What is Earned Value Management and Why is it Important? (2024)

What is Earned Value Management?

EVM is a management approach which upon incorporating any type of program – provides all levels of management with early visibility into cost and time related problems.

EVM helps provide thebasis to assess work progress against a baseline plan, relates technical, time and cost performance, provides data for pro-active management action and provides managers with a summary of effective decision making.

Benefits of Earned Value Management (EVM)

EVM provides more information than normal project tracking. It is a step further by answering the question; Have we got to where we want to be in the project? and When are we going to finish this project? It helps define more accurately as to where we are in the project as well as calculate its successful completion.

The value added approach helps achieve greater visibility and control of the project activities which helps in responding to issues early on, thus making it possible to meet the project timelines. It provides a clear communication of the activities involved and improves project visibility and accountability.

The basic principle of earned value management (EVM) is that the value of the piece of work is equal to the amount of funds budgeted to complete it.

• Planned value: This is the approved budget for the work scheduled to be completed by a set date.
• Earned value: This is the approved budget for the work actually completed by the specified date.
• Actual costs: The costs actually incurred for the work completed by the specified date.

To describe your project’s schedule and cost performance with EVM, you use the following indicators:

• Schedule variance (SV): This is a measure of the difference between the work that was actually done against the amount of work that was planned to be done. This clearly shows is the project is on schedule or not.
• Cost variance (CV): This is the measure of the difference between the amount that was budgeted for the work meant to be done and the amount that was actually spent for the work performed. Thus this shows if the project is on budget or not.
• Schedule performance index (SPI): This is the ratio between the budget that is approved for the work that is performed to the budget that is approved for the work that was planned in the first place. This is a relative measure of the project’s time efficiency.
• Cost performance index (CPI): This is the ration between the approved budgets for the work that is performed to the budget that was actually spent for the stipulated work. It is a relative measure of the cost efficiency of the project and can be used to estimate the cost of the remainder of the task.