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Earned Value Management is a comprehensive project management technique that combines scope, schedule and resource management into one set of measures. An element, in fact the element that provides the name of the technique, is the setting of Earned Value.
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Quick reference
Setting Earned Value
Earned Value Management is a comprehensive project management technique that combines scope, schedule and resource management into one set of measures. An element, in fact the element that provides the name of the technique, is the setting of Earned Value.
When to use
Earned value management is a very powerful technique that is particularly helpful on large complex projects. Earned value management requires a financial system that can support tracking project costs at the task level. Without this financial system, setting of “Earned Value” is meaningless. The setting of “Earned Value” is conducted at the task level. Whenever a variance analysis report is generated through the financial system, the project manager and core team will determine the “Earned Value” for each task that has been initiated since project start.
Instructions
Earned value analysis
Earned value management analyses the current and cumulative status on a project using three financial views of the project – the Planned Value (PV) which represents the project plan, the Actual Cost (AC) which is the money spent on the project as recorded in the financial system, and the Earned Value (EV) which is a project management assessment of progress made on the project.
Definition of Earned Value: "The measure of work performed expressed in terms of the budget authorized for that work." PMBOK® Guide
Explanation of earned value
Earned Value (EV) is a judgement call by the project manager and the project team concerning what portion of a task has been successfully completed. The total possible earned value for a task is based upon the original budget estimate for that task, which is the task Planned Value (PV). The percentage of a task that is completed is the percentage of value that has been “earned.” If a task is 50% complete, the task has “earned” 50% of the planned value – regardless of the cost required to get to that point. Likewise, when a task is fully complete, it has “earned” all of the value for that task, so the EV = PV. EV for a task can never exceed the PV for a task, regardless of how much has been spent. Nor can EV ever be negative.
Establishing the earned value
A risk with earned value is that someone will claim that much of the value for a task has been earned, when in reality the task has major problems and very little progress has been made. To avoid this problem, many organizations adopt rules or practices for how earned value is to be credited at the task level. This list consists of the most commonly used ones in my experience. If your organization uses a different set of practices, then follow your organizational guidelines.
- Earned value is based upon the micro-tasks within the project level task that have been completed. This is based upon value assigned to each micro-task during task-level planning. This requires detailed task planning at the micro-activity level. This will be the most accurate, but it also takes the most work, and it can be “gamed” by assigning a high PV to easy micro-tasks and a low PV to difficult micro-tasks. I normally use this approach for tasks that take longer than 2 months to complete.
- 0-100: The earned value amount is zero until the task is complete, then 100% of the PV. This is easy to use and focuses team members on getting things done. However, they are likely to start and do the easy tasks first and save the long and hard tasks for last. It is best used with tasks of one week duration or less.
- 50-50: The earned value for a task is set at 50% of the PV when the task starts and the additional 50% is credited when the task is completed. This is also easy to do and focuses the team on getting started on time. However, it can be gamed by individuals starting many tasks and doing only a little bit on each task.
- 30-70: The earned value is set at 30% of the PV for a task when the task starts and the additional 70% is credited when the task is completed. This approach is still very easy to calculate. It is meant to be a compromise between the 50-50 and the 0-100 approaches. I normally use this for tasks that are longer than a week in duration but less than 2 months.
This definition is taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute, Inc., 2017.
Login to download- 00:05 Hi, I'm Ray Sheen.
- 00:05 Let's talk about another aspect of project execution and
- 00:10 that's determining the earned value for the project.
- 00:14 You may recall that the Project Management Body of Knowledge, the PMBOK Guide,
- 00:18 defines earned value management as a methodology that combines scope,
- 00:21 schedule, and resource measurements to assess project performance and progress.
- 00:25 Earned value management compares three different perspectives on the project.
- 00:30 The first perspective is the planned value.
- 00:33 We discussed that in detail in the resource planning section.
- 00:36 One important point to remember is that planned value includes both the estimated
- 00:40 cost for each task and the timing of when that task is scheduled to occur.
- 00:43 The second perspective is the actual cost which we will discuss more in the project
- 00:48 control section.
- 00:49 The third perspective is the project progress that will be expressed as
- 00:53 an earned value on the project.
- 00:55 And that's what we'll talk about now.
- 00:58 The Project Management Body of Knowledge,
- 01:00 the PMBOK Guide, tells us that earned value is the measure of project
- 01:04 performance expressed in terms of the budget authorized for that work.
- 01:09 Let's look at what it's saying.
- 01:10 Note that the earned value is expressed in terms of the budget authorized
- 01:14 for the work.
