Earned value

Definition

Earned value is a project management technique used to assess a project's performance by comparing the planned progress to the actual progress at a specific point in time. This method integrates scope, schedule, and cost to provide a comprehensive view of project health, enabling project managers to make informed decisions and adjustments. It allows for measuring how much work has been completed against what was planned and can indicate whether the project is on track, ahead, or behind schedule.

5 Must Know Facts For Your Next Test

1. Earned value helps in determining both schedule variance and cost variance, providing insights into project performance.
2. Using earned value allows project managers to forecast future performance and estimate completion dates based on current trends.
3. It requires consistent tracking and reporting of project metrics to maintain accurate earned value calculations.
4. The concept originated from the U.S. Department of Defense in the 1960s to improve cost control on projects.
5. Effective use of earned value can lead to early detection of issues, enabling timely corrective actions and better project outcomes.

Review Questions

• How does earned value analysis help in monitoring and controlling project performance?
  • Earned value analysis provides a clear framework for monitoring project performance by comparing what was planned versus what has been achieved. By calculating metrics like Schedule Variance (SV) and Cost Variance (CV), project managers can quickly identify whether the project is on track, ahead, or falling behind. This insight enables proactive management and timely interventions when discrepancies arise.
• What are the key components of earned value management, and how do they interact with each other?
  • The key components of earned value management include Planned Value (PV), Earned Value (EV), and Actual Cost (AC). Planned Value represents the budgeted work scheduled for completion, Earned Value indicates the budgeted work that has actually been completed, while Actual Cost reflects the actual expenses incurred. These components interact to provide insights through metrics like Schedule Variance (SV) and Cost Performance Index (CPI), helping to gauge overall project performance.
• Evaluate the implications of inaccurate earned value calculations on project decision-making.
  • Inaccurate earned value calculations can lead to misguided decision-making, as they may present a false picture of project health. This could result in either unnecessary panic due to perceived delays or complacency when issues are present. Ultimately, these inaccuracies hinder effective resource allocation, risk management, and stakeholder communication, which can derail project success and lead to significant cost overruns or missed deadlines.

Related terms

Planned Value:

The budgeted amount for the work that is scheduled to be performed by a specific time.

Actual Cost: The total expenses incurred for the work performed by a specific time.

Cost Performance Index (CPI):

A measure of cost efficiency calculated by dividing earned value by actual cost, used to evaluate project financial performance.