Earned value management

Definition

Earned value management (EVM) is a project management technique that integrates the scope of work with schedule and cost metrics to assess a project's performance and progress. It provides a systematic method for measuring project performance, allowing project managers to compare the planned progress against the actual progress. This technique not only highlights variances in performance but also forecasts future performance trends, making it an essential tool for effective cost estimation, budgeting, project planning, scheduling, and control.

5 Must Know Facts For Your Next Test

1. Earned value management allows project managers to identify performance trends early, enabling timely decision-making to keep projects on track.
2. EVM uses three key metrics: Planned Value (PV), Actual Cost (AC), and Earned Value (EV) to analyze project performance.
3. The variances obtained from EVM calculations, such as Cost Variance (CV) and Schedule Variance (SV), help assess whether a project is ahead or behind schedule and over or under budget.
4. Forecasting future performance using EVM involves methods like Estimate at Completion (EAC), which can predict the total cost at completion based on current performance trends.
5. EVM is particularly useful in large-scale projects where budget and schedule control are critical for overall success.

Review Questions

• How does earned value management help in assessing the overall health of a project?
  • Earned value management provides a comprehensive view of a project's status by integrating scope, schedule, and cost. By comparing Planned Value (PV), Actual Cost (AC), and Earned Value (EV), project managers can determine variances that signal whether the project is on track. This systematic approach helps in identifying issues early and allows for proactive adjustments to align the project's performance with its goals.
• Discuss how earned value management can improve budget forecasting and cost control during a project's lifecycle.
  • Earned value management enhances budget forecasting by providing real-time insights into cost performance through metrics like Cost Performance Index (CPI) and variances. With these metrics, project managers can analyze discrepancies between planned and actual costs, allowing for more accurate projections of future expenses. This data-driven approach aids in making informed decisions to mitigate risks and optimize resource allocation throughout the project's lifecycle.
• Evaluate the impact of earned value management on project decision-making and stakeholder communication.
  • Earned value management significantly enhances decision-making by supplying clear performance data that enables project managers to make informed choices based on current progress and potential future outcomes. By regularly reporting EVM metrics to stakeholders, project managers can communicate not only the current status but also anticipated challenges, fostering transparency. This open communication builds trust among stakeholders and facilitates collaborative efforts to address any issues that may arise during the project's execution.

Related terms

Planned Value (PV): The budgeted amount for the work scheduled to be completed by a specific time in the project timeline.

Actual Cost (AC): The actual expenses incurred for the work completed by a specific time in the project timeline.

Cost Performance Index (CPI): A measure used in earned value management to assess cost efficiency by comparing earned value to actual costs.