3 Elements of Earned Value Management

3 Elements of Earned Value Management

The three basic elements of earned value management are

(a) Planned Value (PV)

(b) Earned Value (EV)

(c) Actual Cost (AC)

(a) Planned Value (PV): Planned Value (or Budgeted Cost of Work Scheduled [BCWS]) is the cost of the work scheduled /planned as of a particular date. PV describes how far along the work is supposed to be at any given point in the project schedule. It is numeric reflection of the budgeted work that is scheduled to be performed, and it is the established base line against which the actual progress of the project is measured. Once the baseline is established, this baseline may only change to reflect cost and schedule changes as a result of changes in project scope of work. Graphically planned value is shown as cumulative budget of resources plotted across the project schedule. Planned Value can be looked at in two ways : Cumulative and Current.

Cumulative PV is the sum of approved budget for activities scheduled to be performed to date.

Current PV is the approved budget of activities scheduled to be performed during a given period. This period could represent days weeks months etc

PV (BCWS) can be defined as

1. Define Scope: What you are tasked to do? (Scope Statement)

2. Assign Scope: Break down scope into manageable parts (WBS)

3. Schedule Scope: Time – Phased, logic driven with critical path (Project Schedule)

4. Budget Scope: Develop cost budget for all approved scope (Performance Measurement Baseline)

5. Baseline: Snap shot in time, frozen, what performance measurement will be based on

Consider a simple four day project to understand PV

PV = Effort (Hrs) x Resource Rate (Rs/Hr)

PV for the above project can be represented graphically as follows

(b) Earned Value (EV):  It is also known as Budgeted Cost of Work Performed (BCWP). EV reflects the amount of work that has actually been accomplished till date (or in a given period of time). EV is the quantification of worth of the work done till to date. It tells in physical terms what has been accomplished. Physical accomplishment is determined by measuring the progress of the given activity. EV can be represented in current and cumulative fashion.

If EV is greater than PV it indicates project is ahead of schedule

If EV is less than PV it indicates project is behind schedule.

Following are the methods to measure progress of an activity

(i) Fixed Formula: This formula is applied to work packages and control accounts that span a short period of time. (< 3 months). This method applies a % complete to the start and finish of an activity. Generally the % used in the formula are 0/100, 50/50 or 25/75.

          0/100: nothing is earned when activity starts but 100% is earned when completed

          50/50: 50% is earned when activity starts and the balance is earned on completion

          25/75: 25% is earned on start and balance on completion

(ii) Milestone weighting: This method assigns budget value to each milestone. Not until full completion of each milestone is the budget earned. This method is used for work packages with long term duration and ideally should have milestone each month or accounting period.

(iii) Milestone weighting with % Complete: It assigns budget value to milestone and it is earned based on % of work completed against each individual milestone. This method is used for work packages with long term duration and ideally should have milestone each month or accounting period.

Other methods to measure progress of activity includes Units complete, Subjective percentage complete and Level of effort.

Consider the same 4 day project on including the table now looks as follows

EV = %Complete x Effort (Hrs) x Resource Rate (Rs/Hr)

Graphically the Earned Value and the planned value data can be plotted against time and can be represented as follows

(c) Actual Cost (AC): It is also known as Actual Cost of Work Performed (ACWP) and indicates the level of resources that have been expended to achieve the actual work performed to date (or in a given period of time)

If AC is greater than EV it indicates cost over run

If AC is less than EV it indicates under budget 

Incorporating the actual cost data to the above table, we get 

Comparing AC with EV

All three put together we get