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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.  The Earned Value analysis rests on task level planning and earned value calculations.

Quick reference

Determining the Earned Value

Earned Value Management is a comprehensive project management technique that combines scope, schedule and resource management into one set of measures.  The Earned Value analysis rests on task level planning and earned value calculations.

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.   If the company will use earned value on a project, the earned value planning must be done at the time the project is baselined.  The task-level earned value calculation is done every month and the result is provided to the financial system in order to generate earned value analysis reports. 

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.

Creating the Planned Value

The PV is created using the project list of deliverables and tasks, the project schedule, and the task estimates.  Every task in the project is assigned a separate account in the financial system.  The cost estimate for every task is then spread over the time periods associated with the project schedule for that task.  This is normally done by the Cost Account Manager (CAM). Those cost amounts are placed in the task account for the appropriate time periods to create a time-phased task budget estimate.  This is the task PV.  Once all of the task PVs are complete, they can be summed into a project PV.

When spreading the task estimate across multiple time periods, one of two techniques is used.  The cost can be “level loaded.”  This means the costs are spread evenly across the time periods in which the task is scheduled to be worked.  The other approach to spreading the cost is “event loaded.”  In this case, the task is planned at a micro-level (daily or weekly) and the cost associated with the work for each micro-time period is assigned to that calendar period and then summed to the time periods used in the financial system (normally monthly).  PV is expressed either as “Current PV” which is the PV that is planned for a particular month, or “Cumulative PV” which is the PV from the beginning of the project to the point in time under consideration (normally the current date).  Some software programs refer to PV as Budgeted Cost of Work Scheduled (BCWS).

The PV is the time-phased project budget as created during project planning.  The cumulative PV is often plotted on a timeline showing how much money the project expects to spend at any point in time during the project lifecyle.  The total of the PV is called the Budget at Completion (BAC).  This is often compared to the amount of money budgeted for the project in the Project Charter, which is called the Project Budget, (PB).  If the BAC is greater than the PB, the project team should immediately contact the stakeholders to request a change to the Project Charter.  If the BAC is less than the PB, the project team normally holds the additional funds in an account labelled Management Reserve (MR).  This money will be allocated to fund tasks that were missed during planning or to fund overruns of planned tasks. 

Establishing the Earned Value

The EV for a task is established by the CAM, usually with concurrence by the project manager.  The CAM reviews the project task each month and determines how much progress was made during that month.  The EV is a percentage of the PV that represents how much of the task is completed.  If the task is 2/3 complete, the EV is 67% of the PV.  The EV has nothing to do with how much money was spent, it is an assessment of schedule completion.  Some software programs refer to EV as Budgeted Cost of Work Performed (BCWP).

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 EV is to be credited.  This list is the most commonly used ones in my experience.  If your organization uses a different set of practices, then follow your organizational guidelines.

