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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.  It starts with task level planning.

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Quick reference

Earned Value Planning

Earned Value Management is a comprehensive project management technique that combines scope, schedule and resource management into one set of measures.  It starts with task level planning.

When to use

Earned value management is a very powerful technique that is particularly helpful on large complex predictive projects.  To conduct a thorough earned value analysis, the project must be planned and tracked in the financial system at a task level.  If the financial system cannot do this, it is virtually impossible to implement earned value.  If the financial system is capable, then earned value planning is conducted as the project baseline plan is created and approved. 

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.

Earned value planning

Earned value planning is the translation of the project planning information into the earned value financial system.  It creates the first of three views of the project used by earned value management, the Planned Value or PV.

Creating the planned value

The PV is created using the Work Breakdown Structure (WBS), the project schedule, and the task estimates.  Every task in the WBS is assigned a separate account in the financial system.  The cost estimate for every WBS task is then spread over the time periods associated with the project schedule for that WBS task.  Those cost amounts are placed in the WBS account for the appropriate periods to create a task-level time-phased 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 WBS 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 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 assuming the project is on schedule, or “Cumulative PV” which is the PV from the beginning of the project to the point in time under consideration (normally the current date).

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 lifecycle.  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. 

Some software programs refer to PV as Budgeted Cost of Work Scheduled (BCWS).

Definitions

Earned Value Management: “A methodology that combines scope, schedule, and resource measurements to assess project performance and progress.” PMBOK® Guide

Planned Value (PV): “The authorized budget assigned to scheduled work.” PMBOK® Guide

Earned Value (EV): “The measure of work performed expressed in terms of the budget authorized for that work.” PMBOK®

GuideActual Cost (AC): “The realized cost incurred for the work performed on an activity during a specific time period.” PMBOK® Guide

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.

