Basic Concepts of Earned Value Management

 

Planned Value (PV): describes how far along project work is supposed to be at any given point in the project schedule. It is a numeric reflection of the budgeted work that is scheduled to be performed, and it is the established baseline (also known as the performance measurement baseline or PMB) against which the actual progress of the project is measured. Once established, this baseline may only change to reflect cost and schedule changes necessitated by changes in the scope of work. In previous versions of the PMBOK this was known as the Budgeted Cost of Work Scheduled (BCWS). Planned Value is usually charted showing the cumulative resources budgeted across the project schedule.

 

Earned Value (EV): is a snapshot of work progress at a given point in time. In previous versions of the PMBOK it was called the Budgeted Cost of Work Performed (BCWP).  EV reflects the amount of work that has actually been accomplished to date (or in a given time period), expressed as the planned value for that work.

 

Actual Cost (AC): which was previously called Actual Cost of Work Performed (ACWP), is an indication of the level of resources that have been expended to achieve the actual work performed to date (or in a given time period). It can indicate that the organization has spent more or less than it planned to spend to achieve the work performed to date.

 

DERIVATIONS OF THE BASIC EVM ELEMENTS

 

Planned Value (PV): The work planned for Project EZ, is the basis for the Planned Value and the performance measurement baseline for the project. This work plan establishes a time-phased budget for each task in the project. For example, a Task may have a budget of 48 resource units, which are phased over a four-month period. The plan for the next task calls for varying increments of Planned Value to be earned in each month of the task. As the planned work is accomplished, its budgeted cost becomes Earned Value.

 

Tasks may be planned and measured in whatever resource units are most suitable to the work, including labor hours, material quantities, and the monetary equivalent of these resources. As discussed in the next section, however, performance management works best when the physical progress of work is objectively planned and measured.

The techniques used in EVM to achieve this goal are Earned Value measurement techniques (sometimes called earning and crediting methods).

Earned Value is a measure of work performed. Techniques for measuring work performed are selected during project planning and are the basis for performance measurement during project execution and control. Earned Value (EV) techniques should be selected based on key attributes of the work, primarily 1) the duration of the effort and 2) the tangibility of its product.

 

The performance of separate and distinct work effort that is related to the completion of specific and tangible end products or services, and which can be directly planned and measured, is called discrete effort. In comparison, effort applied to project work that is not readily divisible into discrete efforts for that work, but which is related in direct proportion to measurable discrete work efforts, is called apportioned effort, and support-type activity that does not produce definitive end products is referred to as level of effort. Work performance is measured periodically, such as weekly or monthly. The EV technique selected for measuring the performance of discrete effort will depend on its duration and the number of measurement periods it spans. Discrete efforts that span one to two periods are often measured with fixed formula techniques, where a fixed percentage of work performance is credited at the start of the work and the remaining percentage is credited at the completion of the work. Discrete efforts of longer duration (greater than two periods) are measured with other techniques, including those known as weighted milestone and percent complete.

 

Fixed Formula

A typical example of fixed formula is the 50/50 technique. With this method, 50% of the work is credited as complete for the measurement period in which the work begins, regardless of how much work has actually been accomplished. The remaining 50% is credited when the work is completed. Other variations of the fixed formula method include 25/75 and 0/100. Fixed formula techniques are most effectively used on small, short-duration tasks.

 

Weighted Milestone

The weighted milestone technique divides the work to be completed into segments, each ending with an observable milestone; it then assigns a value to the achievement of each milestone. The weighted milestone technique is more suitable for longer duration tasks having intermediate, tangible outcomes.

 

Percent Complete

The percent complete technique is among the simplest and easiest, but can be the most subjective of the Earned Value measurement techniques if there are no objective indicators to back it up. This is the case when, at each measurement period, the responsible worker or manager makes an estimate of the percentage of the work complete. These estimates are usually for the cumulative progress made against the plan for each task. However, if there are objective indicators that can be used to arrive at the percent complete (for example, number of units of product completed divided by the total number of units to be completed), then this can be a more useful technique.

 

Apportioned Effort

If a task has a direct, supportive relationship to another task that has its own Earned Value, the value for the support task may be determined based on (or apportioned to) the Earned Value of the reference base activity.

 

Examples of proportional tasks include quality assurance and inspection activities. Using the apportioned effort technique, the project manager might determine that the Planned Value for the quality assurance task is 10% of the value of the main task. The total apportioned Planned Value for the quality assurance effort related to Task 2, therefore, would be 4.8 or 10 percent of 48 (which is the Planned Value for Task 2). Earned Value for each measurement period would be assigned for the quality assurance component in direct proportion to the Earned Value assigned for Task 2.

 

Level of Effort

Some project activities do not produce tangible outcomes that can be measured objectively. Examples include project management and operating a project technical library. These activities consume project resources and should be included in EVM planning and measurement. In these cases, the level of effort (LOE) technique is used for determining Earned Value. A Planned Value is assigned to each LOE task for each measurement period. This Planned Value is automatically credited as the Earned Value at the end of the measurement period. LOE should be used only when the task does not lend itself to a technique that actually measures physical work progress. LOE tasks have no schedule variance and bias the project data toward an on-schedule condition. They also can reflect misleading cost variances if they are not executed with the human resources on whom the cost estimates and planned values in the performance measurement baseline are based.

 

Earned Value

While value is planned and measured using the Earned Value techniques outlined above, value is earned by accomplishing the planned work. Earned Value is credited when progress is demonstrated in accordance with the Earned Value technique selected for the planned work. For discrete work, observable evidence of a tangible product or progress is required.

 

Actual Cost

To determine Actual Cost, an organization needs to have in place a system for tracking costs over time and by project component. The sophistication and complexity of this system will vary by organization and project, but, at a minimum, some type of cost tracking system must be in place that can tie costs to the plan and to the way Earned Value is credited.

 

PUTTING IT ALL TOGETHER

Once Planned Value, Earned Value, and Actual Cost have been determined, a manager can use these data points to analyze where a project is and forecast where it is headed.[i]

 

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[i] Guide to the Project Management Body of Knowledge (PMBOK@ Guide) Third Edition @2004 Project Management Institute, Four Campus Boulevard, Newtown Square, PA 19073-3299 USA