  • EV amount for a task is based upon the sum of the PV for micro-level tasks completed.   This requires very 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 EV 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 or less duration.
  •  50-50:  The earned value 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.   Personally, I seldom use this approach.
  •  30-70:  The earned value is set at 30% of the PV 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.
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  • 00:03 Hi, I'm Ray Sheen.
  • 00:04 I'd like to talk with you about how you determine the earned value for
  • 00:08 project task.
  • 00:09 This is the key to effective use of the earned value management system.
  • 00:15 To show how to set earned value, we have to start with how we set planned value,
  • 00:19 because the earned value is always based upon the planned value.
  • 00:23 To realize the full power of earned value, the analysis of the three earned value
  • 00:27 baselines, PV, AC, and EV, are calculated at the project task level.
  • 00:33 Most companies will assign an individual to provide oversight for
  • 00:37 each task who is called a cost account manager or CAM.
  • 00:41 The individual will usually provide the task-level PV, the task-level EV, and
  • 00:46 do the variance analysis and forecast for the task.
  • 00:49 When setting the PV, the camp should strive to make both the amount and
  • 00:53 timing of the PV accurately reflect the plan for that task.
  • 00:57 An inaccurate PV will leave the variances when the project work is being
  • 01:01 accomplished and that will add to the workload of the camp.
  • 01:04 Whereas if the plan reflects what will actually happen, when the work occurs,
  • 01:08 the EV and AC will closely match the PV and
  • 01:11 here will not be variances that must be explained.
  • 01:15 One of the ways to establish PV is to spread the estimated cost evenly
  • 01:19 from the point of task start to the task end.
  • 01:22 This is referred to as level loading.
  • 01:24 This is easy to do if you have the estimated value and the task start and
  • 01:28 end dates.
  • 01:29 The other way to establish the PV is to do what is called event loading.
  • 01:33 In this case, the task is micro-planned.
  • 01:35 And a piece of the task PV is assigned to each micro-task.
  • 01:39 That portion of the task PV is then assigned to a month,
  • 01:42 based upon the project's schedule.
  • 01:44 The advantage of this approach is that it will make it more accurate, but
  • 01:47 it does take longer.
  • 01:49 Here is an example of a plot of the cumulative PV for a 19 month long project.
  • 01:54 The horizontal black line at the top of the chart is the project budget, or PB.
  • 01:58 This is the value that was approved on the project charter.
  • 02:01 The blue line is the planned value or PV.
  • 02:05 Years ago we called that line the budgeted cost of work scheduled or BCWS.
  • 02:09 Notice that this definition emphasizes the project triple constraint of cost,
  • 02:14 work and schedule.
  • 02:15 The final value of PV is the total budget at completion, or BAC.
  • 02:19 The difference between the project budget for the project charter and the budget in
  • 02:23 completion from the PV is the management reserve, which is a financial reserve.
  • 02:29 Many times the PB equals the BAC and there is no management reserve.
  • 02:33 As soon as the budget baseline is approved,
  • 02:35 this chart can be created showing the PV from project start to project finish.
  • 02:41 So with PV set, let's look at Earned Value, or EV.
  • 02:45 The EV is a management assessment.
  • 02:47 On the part of the Project Manager and the Cost Account Manager.
  • 02:50 That means that this is often a judgement call.
  • 02:53 Of course, that also means that there can be errors in judgement, so
  • 02:56 most organizations establish some ground rules for setting the EV.
  • 03:01 Let's look at some of the more common ground rules.
  • 03:03 However, first let's make sure we understand how EV works.
  • 03:07 EV is the percentage of the task PV that has been completed.
  • 03:11 So if a task has not started, the EV for that task is always zero.
  • 03:15 No value has been earned.
  • 03:17 When a task is complete, the EV is always equal to the PV for that task.
  • 03:22 All of the task value has been earned.
  • 03:24 Notice that this has nothing to do with how much money was spent.
  • 03:28 If a task was assigned a PV of $10,000,
  • 03:31 that is the value of EV when the task is done.
  • 03:34 It doesn't matter if it only took $1,000 to do the work, or
  • 03:37 $100,000 to do the work.
  • 03:40 The PV for the task was set at $10,000, so that is the EV when the task is done.
  • 03:46 So with EV of zero for tasks that have not started, and EV equal to PV for
  • 03:50 finished tasks, what we need to do is focus on setting the ev for
  • 03:54 partially completed tasks.
  • 03:56 One approach is to take credit for the micro tasks that were created if the task
  • 04:00 was planned to prevent loading rather than level loading.
  • 04:03 When using that approach I take EV credit for each micro task that is completed.
  • 04:08 Another approach is referred to as 0, 100.
  • 04:10 That means you'll get no EV credit for a task until it finishes and
  • 04:15 then you take all of the EV credit for that task.
  • 04:18 I usually use this approach for
  • 04:19 short tasks of less than two weeks duration, because it is so easy to do.
  • 04:23 A problem comes up with long level loaded tasks though.
  • 04:27 Since the task is level loaded,
  • 04:28 there is no micro planning that can be used to sign EV.
  • 04:32 But using the 0-100 approach could mean that effort had been going on for
  • 04:36 months, spending money, and creating actual cost charges against the task, but
  • 04:40 no EV credited to the task.
  • 04:43 Therefore some companies use the 50-50 approach.
  • 04:47 In this case, the task receives 50% of the EV as the EV for
  • 04:51 the task as soon as it starts.
  • 04:52 The remaining 50% of the EV is credited when the task finishes.
  • 04:56 However, some CAMs have used this approach to gain the system.
  • 05:00 They start everything but make little progress.
  • 05:02 However, because they've started the task the project gets 50% EV for it.
  • 05:07 The final approach is a variation of the previous one called the 30-70 approach.
  • 05:12 This is the approach I normally use on long level-loaded tasks.
  • 05:15 30% of the PV is credited as EV when the task starts and
  • 05:20 the remaining 70% is credited as EV When the task ends.
  • 05:24 Let's take a look at our plot of the project, after month nine.
  • 05:28 The cumulative EV line is the gold line on the chart.
  • 05:32 The EV line stops at month nine because that is where we are on the project.
  • 05:37 PV can continue to the end of the project, because we have a plan for
  • 05:40 the entire project.
  • 05:41 But EV is based upon what we've actually completed, so
  • 05:44 it can only reflect a value up to the time of the report.
  • 05:47 You'll notice that the earned value is sometimes referred to as BCWP, stands for
  • 05:52 Budgeted Cost of Work Performed.
  • 05:57 We talked about how to set the earned value for each task.
  • 06:00 This value will now be at the heart of how we use earned value for
  • 06:04 various analysis and forecasting.

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