- 01:14 That means that your earned value for
- 01:16 a task will always be a percentage of the task planned value.
- 01:20 That planned value was set based upon the estimate of the cost to do the work
- 01:24 represented by that task.
- 01:26 Based upon the PMBOK definition,
- 01:28 their earned value is also a measure of progress.
- 01:32 If a task is 50% complete, we've earned 50% of the value of that task.
- 01:37 So we have to have some method of accessing the progress,
- 01:40 and I'll talk about that in a minute.
- 01:42 Similar to planned value,
- 01:43 there are two project level measurements of earned value.
- 01:47 The current earned value is the amount of earned value credited for
- 01:50 the current month.
- 01:52 It represents the amount of work that was completed in that month of the project.
- 01:56 The other measure is the cumulative earned value.
- 01:58 This is the total of all the earned values since the beginning of the project.
- 02:03 In essence, how much progress has been made since the project started.
- 02:08 Let's look at this for a minute.
- 02:10 Since earned value represents the progress that has been made on each task, for
- 02:14 tasks that are complete, we have earned 100% of the value and
- 02:18 the earned value equals the planned value.
- 02:21 For tasks that haven't started yet, we haven't earned any value, so
- 02:24 the earned value is 0.
- 02:25 That means the only tasks that we have to focus on
- 02:28 are those tasks that are partially completed.
- 02:31 So let's take a look at that.
- 02:31 The assessment of project progress is made by those responsible for
- 02:35 managing the project which is normally the project leader and the core team.
- 02:40 They know what they have started, what they've completed and
- 02:42 what the status is for the open tasks.
- 02:44 It's a judgement call but since it's done by the core team,
- 02:47 it's an informed decision.
- 02:49 However, there are many guidelines for
- 02:51 setting the earned value that can assist the team.
- 02:54 I'll discuss several of the most commonly used ones.
- 02:57 The guidelines help to ensure that the decision process is easy and accurate and
- 03:00 not just arbitrary.
- 03:01 One approach that is used, is to sign a percentage of completion for
- 03:05 each of the microtasks that are within the task.
- 03:07 You may recall that one of the ways to create planned value for a task was to do
- 03:12 event loading, which required the creation of a detailed micro level tasks.
- 03:18 Well, we have that.
- 03:19 You can take credit for
- 03:20 the planned value of each of these micro tasks that are complete.
- 03:24 However, we typically don't create micro level task planning.
- 03:27 So how do we approach the level loaded tasks?
- 03:29 For short-duration tasks, usually less than a week, I use the 0-100 approach.
- 03:34 You get no credit until the task is complete, then you get all of the credit.
- 03:39 Earned value for that task is either 0% or 100% of the planned value, and
- 03:44 this is very easy to monitor.
- 03:46 For longer tasks, many people have used the 50-50 rule.
- 03:50 With this rule, you get 50% of the earned value when you start it.
- 03:53 And the other 50% when you complete the task.
- 03:56 I personally don't like this one because I've seen people abuse this.
- 04:00 They start lots of tasks but finish nothing.
- 04:04 The final guideline I'll discuss is the 37-70 rule.
- 04:07 Similar to the 50-50 rule, except that we only get 30% credit for
- 04:11 starting, and 70% credit for completing a task.
- 04:15 I found that this puts up sufficient emphasis on getting
- 04:19 things both started and done.
- 04:21 Now regardless of the technique you use,
- 04:23 remember the earned value can never be more than the planned value.
- 04:27 It doesn't matter how much it cost to do the work,
- 04:30 when you assign that estimate to that task you assigned a value to that task.
- 04:34 So make sure your estimates are good.
- 04:37 Let's look what it looks like on our project earned value graph.
- 04:41 There's a time align on the graph of month 9.
- 04:44 Earned value looks at progress, so
- 04:45 I made to have point in time when measuring the progress.
- 04:49 In this case, it's gonna be the end of month 9.
- 04:52 The earned value line is the gold line, notice in the first few months the earned
- 04:56 value line is higher than the planned value.
- 04:59 That means that more progress was being made than we had planned.
- 05:02 When we get to month 5, the earned value and planned value are the same.
- 05:06 That would indicate we're right on schedule.
- 05:07 We've completed the work that we had planned to complete at that time.
- 05:11 After month 5, the earned value is below the planned value.
- 05:14 That means we're far behind schedule.
- 05:16 We haven't completed as much work as we have planned.
- 05:19 A key point to note is that we haven't yet looked at how much money we have spent.
- 05:24 That will come later.
- 05:27 Earned value tells us how much progress we have made
- 05:30 expressed in the units of estimated cost for each project task.
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