Earned Value Management
Establishing Baselines to Analyze Project Progress in Time and Cost
Oct 22, 2008
Earned value management (EVM) is a useful tool for project managers who need to objectively assess a project in relation to the project's actual cost (AC) and the time and money originally set aside (projected value).
Breaking Down a Project
First, the project manager needs to analyze the project. In order to accomplish a large objective, it should be broken down into smaller tasks to be completed by project teams or individuals. What are the most important tasks? What has to be completed in order for a larger task to be started? Which tasks depend on each other? The tasks' completion points (and sometimes their starting points), in terms of time and cost, will be plotted on a graph to determine progress made.
Setting Up the Graph: Projected Value
The next step is to create a graph. Time is usually the X-axis, and Cost (in dollars) is usually the Y-axis. The origin is 0, starting when no money or time has been spent on the project.
The maximum values of Time and Cost should be set as those outlined on the contract (or work statement). Supposing that the project is supposed to take 10 weeks and has a $10,000 budget, the Time axis should go from 0 to 10 weeks, and the Cost axis should go from $0 to $10,000.
Establishing a projected value (PV) line is very important. The PV line should end at the point described as the intersection of the maximum time and cost for the project: (10 weeks,$10,000). The end point is called Budget at Completion (BAC).
The PV line should begin just beyond the origin of both Time and Cost. If discrete tasks are anticipated to be completed regularly, then the PV line may run more-or-less straight from near the origin to the BAC.
Setting Earning Rules
Each task should be awarded a proportional amount of budgeted money, depending on the cost of resources used to complete the particular task. A project manager needs to document earning rules for the tasks at hand.
Some examples of earning rules include 0/100, 20/80, 50/50. A 0/100 rule means that all of the money allotted for the particular task is awarded (graphed) at the task's completion time, with no portion of the budget awarded at the beginning of a task. A 20/80 rule means that 20% of the task's budgeted money is awarded on the graph when the task is started, and 80% of the money when the task is completed.
Plotting the Points of 2 More Lines
The project manager for the example project establishes a 0/100 rule for the 10 tasks to be completed, and each task is allotted $1,000 (for a total budget of $10,000). The completion point of Task 1 will then be graphed as the intersection of Task 1's completion time and $1000. If it takes 4 days to complete Task 1, then the second dot on the Earned Value (EV) line will be (4 days,$1000). The EV line’s first point can be the start point of the PV line.
One more line should be drawn. Supposing that the money actually spent during Week 1 is only $900, the first point on the Actual Cost (AC) line should be (1 week, $900). The sample graph tells the project management team that the project is under budget and ahead of schedule.
The next point on the EV line will be plotted at the time when Task 2 is completed. Its cost ordinate will be $2,000, supposing that both Task 2 and Task 1 have the same budget and 0/100 earnings rule ($1000 each). The third point on the EV line should be (Task 2 completion time,$2000).
If the total money actually spent on the project by the end of Week 2 is $2500, then the next point on the AC line should be (Week 2, $2500).
Additional points should be plotted in the same fashion, as determined by task completion times (EV), and actual cost reporting times (AC) until the entire project is completed and delivered. The finished graph can then be analyzed to determine when and at what cost the project was actually completed (AC) in relation to expectations (PV and EV).
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