Earned value management

Definition

Earned value management (EVM) is a project management technique that integrates project scope, schedule, and cost parameters to assess project performance and progress. It provides a quantitative method for evaluating how much of the planned work has been completed at a specific point in time and compares it against the budgeted costs. By analyzing these metrics, EVM helps project managers identify variances and make informed decisions about project adjustments and forecasting.

5 Must Know Facts For Your Next Test

1. Earned value management is primarily used to measure project performance by comparing the planned progress with the actual progress and associated costs.
2. EVM utilizes three key metrics: Planned Value (PV), Earned Value (EV), and Actual Cost (AC) to provide insights into project performance.
3. A positive Cost Performance Index (CPI) greater than 1 indicates that a project is under budget, while a CPI less than 1 suggests it is over budget.
4. EVM can help in predicting future performance trends through forecasting techniques, like Estimate at Completion (EAC) and Estimate to Complete (ETC).
5. By employing EVM, project managers can identify potential issues early in the project lifecycle, allowing for proactive corrective actions to keep projects on track.

Review Questions

• How does earned value management enable project managers to monitor and control project performance?
  • Earned value management provides project managers with a structured approach to assess performance by comparing Planned Value, Earned Value, and Actual Cost. This comparison helps identify variances in schedule and budget, enabling managers to determine if the project is on track. By analyzing these metrics regularly, managers can make data-driven decisions to adjust resources or timelines as needed, thus maintaining control over project outcomes.
• Discuss the relationship between earned value management and traditional project planning techniques.
  • Earned value management complements traditional project planning techniques by adding a quantitative measure of performance against scope, schedule, and cost. While traditional planning focuses on setting baselines for these parameters, EVM assesses actual progress relative to those baselines. This integration allows for a more comprehensive view of project health, as EVM highlights discrepancies early on and facilitates better forecasting and decision-making.
• Evaluate the impact of using earned value management on stakeholder communication and decision-making processes within a project.
  • Utilizing earned value management enhances stakeholder communication by providing clear and objective metrics that illustrate project status. Stakeholders can easily understand how much work has been completed relative to the planned schedule and budget through EVM reports. This transparency fosters trust and ensures informed decision-making as stakeholders can assess potential risks or opportunities for intervention. By keeping all parties aligned with factual data, EVM supports more effective collaboration and timely responses to issues as they arise.

Related terms

Planned Value (PV): The value of the work that was planned to be completed by a specific time in the project timeline.

Actual Cost (AC): The total cost incurred for the actual work performed during a specified period of time.

Cost Performance Index (CPI): A measure that indicates the cost efficiency of the work accomplished, calculated as the ratio of earned value to actual cost.