Project Management Training - The Importance of Using Earned Value Management (EVM) as a Crucial Part of Project Management
Project Management / Manager Training
By Mo Haque, MSEE, MSEE, PMP
It is quite astonishing that the project managers do not use Earned Value Measurements (EVM to manage their projects. EVM is the best tool to gauge a project’s performance. It is the process of measuring the cost and schedule performance of project work. These measurements are against the project plan to identify variances and indexes.
EVM provides the indexes of Cost and Schedule. Index for cost is known as Cost Performance Index (CPI) and index for schedule is known as Schedule Performance Index (SPI). For cost, it is the ratio of completed work (Earned Value = EV) divided by the cost of the work. For schedule it is the ratio of completed work divided by the value of planned work. A project’s performance can only be determined when you have both Cost & Schedule variances and or indexes.
The cost of work is known as “Actual Cost”. AC is how much you have paid for the expenses (bills). These bills are for direct, indirect, variable and fixed cost. The planned value of work is known as “Planned Value”. EVM enables you to predict the final costs at completion, also known as Estimate At Completion. It also enables you to forecast the estimate to complete, known as ETC. You can also use EVM to calculate variance at completion, which is VAC. This value indicates how much over or under your final project cost will be.
Another index that is very useful is known as TCPI – To Complete Performance Index. This TCPI is a ratio of Work Remaining divided by Budget Remaining. It provides you immediate indication that do you have more work than available budget, or do you have more money than the work remaining.
EVM is a perfect indicator of the risks in your project. For example if the SPI is 0.71, this means that your project is behind schedule by 29%, since your team has only completed 71% of the planned schedule. So in order to complete the work within schedule, the team needs to hurry up. It is likely that they will make various mistakes (haste is waste – my mom use to tell me that). These mistakes due to hurrying up the work will surely create quality issues. If the team does not hurry to finish the work within schedule, then of course your project will be late. That is the dilemma.