Earned Value Management and Its Significance

By Syed Irfan

Last updated on Mar 4 2022

Earned Value Management and Its Significance

Overview of Earned Value Management (EVM) System

 

The project manager has many tools that he can use to manage a successful project. One of these tools is the Earned Value Management System (EVM), an essential tool for managing a project that a project manager can use. Earned Value Management (EVM) is used to predict the project's sustainability at the end of the project. Using Earned Value Management (EVM), a project manager can know about the progress of the project and its performance. Through Earned Value technique, the project manager can understand its benefits to his organization. Earned value management (EVM) is often treated with its acronym EVM. Now let us know about the brief history of EVM and how it has become one of the best tools for checking project performance throughout the project by the project manager.

 

Brief History of Earned Value Management (EVM)

 

Earned value management (EVM) technique has been practiced worldwide for the past 50 years, and it has been prevalent all over the globe because of its relevance in project management. The concept of EVM earned value management was discovered in the United States of America in the 1960s, and from then, it's been used in project management. Initially, earned value management (EVM) was used only for defence programs that included ballistic missiles.

But since the beginning of the twentieth century, Earned Value Management Systems began to be used by the industry. Initially, this technique was called pert/cost. The United States Department of Defense came up with a 35-criteria approach used in project management. Still, it was initially refused to be used by most project managers. This 35-criteria approach concept was called Cost/Schedule Control System Criteria (C/SCSC).

The cost/Schedule Control System Criteria (C/SCSC) approach was beneficial for financial control and was treated as the most effective tool for financial work. Earned Value Management was incorporated into the architecture and engineering industry in 1979, and David Burstyn published it in a magazine called Public Work. Gradually, this technique was included in the earned value in project management training program, and it has been taught under it since then.

Between 1980 and 1990, the End Value Management System was used in many projects management metrologies by many project managers who were no longer the value management specialist. They also started using it a lot. Between 1995 and 1998, the criteria for earned value management (EVMs) were reduced from 35 to 32 and were used by most industries as ANSI EIA 748-A standard.

 

Principle or Primary Measures of Earn Value Management (EVM)

Earned value analysis in project management is one of the best practices. We follow some primary measures or principles of earn value management (EVM) while using this methodology to complete a project. Four preliminary steps or principles of the EVM system help us design the best methods for effective project management. These measures use to identify the cost for the project that could be very effective for project management as we have already identified the price for the project.

 

Budget At Completion (BAC)

This measure estimate or represent whole the expenses for the project completion. The total budget that is sanctioned for a specific project from its starting date to ending date is considered in this step. We try to complete the project within the given budget to maximize profit.

 

Budgeted Cost of Work Scheduled (BCWS)

This measure represents all budgeted costs that we spend on the work done in the project according to the plan we made for the project and the schedule we have decided to complete the project. This measure is also known as planned value as cost or expenses on the project scheduled or planned before starting the work.

 

Budgeted Cost of Work Performed (BCWP)

According to the planned budget, the cost of work performed is defined as the total task performed during a project. This measure, also known as earned value, is wholly based on the project's expenditure.

 

Actual Cost of Work Performed (ACWP)

It is the actual cost being expended to complete work in a project. This measure is named the actual performance cost as it is not a budgeted cost, whereas this is the actual money that we have spent to complete a project. Cost performance is the difference between the budgeted cost and actual cost.

 

Earned Value Analysis (EVA)

Through Earned Value Analysis (EVA), project managers check how much money and report have been used actually to execute a project. EVM analysis plays a significant role in understanding how much work has been done on a project. Achievement of any project is recognized and judged by this earned value method. This method is entirely based on the project's earned value. We also call the Project Earned Value as Budgeted Cost of Work Performed (BCWP), which the project manager uses in project management. Budgeted Cost of Worked Performed (BCWP) helps project managers understand that the project's performance cost or estimated cost is going as per the actual budget. When the budget cost is already met, it is easier for the project manager to work on it. It is also easier for them to forecast how profitable their project will be to their company.

 

Earned Value Management in Projects

 

Purpose of Earn Value Management (EVM)

 

Earn value management (EVM) system provides much more information than a typical system for a project investigation. EVM System enables a project manager to get all the details related to any project. EVM System answers all these questions from where a project started and when it will end. How much time would this project take to complete? It helps a project manager know the answers to all these questions, how much work has been done in a project, and how long it will complete it. The effectiveness of project management is also judged by earned value management and the very accurate completion of the project. All the difficulties that a project manager has to face in completing a project, this method brings all those problems before him so that the project manager can solve them as soon as possible and complete his project very effectively. Earned Value Management gives the project manager complete control over each activity and the minor problems encountered. This is the purpose of earned value management system in project management.

 

 

Earn Value Technique

There are four main EVM techniques that project managers use to complete their projects correctly. The entire project management system depends on how well the project will be completed on these four primary earned value management techniques. Now let us talk about these four critical earning value management system techniques. The project manager uses the below-mentioned earn value technique to complete a project.

 

Schedule Variance (SC): Schedule variance is how we know how much work was done. Before starting the project, this technique determines the difference between the actual work and the planned work. It tells whether our project is being done on time or not and whether there is any delay.

Cost Variance (CV): Cost variance is the technique by which we know the difference between the actual budgeted cost and the planned budget cost. This technique helps determine whether the money intended to complete a project was made or spent. This technique can know whether a project was completed in the stipulated budget or not and encourages us to complete the project within our budget.

