Earned Value Management (EVM)

Name:
Instructor:
Course:
Date:
 Earned Value Management 2

Earned Value Management (EVM)

Earned Value Management (EVM), as an advanced project management technique, is
prominently recognized for its value in offering a comprehensive and quantitative means to
assess, review, and forecast project performance. At its core, EVM reconciles the comparison
between what was planned versus what was actually accomplished, and what it cost to achieve
this, effectively blending aspects of the project management triangle: scope, time, and cost
(Vanhoucke, 2009).
EVM’s Key Components
Planned Value (PV): Often referred to as the Budgeted Cost of Work Scheduled (BCWS), PV
signifies the value of work that was envisioned to be finalized within a specific timeframe. It
represents the baseline against which actual performance is measured, serving as the project's
financial blueprint. In simple terms, it's a projection of how much work should have been
completed and how much it should have cost.
Actual Cost (AC): This is straightforward. Known also as the Actual Cost of Work Performed
(ACWP), it portrays the cumulative expenses that have been incurred for the tasks performed
during a certain time frame. It essentially answers the question: “How much did we actually
spend?” (Hunter, Fitzgerald and Barlow, 2014).
Earned Value (EV): Also known as the Budgeted Cost of Work Performed (BCWP), EV
provides the value of the real work achieved by a given time, in terms of the budget set out in the
project’s plan. It's the monetary worth of completed work, showcasing the convergence of scope
(what we've done) and budget (how much it was supposed to cost (Hunter, Fitzgerald and
Barlow, 2014)).
Cost Variance (CV): A straightforward metric, CV is the difference between EV and AC. If the
result is positive, it indicates a project under budget, but a negative value highlights an
overspend.
Schedule Variance (SV): SV is discerned by deducing PV from EV. A positive SV suggests that
more work was completed than anticipated for the period, signifying the project is ahead of
schedule. Conversely, a negative SV implies a lag (Hunter, Fitzgerald and Barlow, 2014).
Cost Performance Index (CPI): This ratio-based metric is achieved by dividing EV by AC. If
the CPI exceeds 1, it indicates that the project is realizing cost efficiency. A value below 1 is a
warning signal for cost overruns (Hunter, Fitzgerald and Barlow, 2014).
Schedule Performance Index (SPI): Calculated by the division of EV by PV, SPI helps assess
schedule efficiency. An SPI greater than 1 is a sign that the project is progressing faster than
anticipated, while a value below 1 shows a delay in progress (Vanhoucke, 2009).
In essence, Earned Value Management stands as an indispensable tool in the armory of project
managers. Its brilliance lies not just in tracking the current performance but also in its predictive
power, enabling managers to make timely and informed decisions to steer projects towards
success.
 Earned Value Management 3

2. Calculating PV, AC, and EV

For Bob:
PV = $2,000
AC = $1,500
EV = 60% * $2,000 = $1,200
For Sue:
PV = $2,000
AC = $2,500
EV = 75% * $2,000 = $1,500
For Roger:
PV = $2,000
AC = $500
EV = 10% * $2,000 = $200
For Mike:
PV = $2,000
AC = $3,000
EV = 50% * $2,000 = $1,000
For Jill:
PV = $2,000
AC = $1,500
EV = 80% * $2,000 = $1,600
PV, AC, and EV for the entire project:
Total PV = $2,000 (Bob) + $2,000 (Sue) + $2,000 (Roger) + $2,000 (Mike) + $2,000 (Jill) =
$10,000
Total AC = $1,500 (Bob) + $2,500 (Sue) + $500 (Roger) + $3,000 (Mike) + $1,500 (Jill) =
$9,000
Total EV = $1,200 (Bob) + $1,500 (Sue) + $200 (Roger) + $1,000 (Mike) + $1,600 (Jill) =
$5,500
Total Planned Value (PV) = $10,000
 Earned Value Management 4

Total Actual Cost (AC) = $9,000

Total Earned Value (EV) = $5,500

3. Calculate all Variances and Performance indices for the Project. Your answers should
clearly indicate the relevant formulae and calculation steps [5 marks]
Planned Value (PV) for the entire project:
PV = Total Budgeted Amount = $10,000
Actual Cost (AC) for the entire project:
AC = Sum of all invoices submitted = $1,500 + $2,500 + $500 + $3,000 + $1,500
= $9,000
Earned Value (EV) for the entire project:
For each programmer:
EV = (% of tasks completed * PV for each programmer)
For Bob:
EV = 60% of $2,000 = $1,200
For Sue:
EV = 75% of $2,000 = $1,500
For Roger:
EV = 10% of $2,000 = $200
For Mike:
EV = 50% of $2,000 = $1,000
For Jill:
EV = 80% of $2,000 = $1,600
Sum of EV for all programmers:
Total EV = $1,200 + $1,500 + $200 + $1,000 + $1,600 = $5,500

