Study EVM (Earned Value Management) – Part 1

During the past few days, I was studying Project Time Management in PMBOK, preparing for the upcoming PMP exam on 4^th December 2010. While I spent a few hours understanding/mastering EVM, I log my memory here.

EVM stands for Earned Value Management; it is complementary for Critical Path Method schedule management. Its purpose could be described as “What did we get for the money we spent?” The definition in Wikipedia is given below:

Earned value management (EVM) is a project management technique for measuring project progress in an objective manner. EVM has the ability to combine measurements of scope, schedule, and cost in a single integrated system. When properly applied, EVM provides an early warning of performance problems. Additionally, EVM promises to improve the definition of project scope, prevent scope creep, communicate objective progress to stakeholders, and keep the project team focused on achieving progress.

There are three fundamental glossaries in EVM; they are:

• PV Plan Value (also called BCWS – Budget Cost for Work Scheduled)
• AC Actual Cost (also called ACWP – Actual Cost for Work Performed)
• EV Earned Value (also called BCWP Budget Cost for Work Performed)

EV = BAC (Budget At Completion) * [Finished work]%

EV formula from Wikipedia:

A simple and straightforward explanation, based on my understanding:

• PV is on a specified timestamp, the planned budget
• AC is on a specified timestamp, the actual cost
• EV is on a specified timestamp, how much percent of work has been done while how much cost was expected

During the project implementing process, the Program Manager tracks the schedule and cost using EVM, and calculates SV and CV, SPI and CPI; they are:

SV Schedule Variance

SV = EV – PV

CV Cost Variance

CV = EV – AC

SPI Schedule Performance Index

SPI = EV/PV

CPI Cost Performance Index

CPI = EV/CV

I will show a simple example for better understanding. Assume I am managing a 10 day project code named “Lambda”. The Lambda project has a BAC of $100, and the detailed project schedule was determined as below:

The scenario is at the end of day 3, I (PM) call up the team members and hold a meeting to track status, and we find:

We got 40% of the entire work done. On the other hand, we’ve already spent $60. Based on this fact, I (PM) will get to know:

PV: 3 days past, initially we planned/were supposed to spend $30 according to the schedule, so PV=30.

AC: We’ve spent $60, so AC=60.

EV: We finished 40% of the work; initially we planned/were supposed to spend $40 to get 40% work done, so EV=40.

OK, then:

SV = EV – PV = 40 – 30 = 10, greater than 0, so it is good, and we are ahead of schedule

CV = EV- CV = 40 – 60 = -20, smaller than 0, it is not good, and we are overspending money

SPI = EV/PV = 40/30 = 1.3 > 1, greater than 1, good.

CPI = EV/CV = 40/60 = 0.66 < 1, smaller than 1, not good.

+U+U to myself. I am putting a flag here. I believe I will pass the exam!

References

• EVM on Wikipedia: http://en.wikipedia.org/wiki/Earned_value_management
• EVM official website: http://www.earnedvaluemanagement.com/