Earned Value Analysis Planning and Tracking

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About this lesson

The Earned Value Analysis technique integrates scope, schedule and budget attributes into a set of measurements that can be used for tracking project performance.

Quick reference

Earned Value Analysis Planning and Tracking

The Earned Value Analysis technique integrates scope, schedule and budget attributes into a set of measurements that can be used for tracking project performance.

When to use

Earned Value Analysis is used throughout the project lifecycle.  Earned value metrics are established during planning and then progress is tracked against those metrics.  Earned value metrics provide insight into the variance that is shown if the project experiences delays and overruns.

Instructions

Earned value is an outstanding technique for providing a comprehensive set of project metrics.  However, it does require features in the financial system which allow tracking of costs at the individual project and task level.  The Earned Value Analysis system consists of comparing the status of three project financial data sets.   Earned Value Management: “A methodology that combines scope, schedule, and resource measurements to assess project performance and progress,” PMBOK® Guide.

Planned Value

Planned Value (PV): “The authorized budget assigned to scheduled work” PMBOK® Guide.  The Planned Value is the baseline that performance will be measured against.  PV is set when the project baseline is approved.  It is a time-phased project budget baseline.  The budget values are based upon the task level estimates and the timing is based upon the approved project schedule baseline.

Actual Cost

Actual Cost (AC): “The realized cost incurred for the work performed on an activity during a specific time period,” PMBOK® Guide.  The Actual Cost is the money spent doing the project work.  It is collected by task and the timing of when it is collected is also recorded.  Most organization’s financial systems are the source for this data – provided they can collect costs by project task.

Earned Value

Earned Value (EV): “The measure of work performed expressed in terms of the budget authorized for that work,” PMBOK® Guide.  The Earned Value is the assessment by the project management team of the progress that has been made on each task within the project.  The value of EV is based upon the originally estimated value of the task.  Project management assess the percentage of completion of the task, and that percentage of the original estimate is the EV.

Since EV is a judgement call, several techniques are used to assist the project management team to establish the current level of EV.

  • If the task planning is detailed enough, a percentage of the work completed can be determined – for instance if the task was to issue ten purchase orders, each purchase order would represent 10% of the task and the EV for each purchase order would be 10% of the task estimate.
  • 0 – 100: There is no earned value credit for task work until the task is complete.  Therefore the EV for a task is 0 until it is complete and then it is 100% of the PV.
  • 50 – 50:  For long tasks, the 0-100 approach does not take into consideration the ongoing effort.  The “0” value of EV can understate how much work is actually complete.  The 50-50 approach sets the EV at 50% of the task estimate as soon as the task starts and the remaining 50% is credited when the task ends.
  • 30-70:  In an effort to minimize the effect of project teams “starting” everything in order to get EV credit but not finishing anything; many organizations use 30-70.  In this approach the team receives a credit of 30% of the task estimate when the task starts and the remaining 70% when it finishes. 

Types of variance

Variance is a measure of the difference between the actual value of a measurement and the expected value.  Earned Value Analysis includes both monetary information and timing information.  Therefore, Earned Value variance analysis provides a clear understanding of how much variance is a schedule issue and how much is a cost issue.

Within Earned Value Analysis we often consider two types of variance.

  • Current period variance: this is variance in the time period of the report, typically monthly.  It represents what should have been done that month as compared to what was actually done that month. It can be strongly impacted by tasks that are ahead or behind schedule, and therefore activity may drop out or come into the period.
  • Cumulative variance: this is the variance of all project activity since the project started.  It represents everything that should be complete on the project at this time as compared to what is actually complete at this time. It will smooth out the month-to-month effects, but it can also be strongly impacted by a previous condition whose effect is now embedded in the results.