 

Schedule Performance Index (SPI): The schedule performance index is a technique by which a project manager calculates the ratio between the approved budgeted cost and the actual budgeted cost. The company does some budget suction to complete a project while on project completion. We can see some variation in the cost, which helps a project manager determine the difference between the approved cost of the project and the cost of the project. If there is no change, i.e., the ratio is one, it means the efficiency of the project is exceptionally well.

 

Cost Performance Index (CPI): The cost performance index technique provides the ratio of the approved budget cost to complete a project and the actual amount of money spent on completing the project. This measure shows the price and estimated cost of the project to the project manager; that's why we also call this technique the project cost efficiency of the project.

 

Metrics of Earn Value Management

 

There are three primary metrics of the EVM system that a project manager uses while working on a project. These three matrices are those methodologies on which the acquired value management (EVM) system worked. The project manager must read all these three matrices to complete the project correctly. These three significant metrics are planned value, earned value, and actual value. Here we will briefly discuss these three matrices, which are mentioned below.

  • Planned Value: The planned value matrix tracks the project's overall performance and provides a baseline and review of the entire project to a project manager. Plan review helps get to know a project and provides every basic information to the project manager.
  • Earned Value: The received value represents all the revenue earned by a project after its completion. When a project manager completes a project, the milestones achieved are shown. The earned value of the project is the metric helping determine the net profitability of the project.
  • Actual Cost: Actual cost is the cost incurred by a company to complete a project. How much time, how much money has been invested? We get all this information here to make the project ultimately successful. As we know that a whole team works to complete any project, the cost of completing this project is also very high, whose details we get in this.

 

In Earned Value Management (EVM) System, we learned how a Project Manager could effectively complete a project through Earned Value Management and benefit the company. Starting in the United States, this technology was developed worldwide and used by every industry. This technique is a very effective major for project management.

In today's era, every project manager should know how to use this technique to reduce the cost of his company on a project and increase its profit. It is a unique methodology that can significantly help any project manager do project management.

Every project manager needs to manage the schedule, cost, time, and scope of any project. This technology is fully capable of enabling a project manager to monitor and manage the task correctly and fully meets the industrial measures. We talked about how Earned Value Analysis works on Cost and Value and how it helps us understand the cost and value within any project.

Earned Value Management forecasts the future performance of any project and increases its scope of improvement so that the project is more beneficial to the company after completion. In this article, we talked about many things included in EVM project management system on which EVM System works. Project Management is a very competitive thing that requires a lot to manage, and Earned Value Management (EVM) system plays a significant role in managing it.

Earned Value Management (EVM) works on the three main principles necessary to complete any project. Achieving a task requires the scope, cost, and deadline of the project, and all these three things are entirely controlled by Earned Value Management (EVM) system. This technology gives any project manager a solid position to handle a project very well and is essential not only for the project manager but also for the company. That is why this tool is widely accepted all over the globe and practiced in every industry.

 

 

The Future Scope of Earned Value Management (EVM) System

We already know that all companies use Earner Value Management (EVM) to better their projects. But in the coming future, its price will increase more because people have to complete the project as quickly as possible. With efficiency, it requires a lot of such tools and technology; that is why the need for Earned Value Management will be seen a lot in the future. Will be able, Through Earner Value Management (EVM), you can see the performance of any project, and it is applicable not just for one industry but for every industry. Yes, the EVM System is not implemented in every project. Still, this tool is the most efficient among all the existing tools, and its quality will increase even more in the future.

 

Benefits of Earned Value Management (EVM) System

We have various benefits of earned value management (EVM). The benefits of earned value management (EVM) is illustrated below.

  • Earned Value Management (EVM) is effortless to understand and can complete the project with very high efficiency.
  • From time to time, a project manager can check the progress of his project and make necessary changes in the project.
  • The stakeholders invest their money in every project, so it becomes the right of the stakeholders to see the project's progress and has the right to know about the project. Hence Earned Value Management (EVM) provides this facility to the stakeholders.
  • A project manager can use Earned Value Management (EVM) in multiple areas, project management, program management, or portfolio management. Earned Value Management (EVM) can be used everywhere.
  • Project managers can reframe project performance using Earned Value Management (EVM) systems.
  • Any project manager can get the status of his project by using earned value management (EVM) system, and he does not have to wait for the completion of the project. The project's success is considered fixed, and benefiting the company increases.

Earned Value Management in project management

 

Conclusion

The EVM system is a very useful technique at our disposal for effective project management. The purpose of the earned value analysis is to better understand the larger picture of the project by studying certain details. This is done with the help of earned value charts or EVM charts. A good understanding of this system coupled with the ability to analyze these charts could help one to a great extent in the domain of project management. Taking the help of a reputed training platform like Sprintzeal will help further your knowledge in this arena. Learning with the help of Earned Value Management examples provided in their courses will help you ease into the concept and further your skills in project management. Join now!

 

Check out these courses to start learning –

PRINCE2® 6th Edition Foundation Certification Training Course

PMI PBA Certification Training Course

 

Check out this articles to learn more –

PROJECT MANAGEMENT TIPS - BEST OF 2022

About the Author

Sprintzeal   Syed Irfan

Irfan is a technical content writer in the education niche with vast experience in creating content for certifications and training programs. He creates engaging, easy-to-understand, and valuable content for both beginners and professionals aspiring to enhance their careers. 

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