What is Earned Value?[1][2]
- Earned value analysis is a critical tool in construction project management, serving as a quantitative method to evaluate the real-time performance and progress of a project. By integrating various key components of a project — schedule, scope, and cost — EVA provides a comprehensive picture of where the project stands at any given moment compared to where it was planned to be.
- Earned value (EV) helps project managers measure a project's performance. It's the relationship between the budget and the percentage of completion of a project calculating the health and status of any project by taking time and cost into consideration.
- It's essential to realize that it is more than just a snapshot of a project's progress it's a dynamic tool that integrates both time and cost into a single metric. Earned Value measures the actual value of the work completed at any given point, allowing project managers to compare this value against the planned costs and schedule. This dual perspective offers powerful insights, as it doesn’t simply show what’s been spent or how much time has passed, but rather what has been achieved for that investment.
How Earned Value Calculated
Earned value can be computed this way :
Earned Value = Percent complete (actual) x Task Budget.
Examples
Example 1
, if the actual percent complete is 50% and the task budget is $10,000 then
the earned value of the project is $5,000, 50% of the budget provided for
this project.
So, EV = 50% x $10,000= $5,000
After applying this method, the project manager should know whether the
project is behind or ahead of schedule and whether the project is under or
over budget.
Example 2
Imagine a project where the team has completed 60% of the work on a task
with a $20,000 budget. The earned value would be:
EV=60%×20,000=12,000
This means that the project has delivered $12,000 worth of work, regardless
of what has been spent or how much time has passed. Earned Value thus
provides a more accurate representation of progress than time-based tracking
alone, making it an indispensable tool for managing projects effectively.
Basic Definitions[3]
PLANNED VALUE (PV)
- Also known as Budgeted Cost Of Work Scheduled (BCWS)
- Measure of the amount of money budgeted to complete the scheduled work as of the data date. PV changes are subject to baseline control restrictions.
EARNED VALUE (EV)
- Also known as Budgeted Cost Of Work Performed (BCWP)
- Measure of the value of work performed so far, The “value” of the work earned at the date of analysis (data date).
- The cost of the work that has been accomplished in terms of the BCWS.
- Represents the budget value of work performed, rather than the actual cost of the work performed.
- In comparison to planned value (PV), provides a measure of performance taking into account both time and cost expended.
ACTUAL COST OF WORK PERFORMED (ACWP)
- Also known as : Aactual Cost (AC).
- The actual expenditures incurred by a program or project.
- The direct costs actually incurred and the direct costs actually recorded and assigned in accomplishing the work performed. These costs should reconcile with the contractor's incurred cost ledgers when they are audited by the client.
- In earned value management, a measure of the actual cost of the work performed as of a data date.
COST PERFORMANCE INDEX/INDICATOR (CPI)
- The ratio of earned value to actual costs (CPI = BCWP/ACWP).
- A value greater than 1 indicates that costs are running under budget.
- A value less than 1 indicates that costs are running over budget.
- Often used to predict magnitude of a possible cost overrun by dividing it into the original cost estimate (original cost estimate/CPI = projected cost at completion).
SCHEDULE PERFORMANCE INDEX (SPI)
- Ratio of work performed (earned value or BCWP) to work scheduled (planned value or BCWS).