Earned Value Management: Knowing Where Your Project Really Stands
Earned value management (EVM) is a project performance measurement technique that integrates scope, schedule, and cost data to provide an objective view of project status. It answers two questions that traditional cost reporting cannot: 'Are we getting the work done that we planned to get done?' and 'How much will the project cost at completion, based on our current performance?'
EVM is required for many federal and provincial government capital projects in Canada and is increasingly expected in public-sector project governance. Here is how to read and use it.
The Three Core EVM Values
Planned Value (PV). The budgeted cost of work that was planned to be done by the measurement date. This is the baseline plan -- what should have been completed and what it was budgeted to cost.
Earned Value (EV). The budgeted cost of work that has actually been completed by the measurement date. This is what has been accomplished -- measured in budget dollars, not actual dollars. If a task was budgeted at $50,000 and is 60% complete, its earned value is $30,000.
Actual Cost (AC). The actual cost of work performed by the measurement date. This is what has actually been spent.
The Key EVM Metrics
Schedule Variance (SV) = EV - PV. Positive = ahead of schedule. Negative = behind schedule. SV = 0 means exactly on schedule.
Cost Variance (CV) = EV - AC. Positive = under budget. Negative = over budget. CV = 0 means exactly on budget.
Schedule Performance Index (SPI) = EV / PV. SPI > 1 means ahead of schedule; SPI < 1 means behind schedule. An SPI of 0.85 means you are getting 85 cents of planned work done for every dollar of planned schedule.
Cost Performance Index (CPI) = EV / AC. CPI > 1 means under budget; CPI < 1 means over budget. A CPI of 0.90 means you are getting 90 cents of work done for every dollar spent.
Estimate at Completion (EAC) = BAC / CPI (where BAC is Budget at Completion). This forecasts the total cost at completion based on current cost performance.
Reading an EVM Report: A Practical Example
A highway construction project has a Budget at Completion (BAC) of $24 million and is twelve months into a twenty-four-month schedule. The project reports: Planned Value (PV) = $12 million (what should have been done by month 12), Earned Value (EV) = $9.6 million (what has actually been completed), Actual Cost (AC) = $10.8 million.
From these three values: SV = EV - PV = $9.6M - $12M = -$2.4M (behind schedule). CV = EV - AC = $9.6M - $10.8M = -$1.2M (over budget). SPI = EV/PV = 9.6/12 = 0.80 (only 80% of planned work completed). CPI = EV/AC = 9.6/10.8 = 0.89 (getting 89 cents of work per dollar spent). EAC = BAC/CPI = $24M/0.89 = $26.97M (forecasted total cost). This project is behind schedule and over budget, and if performance does not improve, it will cost approximately $27 million to complete rather than $24 million.
XNM provides project performance advisory including earned value management to public-sector and capital-project clients. Reach out to XNM's program & project delivery advisory team to discuss project performance measurement for your organisation.