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  • 00:05 Hi, I'm Rey Sheen.
  • 00:06 Let's talk about a project management technique that's called earned value
  • 00:09 analysis.
  • 00:11 I'll introduce it here with resource planning, and we'll continue our
  • 00:14 discussion on earned value and lessons under project execution and control.
  • 00:19 If you plan on sitting for
  • 00:20 the PMP exam, you will need to have to have a thorough knowledge of earned value.
  • 00:26 The Project Management Body of Knowledge, the PMBOK Guide,
  • 00:29 describes Earned Value Management as a methodology that combines scope, schedule,
  • 00:34 and resource measurements to assess project performance and progress.
  • 00:38 In my opinion, earned values is one of the most effective tools we can use for
  • 00:42 measuring progress on a predictive project.
  • 00:45 Earned value compares the difference between three project cost perspectives.
  • 00:50 The first project perspective is the project plan.
  • 00:53 This is the planned cost based upon the project estimates and schedules.
  • 00:57 It is created for
  • 00:58 the entire project at the time that the project planning is completed.
  • 01:01 This is called planned value.
  • 01:04 The second perspective is the actual costs that are being expended on the project.
  • 01:08 This will be the cost recorded in the finance system and
  • 01:11 applied to this project, from the time a project start, up until the present time.
  • 01:15 It is called the actual value.
  • 01:18 The third perspective is the project progress.
  • 01:21 This is an assessment by the project management team.
  • 01:24 The value for this assessment is created
  • 01:26 by first determining how much progress have been completed on each tasks.
  • 01:30 That percentage of completed progress on a task is then multiplied by
  • 01:35 the planned cost for that task.
  • 01:37 What it's essentially saying is that, when the project was planned,
  • 01:41 that task was assigned a value equal to it's estimate.
  • 01:44 When the task is complete, it has then earned that value for the project.
  • 01:49 That is why the perspective is called the earned value.
  • 01:54 The building blocks for earned value are at the task level.
  • 01:57 It uses task level estimates or budgets for the planned value.
  • 02:01 The project expenses should be collected in the finance system at the task level
  • 02:06 for actual cost, and the project progress is first determined at the task level,
  • 02:11 and then the task level progress is ruled up into the project earned value.
  • 02:15 Since, everything is base upon task level data, it's important for
  • 02:19 the task level budgets to be accurately planned.
  • 02:22 This includes both the amount of costs, and
  • 02:24 the timing when those costs will occur.
  • 02:26 We've already covered estimating cost in another lesson.
  • 02:29 I want to talk now about setting the timing of the task budgets
  • 02:33 to support earned value analysis.
  • 02:36 The task cost must be assigned to the month in which the task will occur.
  • 02:40 If the task is short, let's say it's a week, it's likely that all of that task
  • 02:44 will be within one month, and then the timing is easy.
  • 02:47 But what if the task is ten week task, then what?
  • 02:51 One approach is the level-load of the timing of cost.
  • 02:54 That means we spread the cost evenly over the duration of the task.
  • 02:58 For that ten week task, if it starts at the beginning of a month, put 40% in
  • 03:02 the first month representing four weeks, 40% of the second month, representing
  • 03:07 another four weeks, and 20% in the third month representing the final two weeks.
  • 03:11 This is quick and simple method for assigning the timing of task cost.
  • 03:16 But what if I know that there will be a high amount of cost at one point in time
  • 03:20 on the task?
  • 03:22 Then do what we call event-loading.
  • 03:24 In this case,
  • 03:24 the task must be planned in detail, essentially breaking it into micro tasks.
  • 03:29 And then assigning the estimated cost for each micro task when it will occur.
  • 03:33 So if I know that during that last week of that ten week task,
  • 03:37 there will be a big meeting with delegates coming in from all around the world for
  • 03:40 review, I would assign a higher estimated cost in the third month,
  • 03:45 to cover the meeting expenses.
  • 03:47 The advantage of this is that It is more accurate since the data for
  • 03:50 the planned cost matches what is expected to happen.
  • 03:54 So let's wrap this up with a closer look at earned value planning.
  • 03:59 The Project Management Body Of Knowledge, the PMBOK Guide, defines planned value as,
  • 04:03 the authorized budget assigned to a scheduled work.
  • 04:07 Planned value or PV is based upon all the task estimates for
  • 04:10 the task within the project's scope,
  • 04:13 which is the tie to the scope side of the project triple-constraint triangle.
  • 04:16 Of course, PV is based on the estimated cost for each of those tasks.
  • 04:20 So that is how it brings in the resources side of the project
  • 04:23 triple-constraint triangle.
  • 04:25 And the PV for a task is scheduled to occur based upon the scheduled start and
  • 04:30 completion date of each task,
  • 04:31 which is how we bring in the schedule side of the project triple-constraint triangle.
  • 04:36 On project or in value reports, you'll find PV being expressed in two ways.
  • 04:41 The first is the current PV, which is the estimated cost for the project work
  • 04:45 that was planned to be done during the current month or the month of that report.
  • 04:50 The second is the cumulative PV, which is the estimated cost for all of
  • 04:55 the project work that is scheduled to have been done since the project started.
  • 04:59 Let's look at a picture of this.
  • 05:01 This project is 19 months long.
  • 05:04 As soon as the plan is approved, we know the PV for each task in the project, so we
  • 05:09 can add that up, and then graph the blue line, which is the cumulative PV line.
  • 05:14 The final value of PV is the BAC or budget at complete.
  • 05:19 This represents the sum of the estimates for
  • 05:20 all of the identified work that must be done on the project.
  • 05:24 Often, a project will be approved with a total budget value
  • 05:27 that was a very rough estimate created before detailed project plans were done.
  • 05:32 This is shown by the black line labeled PB for project budget.
  • 05:36 When the detailed project plan is completed,
  • 05:39 the project at complete is hopefully less than the project budget.
  • 05:42 The difference is a project level management reserve, or MR.
  • 05:49 This planned value is one of three perspectives that we'll use for
  • 05:52 earned value management.
  • 05:53 The others will be covered on lessons under project execution and control.

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