Earned value management

Definition

Earned value management (EVM) is a project management technique used to assess a project's performance by comparing the planned progress with the actual progress and budget expenditures. It integrates project scope, schedule, and cost to provide an accurate measure of project performance, allowing managers to identify variances and forecast future performance. This approach helps in making informed decisions regarding resource allocation and project adjustments.

5 Must Know Facts For Your Next Test

1. Earned value management allows project managers to objectively measure project performance using key metrics such as earned value (EV), planned value (PV), and actual cost (AC).
2. A positive Cost Performance Index (CPI) indicates that the project is under budget, while a CPI less than 1 signifies that costs are exceeding budget expectations.
3. EVM can be used at any stage of a project but is most effective when applied consistently from the beginning to enable trend analysis.
4. The Schedule Performance Index (SPI) is another crucial metric in EVM that compares earned value to planned value, helping to evaluate schedule efficiency.
5. By utilizing EVM, project managers can make timely decisions about corrective actions needed to bring projects back on track if they are found to be deviating from their planned course.

Review Questions

• How does earned value management integrate project scope, schedule, and cost to provide insights into project performance?
  • Earned value management integrates project scope, schedule, and cost by using three key metrics: Planned Value (PV), Actual Cost (AC), and Earned Value (EV). PV represents the budgeted work scheduled for completion, while AC reflects the actual costs incurred. EV quantifies the value of work actually performed. By comparing these metrics, EVM provides insights into how well a project is adhering to its budget and schedule, helping managers identify any variances and make necessary adjustments.
• Discuss how the Cost Performance Index (CPI) is calculated in earned value management and its significance in project evaluation.
  • The Cost Performance Index (CPI) is calculated using the formula CPI = EV / AC, where EV is the earned value and AC is the actual cost. This index measures cost efficiency in a project; a CPI greater than 1 indicates that the project is under budget, while a CPI less than 1 signals that costs are exceeding expectations. Analyzing CPI helps project managers evaluate financial performance and determine whether to adjust resource allocations or take corrective actions.
• Evaluate the importance of earned value management in ensuring successful project completion and how it impacts decision-making processes.
  • Earned value management plays a vital role in ensuring successful project completion by providing a structured approach to monitor progress and control costs. By continuously analyzing performance metrics like EV, PV, and AC, project managers can quickly identify variances and potential issues early on. This proactive approach allows for informed decision-making regarding resource reallocation or adjustments needed to keep the project aligned with its objectives. Ultimately, EVM enhances accountability and transparency in project management, leading to more predictable outcomes.

Related terms

Planned Value (PV): The budgeted cost of work that is scheduled to be completed by a specific point in time.

Actual Cost (AC): The total cost incurred for the work performed during a specific time period.

Cost Performance Index (CPI): A measure that indicates the cost efficiency of a project, calculated as the ratio of earned value to actual cost.