV) is a measure of cost performance. CV is calculated as EV minus AC. For the example above, the CV would be $266.50 - $350 or $-83.35. A negative number represents an over budget situation.

Schedule Variance
Schedule variance (SV) is a measure of schedule performance. SV is calculated as EV minus PV. For our example above, the SV would be $266.50 - $350 or $-83.50. A negative number represents a behind schedule situation.

After applying earned value analysis, the project manager now knows that the project is not fine. It is both behind schedule and over budget.

Project XYZ - Performance as of today

In the table above, the total budget for the project is $3,200. As of today, the project should have spent $2,350, but the actual costs are $3,200 and the EV on the project is $2,766.50. In total, the SV is $416.50, which means, in total, the project is ahead of schedule, while

About the author

Cynthia K. West's picture Cynthia K. West

Cynthia K. West, vice president and partner at Project Insight, oversees the sales and marketing efforts for the project management company. West is a "serial entrepreneur" with over 15 years of experience in IT. She specializes in building the sales infrastructure for new companies or divisions. Cynthia can be contacted at
info@projectinsight.net
.

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