Cost Variance

Cost Variance (CV): “The amount of budget deficit or surplus at a given point in time, expressed as the difference between the Earned Value (EV) and the Actual Cost (AC),” PMBOK® Guide. Cost variance is the underrun or overrun of actual costs as compared to the estimated project costs found in the cost baseline.  When evaluating project cost variance, it is important to exclude the effect of tasks that are ahead or behind schedule.  The cost baseline has embedded assumptions for which tasks will occur in which months.  If a task is not worked on during a month because of a schedule delay, that could appear to be an underrun to the project for that month, since less money was spent than planned.  However, if the task is accomplished the following month, it would appear to be an overrun for that month since the cost occurred in that month without any planned cost for that task occurring in that month. 

The Earned Value Management approach eliminates the schedule impact on cost variance by using Earned Value (EV) for the baseline cost instead of Planned Value (PV).  The EV represents the estimated or budgeted cost for the work that has been performed.  The Actual Cost (AC) is the total costs associated with doing that work.  The costs variance then is calculated as the difference between EV and AC.  A positive cost variance is an underrun and a negative cost variance is an overrun.

Cost Variance = EV - AC

Schedule Variance

Schedule Variance (SV): “A measure of schedule performance expressed as the difference between the Earned Value (EV) and the Planned Value (PV),” PMBOK® Guide. Schedule variance is the ahead of schedule or behind schedule position of the project as compared to the schedule found in the schedule baseline.  Schedule variance is normally presented in terms of time (days or weeks) ahead of or behind schedule.  However, the Earned Value metrics are all based in money, so the schedule variance in Earned Value will be in monetary units.

Earned Value Management schedule variance is the estimated cost of the work that has not been done according to the project schedule plan.  For work that is accomplished earlier than scheduled, this would be a positive value representing the estimate of the work accomplished early.  For work that was late this is a negative value representing the estimated cost of the work that was delayed.  The schedule variance is then the difference between the EV, which is the estimated or budgeted cost of the work that has been performed and the PV which is estimated or budgeted cost of the work that should have been performed if the work was done to the baseline schedule.

Schedule Variance = EV - PV

Definitions are 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, Pages 698, 703, 705, 713, and 722. PMBOK is a registered mark of the Project Management Institute, Inc.

