Earned value management (EVM)

Definition

Earned value management (EVM) is a project management technique that integrates the scope of work with the schedule and cost elements, allowing for the assessment of project performance and progress. This method compares the planned progress with the actual progress and the value of work completed to determine how well a project is adhering to its budget and timeline. EVM provides key metrics such as cost performance index (CPI) and schedule performance index (SPI), helping project managers make informed decisions to keep projects on track.

5 Must Know Facts For Your Next Test

1. EVM allows project managers to evaluate both cost and schedule performance, providing a comprehensive view of project health.
2. The key components of EVM are Planned Value (PV), Earned Value (EV), and Actual Cost (AC), which are used to calculate performance indices.
3. By using EVM, project managers can forecast future performance based on current trends, which aids in decision-making.
4. EVM can highlight potential issues early, allowing for proactive management actions to address problems before they escalate.
5. The integration of EVM into project management practices can improve accountability and communication among team members.

Review Questions

• How does earned value management help in assessing the health of a project?
  • Earned value management helps assess the health of a project by comparing planned progress with actual performance using three key metrics: Planned Value (PV), Earned Value (EV), and Actual Cost (AC). By analyzing these values, project managers can determine if a project is on track regarding budget and schedule. The insights gained from EVM allow managers to identify variances early, enabling timely corrective actions to keep the project aligned with its goals.
• Discuss how the Cost Performance Index (CPI) is calculated using earned value management and what it indicates about a project's budget status.
  • The Cost Performance Index (CPI) is calculated using earned value management by dividing the Earned Value (EV) by the Actual Cost (AC): $$CPI = \frac{EV}{AC}$$. A CPI greater than 1 indicates that the project is under budget, while a CPI less than 1 shows that costs are exceeding expectations. This metric helps project managers quickly assess budget efficiency and make necessary adjustments to prevent further overruns.
• Evaluate how integrating earned value management into project workflows can enhance overall project success rates.
  • Integrating earned value management into project workflows can significantly enhance overall project success rates by providing clear visibility into performance metrics related to cost and schedule. With regular monitoring through EVM, project teams can detect issues early, allowing for quick interventions before small problems become major setbacks. Furthermore, EVM fosters accountability among team members, as it establishes clear expectations and tracking mechanisms. This proactive approach not only improves decision-making but also enhances communication across the team, leading to more successful outcomes.

Related terms

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

Actual Cost (AC): The total cost incurred for the work performed by a specific point in time.

Cost Performance Index (CPI): A measure of cost efficiency calculated as the ratio of earned value to actual cost, indicating how well the project is sticking to its budget.