Cost Variance (CV):

CV = EV - AC
CV = $5,500 - $9,000 = -$3,500
 Earned Value Management 5

Schedule Variance (SV):

SV = EV - PV
SV = $5,500 - $10,000 = -$4,500
Cost Performance Index (CPI):
CPI = EV/AC
CPI = $5,500 / $9,000 ≈ 0.611
Schedule Performance Index (SPI):
SPI = EV/PV
SPI = $5,500 / $10,000 = 0.55
Results:
CV = -$3,500
SV = -$4,500
CPI = 0.611
SPI = 0.55

4. Status Update of the Software Development Project

The crux of project management lies not only in planning but more significantly in
tracking and adjusting based on the actual performance. By employing the Earned Value
Management (EVM) tool, we have unearthed vital insights into our ongoing software
development project. Here’s a comprehensive analysis of the project’s performance against its
initial plans.
To begin with, the Earned Value (EV) of our project, which is essentially the monetary
value of the work we’ve completed so far, stands at $5,500. This implies that, as of this moment,
we’ve only achieved work worth $5,500, even though we've spent more. The Actual Cost (AC),
representing what we've expended for the work accomplished to date, is $9,000. This stark
difference between our EV and AC immediately underscores a financial inefficiency.
Delving into the Cost Variance (CV), which calculates the cost performance by deducting
AC from EV, we land at a negative figure: -$3,500. This deficit underscores that the project has
overshot its budget. In other words, we've spent $3,500 more than what was originally estimated
for the work we've managed to complete. This disparity raises questions about the project's
financial management. Perhaps there were unforeseen challenges or inefficient work processes
that led to increased costs.
 Earned Value Management 6

The Schedule Variance (SV) paints a similarly troubling picture. The SV, determined by
subtracting the Planned Value (PV) from the EV, stands at -$4,500. This reveals that the project
is behind its intended schedule. Despite expecting to have achieved work worth $10,000 by now
(as per the PV), the actual value of the work done (EV) is significantly lower. The project is
lagging in terms of time.
Furthermore, the indices – Cost Performance Index (CPI) and Schedule Performance
Index (SPI) – translate these variances into ratios, giving us a clearer understanding of the
magnitude of our project's inefficiencies. The CPI, at 0.611, is derived by dividing EV by AC.
This indicates that for every dollar spent, we're only realizing 61.1 cents worth of work. And
evidently, the project is not cost-effective at present.The CPI, at 0.611, is derived by dividing EV by AC. This indicates that for every dollar spent, we're only realizing 61.1 cents worth of work. And evidently, the project is not cost-effective at present.

Similarly, the SPI, which is 0.55, is determined by dividing EV by PV. This number
implies that we're operating at only 55% of our planned efficiency when it comes to the
schedule. The project is considerably behind its intended timeline.
In summary, the project is currently facing a two-fold challenge: It is both over-budget
and behind schedule. The disparities between what was planned versus what has been achieved
in terms of both time and cost are substantial. While the programmers have logged 90 hours of
work, their combined deliverables do not mirror this time investment. No individual programmer
has achieved 90% of their assigned task, leading to a skewed relationship between time, cost, and
deliverables.
To ensure the project gets back on track, there’s an urgent need for rigorous intervention.
Potential measures could encompass re-evaluating task allocations, ensuring clearer
communication, and perhaps additional training or resources where required. It might also be
prudent to reassess the initial estimates, and if possible, allocate additional resources, either in
terms of time, finance, or manpower, to ensure the project’s successful completion. While the
current status might seem daunting, recognizing and understanding these challenges is the first
step in the right direction. With timely interventions, strategic recalibrations, and efficient
management, there’s a strong possibility to steer this project back towards success.
Day Planned Value (PV) Actual Cost (AC) Earned Value (EV)
1 $1,428.57 $1,285.71 $785.71
2 $2,857.14 $2,571.42 $1,571.42
3 $4,285.71 $3,857.13 $2,357.13
4 $5,714.28 $5,142.84 $3,142.84
5 $7,142.85 $6,428.55 $3,928.55
6 $8,571.42 $7,714.26 $4,714.26
7 $10,000 $9,000 $5,500
 Earned Value Management 7

References
Hunter, H., Fitzgerald, R. and Barlow, D., 2014. Improved cost monitoring and control through
the Earned Value Management System. Acta Astronautica, 93, pp.497-500.
Vanhoucke, M., 2009. Measuring time: Improving project performance using earned value
management (Vol. 136). Springer Science & Business Media.