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  • 00:04 Hi, I'm Ray Sheen.
  • 00:06 Let's talk about Earned Value Management.
  • 00:08 This analytical technique is a very effective method for
  • 00:12 monitoring project performance.
  • 00:14 This'll be part one of two parts on earned value management.
  • 00:17 And this one will focus on planning and tracking.
  • 00:22 When you understand how earned value works, it makes great sense.
  • 00:25 But there are many terms and acronyms that can be confusing.
  • 00:28 I'll define the set of these terms using the definitions from the project
  • 00:32 management body of knowledge, the PMBOK Guide.
  • 00:34 And then explain what they mean in practical project management terms.
  • 00:38 Earned Value Management is a methodology that combines scope, schedule, and
  • 00:42 resource management to assess project performance and progress.
  • 00:45 It's a comprehensive set of measurements that capture elements of all three
  • 00:49 sides of the project management triple constraint triangle scope, schedule, and
  • 00:54 resources.
  • 00:55 Planned Value or PV is the authorized budget assigned to scheduled work.
  • 01:00 This is the project budget that has been time-phased
  • 01:03 according to the project schedule.
  • 01:05 It's your project cost baseline plan.
  • 01:08 Actual Cost, or AC, is the realized cost incurred for
  • 01:12 the work performed on an activity during a specific time period.
  • 01:16 This is the money spent on a project and
  • 01:18 recorded in the company's financial system.
  • 01:22 Earned Value or EV is the measure of work performance expressed in terms of
  • 01:26 the budget authorized for that work.
  • 01:29 This is the schedule element of the earned value management.
  • 01:32 The earned value represents a value for
  • 01:34 the amount of work that has been completed.
  • 01:37 The value is based upon the original budgeted amount for that work.
  • 01:40 If the task was budgeted for $10,000, when it is finished, it has earned
  • 01:44 a value of $10,000, regardless of how much money was actually spent on the task.
  • 01:51 Cost Variance or CV, is the amount of budget deficit or
  • 01:54 surplus at a given point in time,
  • 01:55 expressed as the difference between the earned value and the actual cost.
  • 02:00 The earned value is the budgeted cost for the work that has been performed.
  • 02:04 And the actual cost is the actual cost for that work that has been performed.
  • 02:09 So the difference is the under-run or
  • 02:11 overrun that occurred on the work that was actually done.
  • 02:15 Schedule Variance, or SV is a measure of schedule performance
  • 02:18 expressed as the difference between the earn value and the plan value.
  • 02:22 Projects seldom are precisely on schedule.
  • 02:24 This variance is the difference between what was planned to be performed and
  • 02:28 what was actually performed using the common values of the budget value for
  • 02:32 each task or activity.
  • 02:35 Earned value measures are expressed in two ways based upon time periods.
  • 02:39 Current earned value measurements are based upon what has happened
  • 02:42 during the past month.
  • 02:43 Cumulative earned value measurements are based upon what has happened from
  • 02:47 the beginning of the project up until the present time.
  • 02:50 The planned value is set once the project is baselined.
  • 02:53 At that point there is a budgeted amount of money for each task and a schedule for
  • 02:58 each task.
  • 02:59 We can then calculate the plan value for each month and
  • 03:02 that doesn't change unless you rebaseline the project.
  • 03:06 The actual cost is collected by the financial management system.
  • 03:09 These systems must be able to collect the project costs and
  • 03:13 ideally can even separate those costs by project task.
  • 03:17 The earned value is determined by a decision of the project manager or
  • 03:21 project management team.
  • 03:22 The most accurate way to assign earned value is if the task can be divided into
  • 03:26 small increments and a percentage of the planned value can be claimed
  • 03:30 based upon the percentage of the task increments that have been completed.
  • 03:34 But that method is a ton of micro management.
  • 03:36 So for short task, I just use the approach of 0 and 100%.
  • 03:39 You get 0 earned value credit until the task is done and
  • 03:43 then you get a 100% of that plan value for your earned value credit.
  • 03:48 But on long tasks, this can understate the progress.
  • 03:51 You may have done a lot of work, but
  • 03:52 you get no credit until everything is finished.
  • 03:55 So some use the 50-50 approach.
  • 03:57 You get 50% of the planned value for starting a task and 50% for completing it.
  • 04:02 In my experience,
  • 04:03 some project team members will try to gain the 50-50 approach.
  • 04:06 They'll start everything and finish nothing.
  • 04:09 So I often use the 30-70 approach.
  • 04:11 For large tasks I get 30% for starting the task and
  • 04:14 the remaining 70% when it is finished.
  • 04:17 Let's look at a graphic example.
  • 04:19 When the project is approved, the total value for the project budget is approved.
  • 04:23 When the project plan is baseline, the plan value for each month is approved.
  • 04:28 At that time, we can plot a cumulative line
  • 04:31 showing how much money will be spent on the project at any point in time.
  • 04:35 The final value of the planned value is the budget at completion, or BAC.
  • 04:40 If there is a difference between the budget at completion and
  • 04:43 the total project budget, it is the initial management reserve.
  • 04:46 Next, I will draw a time-now line,
  • 04:49 based upon how much time has passed since the project started.
  • 04:52 In this case, we are nine months into the project.
  • 04:55 Every month, that line moves to the right.
  • 04:58 The finance system that provides the actual cost incurred in that month,
  • 05:01 added to the previous months it shows us the cumulative cost.
  • 05:04 This is how much money has been spent on the project since it started.
  • 05:08 Notice that we've been spending more than the planned value each month.
  • 05:13 The final element is the earned value measurement.
  • 05:16 Again, this will be the cumulative,
  • 05:17 and it represents how much work has been completed since the project started.
  • 05:23 Earned value management is a set of metrics that provides insight into how
  • 05:28 scope, schedule, and resources are performing on the project.

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