Earned Value Management: Concept and Application in Project Management

Earned Value Analysis is a project management concept which is used to evaluate the progress of an ongoing project. It combines measurements of cost and time and provides an integrated analysis which results in a very effective tool for project monitoring.

Earned Value Analysis compares the ongoing project's progress against the estimates prepared at the start of the project and calculates 3 primary indicators

• Schedule Variance
• Time Variance
• Cost Variance

Earned value analysis is always performed on a specific date and denotes the progress of the project as on that date of review (status date).

Budgeted Cost of Work Scheduled (BCWS): Indicates the cost of work that should have been completed as of the date of review as per the original schedule planned and original budget, i.e. the budgeted (estimated) cost for the work scheduled to be performed uptil the status date.

Budgeted Cost of Work Performed (BCWP): Indicates the budgeted cost of work that has actually been completed as of the date of review as per the original schedule planned and original budget, i.e. the budgeted (estimated) cost for the actual work performed uptil the status date.

Actual Cost of Work Performed (ACWP): Indicates the actual cost of work that has been completed as of the date of review (incurred costs and not budgeted costs), i.e. the actual (incurred) cost of the work performed uptil the status date.

For tasks which have been completed, BCWP and BCWS will be equal. BCWP is a measure of "Earned Value" of a project. Earned Value Analysis can be used to control the cash flow in a project.

BCWS, BCWP and ACWP are used to calculate the schedule, cost and time variances as indicated below.

Schedule Variance (SV) = BCWS - BCWP

Cost Variance (CV) = BCWP - ACWP

Time Variance (TV) = The time required for the project to come back on schedule.

The above method can be used to calculate the variances (TV, SV, CV) as indicated.

Performance Indexes can also be calculated as given below.

Cost Performance Index (CPI) = BCWP / ACWP

• If it is greater than 1, it indicates the project is progressing under-budget and vice versa.

Schedule Performance Index (SPI) = BCWP / BCWS

• If it is greater than 1, it indicates the project is progressing ahead of schedule and vice versa.

By calculating the 3 variances, CPI and SPI, Earned Value Analysis can be used in Project Monitoring & Control.

A graphical depiction of Earned Value Analysis is shown below.

click to enlarge