Once you have gone about and drawn up a schedule for your project and allocated resources to your project, assuming you have done your homework, you should ideally execute your plan and have everything done by the planned date, with the budgeted cost and execute the planned scope per the expected quality. (Its about scope, cost, time & quality and a quality product needs a quality plan and I’m not talking just testing plans and/or testing for quality, but the project plan itself should be of the highest quality.)
But its not an ideal world and you have to track your project cost and progress to make sure that you are on the right track.
How do you go about doing that?
That’s where Earned Value Management comes into the picture.
Before we delve into EVM, a few things to keep in mind about Earned Value Methodology (EVM):
First and foremost, its about tracking your project costs and progress. It is basically a cost model. Measurement is in monetary units; its about comparing oranges with oranges, not apples to oranges.
Secondly, you do not need to know any fancy math. If you know how to add, subtract, multiply and divide , you’re fine.
Thirdly, do not intimidated by the long acronyms such as ACWP, BCWP, BCWS, CV, SV, BAC, EAC et al. They’re quite simple to understand, once you get the hang of it. Remember its about understanding how to do it, rather than remembering how to do it. If you don’t remember how or its been a long time since you used it, just pick up your reference material and start again. Getting it right beats doing it fast and wrong!
Let’s get straight to the concepts behind Earned Value Methodology:
Once your project plan is finalized , then you start to execute your project.
Now , in an ideal world, everything would go according to plan but we do not live in an ideal world, do we? If we did, we could easily have automatons do most of the work, since there would be no surprises, pleasant or otherwise.
To measure project progress, we need to be able to answer 3 questions:
At the current point in time, how much work was scheduled to have been accomplished?
At the current point in time, how much work has actually been accomplished?
At the current point in time, how much has the work accomplished cost us?
If we can start to answer these questions, we are well on our way to having a good idea of our progress on the project and have hit upon the basic premises of EVM.
Before we proceed further, let us get familiar with the basic metrics behind EVM.
PV/BCWS – amount of work that should have been done;
where PV is Planned Value Or also termed Budgeted Cost Of Work Scheduled
• EV/BCWP – amount of work that was actually done;
where EV is Earned Value Or also termed
Budgeted Cost of Work Performed
• AC/ACWP – cost of the work actually done;
AC is actual cost or Actual Cost Of Work Performed
• CV = EV-AC – how much cost has been over or under-spent for the work done;
CV – Cost Variance
• SV = EV-PV – how much work is currently ahead or behind schedule;
SV – Schedule Variance
• CPI = EV/AC – how much work is being produced for each $ spent (this is a
measure of productivity);
CPI – Cost Performance Index
• SPI = EV/PV – how much work is being accomplished in each unit of time planned to
accomplish one unit of work (this is a measure of work rate);
SPI – Schedule Performance Index.
I will elaborate further in my next installment.
Have a nice day!