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A Tool for Managing Projects



Earned Value Management

Introduction

Earned Value Management (EVM) is a project management technique that integrates technical performance requirements, resource planning, and schedules, while taking risk into consideration. There are two principal objectives of requiring contractors to use EVM: (1) cause the contractor to use effective internal technical, cost and schedule management control systems and (2) provide the buyer organization with timely project performance information that enables the buyer to make effective decisions concerning the project. EVM information tracks the status of the project in relation to the contract (requirements, cost, and schedule) and makes it possible for both the contractor and the buyer to identify and address possible problems and to project future performance based on the project's performance to date. As a result, EVM supports informed and timely decision making on the part of the contractor as well as on the part of the buyer.

The EVM process seeks to objectively measure how much work has been accomplished on a project within a specified period and the cost of doing that work. This information enables comparisons to be made with the amount of work and the costs that were planned (scheduled) for that period. All project work is planned, budgeted, and scheduled in time-phased "planned value" increments constituting a Performance Measurement Baseline (PMB).

Baseline Plan

The performance measurement baseline plan in Figure 1 shows that 6 work units (identified as A through F) are to be completed and have a total "planned value" (cost) of $100 for the time period covered by this report.

Work Unit
A
B
C
D
E
F
Total
Planned value ($)
10
15
10
25
20
20
100

Figure 1. Baseline Plan Work Units

Schedule Variance

As work is performed, it is ''earned'' on the same basis as it was planned, in dollars or other quantifiable units such as labor hours. Planned value compared with earned value measures the dollar volume of work planned vs. the equivalent dollar volume of work accomplished. Any difference is called a schedule variance. In contrast to what was planned, Figure 2 shows that work unit D was not completed and work unit F was never started, or $35 of the planned work was not accomplished. As a result, the schedule variance shows that 35 percent of the work planned for this period was not done.

Work Unit
A
B
C
D
E
F
Total
Planned value ($)
10
15
10
25
20
20
100
Earned value ($)
10
15
10
10
20
-
65
Schedule variance
0
0
0
-15
0
-20
-35 = -35%

Figure 2. Schedule Variance Work Units

Cost Variance

Earned value compared with the actual cost incurred (from contractor accounting systems) for the work performed provides an objective measure of planned and actual cost. Any difference is called a cost variance. A negative variance means more money was spent for the work accomplished than was planned. Figure 3 shows the calculation of cost variance. The work performed was planned to cost $65 and actually cost $91. The cost variance is 40 percent.

Work Unit
A
B
C
D
E
F
Total
Earned value ($)
10
15
10
10
20
-
65
Actual cost ($)
9
22
8
30
22
-
91
Cost variance
1
-7
2
-20
-2
0
-26 = -40%

Figure 3. Cost Variance Work Units

Spend Comparison.

The typical spend comparison approach, whereby contractors report actual expenditures against planned expenditures is not related to the work that was accomplished. Figure 4 shows a simple comparison of planned and actual spending, which is unrelated to work performed and therefore not a useful comparison. The fact that the total amount spent was $9 less than planned for this period is not useful without the comparisons with work accomplished.

Work Unit
A
B
C
D
E
F
Total
Planned spend ($)
10
15
10
25
20
20
100
Actual spend ($)
9
22
8
30
22
-
91
Variance
1
-7
2
-5
-2
20
9 = 9%

Figure 4. Spend Comparison Approach Work Units

Use of Earned Value Data

The benefits to project management of the earned value approach come from the disciplined planning required and the availability of metrics which show real variances from plan in order to generate necessary corrective action.

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