Earned Value Management (EVM) is a technique for measuring the performance of a project. It is a way of quantifying the work that has been accomplished in a project to date, and comparing it against the budget of the project. Although EVM has been around for decades, its use is becoming more widespread in the field of project cost management.
How Does EVM Work?
EVM can be difficult to track, due to the nature of the data that it requires. For EVM, the tracking of Progress is essential.
EVM involves planning work to a manageable level of detail, such that it is possible to allocate a portion of your budget to each work unit. “Value” is then accumulated for each completed work unit. As work units are performed, value is “earned” in the same basis as it was planned, in currency (such as US dollars) or other units of measurement.
As work units are progressed, their percentage progress towards completion is tracked, and the project “earns” the proportional budget value associated with those work units. This method associates a monetary value with the work as it is completed, so that it can be compared against actual and planned spending.
EVM completely relies on the accuracy and the timing with which you record your progress. Two important performance indicators based upon EVM are the Scheduled Performance and Cost Performance indexes.
Know Your Indexes
The Cost Performance Index (CPI) is the cost efficiency factor representing the actual cost expended against the earned value. It is an indicator of whether your project is behind or ahead of the planned expenditure for the current point in its progress. A CPI greater than or equal to 1 suggests that cost spending is efficient while less than 1 suggests spending is greater than it should be.
To calculate our CPI the following calculation is used:
[Earned Value] ÷ [Actual Cost]
The Scheduled Performance Index (SPI) is the planned schedule efficiency factor representing the relationship between the earned value and the schedule of work. It is an indicator of whether your project is behind or ahead of the planned time schedule. SPI is represented as a decimal figure. An SPI greater than 1 is good, whereas an SPI less than 1 suggests that actual work is falling behind the schedule.
To calculate our SPI the following calculation is used:
[Earned Value] ÷ [Planned Value]
EVM in Kildrummy® CostMANAGER
Below is a standard Earned Value Report, which will give you a better understanding how the data is displayed:
The report shows a sample project, known as Jan Mayen – Phase 1 which has several budget items associated with it.
Using this report, we can establish which of our work units (or budget items as they are called in CostMANAGER) is ahead or behind schedule, according to our indexes. If we examine the item ‘1.02 – Wells / Drilling Rigs’, it is clear that there is a major cost variance occurring, which is reflected in our CPI. The CPI for the item is 0.82, reflecting a negative variance of over 12 million. On a more positive note, our SPI is at 1.04, indicating that we are ahead of schedule, with an earned value of 2 million greater than the planned value for this time-point in the schedule.
Taking this information, we can establish that this individual task will now require 182 million to complete in its entirety. Our original budget to build the drilling rigs was 149 million, therefore we have a projected overspend of 33 million. Overall projected project overspend is at 19 million, (Estimate At Completion total – Original Budget total). Of course, this may change as the project progresses. The project may improve its CPI and SPI and we may make up some of these losses. Regardless of the outcome, we can learn from these overspends and then use this information in future similar projects.
Accurate Earned Value Management is a cornerstone of a successful project. Without its use, it is difficult to understand how the spending and the work you’ve accomplished are entwined. Perhaps more importantly, you can see overspends as they happen and rebudget sections of your project rather than being caught off guard at a later date.