Locked lesson.

Upgrade

About this lesson

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.

Exercise files

Download this lesson’s related exercise files.

Setting Earned Value.docx.docx
66.8 KB Setting Earned Value - Solution.docx.docx
67 KB

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.  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, the 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 the project start. 

Instructions

Earned value analysis

Earned value management analyses the current and cumulative status of 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 judgment 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
  • 00:00 Hi, I'm Ray Sheen.
  • 00:05 Let's talk about another aspect of project execution, and
  • 00:08 that's determining the earned value for the project.
  • 00:11 You may recall that the project management body of knowledge, the PMBOK Guide.
  • 00:12 Defines Earned Value Management as a methodology that combines scope,
  • 00:17 schedule, and resource measurements to assess project performance and progress.
  • 00:25 Earned Value Management compares three different perspectives on the project.
  • 00:29 The first perspective is the planned value.
  • 00:32 We discussed this in detail in the project planning class.
  • 00:36 One important point to remember is that the planned value includes both
  • 00:40 the estimated cost for each task and the timing for
  • 00:43 when that task is scheduled to occur.
  • 00:46 The second aspect is the actual cost,
  • 00:49 which we will discuss in more detail in our project controls course.
  • 00:53 The third perspective is the project progress that will be expressed as
  • 00:58 an earned value on the project.
  • 01:01 And that's what we'll talk about right now.
  • 01:04 The Project Management Body of Knowledge, the PMBOK Guide,
  • 01:08 tells us that earned value is the measure of work performed expressed
  • 01:13 in terms of the budget authorized for that work.
  • 01:16 Let's look at what it says.
  • 01:18 Notice that the earned value is expressed in terms of the budget authorized for
  • 01:22 the work.
  • 01:23 That means that your earned value for
  • 01:25 a task will always be a percent of the task planned value.
  • 01:30 The planned value was set based upon the estimates of the cost to do the work
  • 01:35 represented by that task.
  • 01:37 Based upon the PMBOK definition, earned value is also a measure of progress.
  • 01:42 If a task is 50% complete, we have earned 50% of the value of that task.
  • 01:49 So, we have to have some method for assessing the progress, and
  • 01:52 I'll talk about that in a minute.
  • 01:55 Similar to a planned value, there are two project level measures of earned value.
  • 02:01 The current earned value is the amount of earned value credited for
  • 02:05 the current month.
  • 02:06 It represents the amount of work that was accomplished that month on the project.
  • 02:11 The other measure is the cumulative earned value.
  • 02:14 And this is the total of all the earned value since the beginning of the project.
  • 02:19 Let's think about this for a minute.
  • 02:20 Since earned value represents the progress that has been made on each task, for
  • 02:25 tasks that are complete, we have 100% of the earned value and
  • 02:29 the earned value equals the planned value.
  • 02:32 The tasks that have not started yet, there is no earned value.
  • 02:36 So, that's zero for those tasks.
  • 02:39 This means that the only tasks that we really have to focus on when estimating
  • 02:43 earned value, are the partially completed tasks.
  • 02:46 So let's look at these.
  • 02:48 The assessment of project progress is made by those responsible for
  • 02:51 managing the project, which is normally the project leader and core team members.
  • 02:56 They know what they've started,
  • 02:58 what they've completed, and what the status is of the open tasks.
  • 03:02 It's a judgment call since it's done by the core team,
  • 03:05 it is an informed judgment, an informed decision.
  • 03:09 However, there are many guidelines for
  • 03:11 setting earned value that can assist the team.
  • 03:13 I'll discuss several of the more commonly used ones.
  • 03:15 The guidelines help us to ensure that the decision process is easy and
  • 03:19 not just arbitrary.
  • 03:22 One that's often used is to assign a percentage of completion for
  • 03:26 each of the micro tasks within a task.
  • 03:29 You may recall that one of the ways to create planned value for a task was to do
  • 03:33 event loading, which required the creation of a detailed micro level tasks.
  • 03:38 When you have that, you can take credit for
  • 03:40 the planned value of each of these micro tasks that are completed.
  • 03:44 However, we typically do not create the micro level task planning.
  • 03:48 So, how should we approach the level loaded tasks?
  • 03:52 For short duration tasks, usually less than one week, I use the 0-100 approach.
  • 03:58 You get no credit until the task is complete, then you get all the credit.
  • 04:02 Earned value for that task is either 0% or 100% of the planned value.
  • 04:08 For longer tasks, many people have used the 50-50 rule.
  • 04:12 With this rule you get 50% of the earned value when you start it, and
  • 04:16 the other 50% when you finish the task.
  • 04:20 I personally don't like this one because I've seen people gain the measure by
  • 04:24 starting lots of tasks, but never actually finishing anything.
  • 04:29 The final guideline that I'll discuss is the 30-70 rule.
  • 04:33 This is similar to the 50-50 rule except that we only get 30% credit for
  • 04:37 starting and get 70% credit for completing a task.
  • 04:41 I found that this puts a sufficient emphasis on getting things
  • 04:46 both started and completed.
  • 04:48 Regardless of the technique used, remember,
  • 04:50 the earned value can never be more than planned value.
  • 04:52 It doesn't matter how much it cost to do the work,
  • 04:55 when you assign an estimate to that task, you assign a value to that task.
  • 05:00 So make sure your estimates are good.
  • 05:03 Let's look at what this looks like on our project earned value graph.
  • 05:06 We created that planned value back during the planning phase.
  • 05:10 Well now, there's a time now line on the graph at month nine.
  • 05:15 Earned value is looking at progress.
  • 05:16 So I need to have a point in time where I'm measuring the progress.
  • 05:20 And in this case, it's at the end of month nine or time now.
  • 05:25 The earned value line is the goal line.
  • 05:27 Notice that in the first few months,
  • 05:29 the earned value line is higher than the planned value line.
  • 05:32 That means that more progress was made during those months than was planned.
  • 05:37 When we get to month five, the earned value and planned value are the same.
  • 05:41 That would indicate that we were right on schedule.
  • 05:43 We've completed the work that we have planned to have completed at that time.
  • 05:47 After month five, the earned value line is below the planned value line.
  • 05:53 That means that we are falling behind schedule.
  • 05:55 We haven't completed as much work as was planned.
  • 05:59 A key point to note is we haven't yet
  • 06:02 looked at how much money we have spent, that will come later.
  • 06:06 Earned value tells us how much progress we have made expressed in the units of
  • 06:10 estimated cost, for each project task.

Lesson notes are only available for subscribers.

PMI, PMP, CAPM and PMBOK are registered marks of the Project Management Institute, Inc.

Gift this course