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Earned Value Management (EVM)
All about Earned Value Analysis in Project Management

Why Earned Value Management is the Key to Control and How to Do It

Have you been asked to use Earned Value Management (EVM) on your projects or do you want to learn more about it? You're in the right place!

In this article we'll first cover an earned value management definition so you're clear on what it is, and then discuss EVM principles, metrics, best practices and earned value management systems.

EVM has its foundations in being able to monitor, track and control scope, schedule and budget on the project, and has been used by NASA and on projects like the delivery of Olympic parks. In our EVM resources you’ll find a range of topics relating to how to keep your project on track. New to EVM? Start with the featured podcast and you’ll pick up the basics in no time!

An Introduction to Earned Value Management

Listen now to this featured podcast for earned value management.

In this featured podcast you'll get a refresher on the basics with an introduction to earned value management on projects. By the end of this episode with host Cornelius Fichtner, you'll know how earned value came to be, how it works and you'll have a good understanding of its benefits and shortcomings.

If you've never used or even heard of earned value before, this is the place to start!

Cornelius Fichtner
Cornelius Fichtner
Please scroll down to see the full list of our podcasts on topics related to EVM.
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What is Earned Value Management?

Earned Value Management is a systematic approach to integrating and measuring cost, schedule and scope achievements at a project or task level. It’s a way of objectively understanding what is happening on the project so you can make data-driven decisions.
EVM is a method of measuring actual work performed on a project, in a more robust way than simply taking a look at the project schedule and budget. EVM helps us measure in terms of progress achieved. You can use that information to more accurately forecast completion dates and the total cost.

EVM in Project Management

EVM is an area of project management where many processes and knowledge areas link together. You need to understand scope management, cost management, schedule and time management, and the change control procedures that help manage scope creep. And you need to be able to interpret the data, so having a head for figures can help.

Of course, even if you aren’t mathematically-minded, you can still use EVM. There are processes and templates to help. Once you know the fundamentals, you can apply the principles to any project and interpret the results.

Earned Value Management: A Definition of Terms

Earned Value Analysis (EVA)

Earned Value Analysis is the specific data analysis technique used for monitoring and controlling the work. Use specific formulas to calculate EVM metrics. Consider this the mathematical part!

Earned Value Management System (EVMS)

Your ‘Earned Value Management System’ is the set of processes and procedures used to deliver EVM metrics. It also refers to the tools and templates used to carry out the data analysis and present the results. These tools can be useful to help you calculate the Earned Value indicators regularly and display the resulting graphs. In other words, EVMS is a term that refers to the way you do Earned Value management on your project.

Essential Elements of EVM

The essential elements of EVM are:
  • Scope management
  • Cost management
  • Schedule and time management
  • Change control procedures

Earned value in project management is an area where many processes and PM Knowledge Areas link together. You need to understand how to manage project scope, budgeting, scheduling and how to implement the procedures that help manage scope creep. And you need to be able to interpret the data, so having a head for figures can help.

Here's how those elements come into play when working out the metrics.

  • Scope management
    The building blocks of EVM are found in your approach to scope management: your scope items. You'll get these from the work breakdown structure for the project. It's essential that you have a detailed and accurate scope because delivering that is how you track progress and ultimately 'value'.
  • Cost management
    The next important element is cost management. For each scope item, you need to have a predicted budget. This is the charge or cost of each deliverable. You'll need a detailed budget that breaks down to component level so you can accurately track project spending against the anticipated levels.
  • Schedule and time management
    Next, you'll need a detailed project schedule that includes all the scope items. Take a baseline of the project schedule and make sure that all the dependencies are included between the tasks. You'll use this as the timeline against which to track project progress.
  • Change control procedures
    Realistically, every project changes something as it goes along. Your role as the project manager is to make sure those changes are adequately assessed and incorporated into the schedule and budget. You'll need change control procedures in place to do that. These are normally documented within your project management plan. With a clear process for dealing with changes, you can adapt and update any of your metrics and plans to ensure you are always tracking against the latest situation.

EVM is truly an area where the maxim ‘garbage in, garbage out’ holds true. You can only report and track real-time project performance measures where you have accurate underlying data. If your team members do not keep their task statuses up-to-date, or input their time spent on an activity, then you will have difficulty drawing conclusions from your EVM reports.

How to Calculate Earned Value

The approach for Earned Value calculation uses several indicators. Below you’ll find a description of the main formulas and how they are calculated.

Planned Value (PV)

Planned Value (PV) is a simple starting point. It relates to the cost of the planned work. You may also see it referred to as Budgeted Cost of Work Scheduled (BCWS). Planned Value is measured in financial terms. The total PV for the entire project is called Budget at Completion (BAC). So you can see that the PV for a task is simply the budget for that task. You can calculate this by taking the cost for the Work Package or portion of the project you are looking at. If you need to calculate PV of a task that is part-way through, multiply the amount of progress by the budget. PV = task budget x percent complete.

For example, if a task is supposed to be 60% complete and has a budget of $10,000 then PV = $10,000 x 60% = $6,000.

Earned Value (EV)

‘Earned Value’ measures project progress. It’s a way of describing how much the work done so far is ‘worth’. Again, it's expressed in monetary terms so the result will always be a currency figure. You will also hear EV referred to as Budgeted Cost of Work Performed (BCWP), and that description (we think) makes it easier to understand what you are actually calculating.

EV is calculated by taking the percent complete of a Work Package and multiplying it by the budget for that activity. EV = % complete * BAC. Let's use the same example task as when we calculated PV to show the working.

The task is actually 40% complete and has a budget of $10,000. EV = $10,000 x 40% = $4,000.

Actual Cost (AC)

The actual cost is – as you would expect – a measure of how much of the budget has been spent during a certain time period.

There is no calculation for this: simply look at the budget spreadsheet and take the amount that has been spent.

Cost Variance (CV)

The Cost Variance tells you how much over or under budget you are at any given time.

The formula is CV = EV-AC .

Taking our sample task, if we know the EV is $4,000, we can work out the CV using the actual cost. Let's say the actual cost of the work so far is $2,000. CV = $4,000 - $2,000 = $2,000.

In this example, the result is positive, showing we are under the planned cost. In real life, you probably wouldn't see such a substantive cost variance but perhaps on this change initiative the team found a clever way to deliver the task cheaply!

That is EVM in summary! The indicators calculated let project managers compare actual progress to planned progress in monetary terms.

Don't worry if right now the formulas feel difficult. You'll soon get the hang of it, and it helps to have people to talk to about how to use EV in practice. Our forums offer lots of support and there's probably a student who has asked the same question you have, like this discussion on the difference between EV and AC.

Of course, even if you aren’t mathematically-minded, you can still use EVM. There are processes and templates to help. Once you know the fundamentals, you can apply the principles to any project and interpret the results.

Benefits of EVM

There are lots of advantages to using EVM on your programs. Here are the top benefits:

  • Predict project performance
  • Avoid scope creep
  • Forecast expenditure accurately
  • Communicate progress objectively

These are the kinds of benefit you might read in a proposal to bring Earned Value to the PMO, but what do they actually mean to you as a leader? Let's explain the advantages that this way of tracking progress can bring for you and the team.

  • Predict project performance
    One of the biggest advantages to using EVM to monitor project performance is that it can quickly alert you to trends. You can easily see if progress is slowing down so you can take corrective action in a timely manner. This is a huge benefit for a busy project or program manager because you've got objective, up-to-date data that is showing you the truth about performance and progress including how likely it is that you'll hit your ultimate milestones and budget.
  • Avoid scope creep
    Your value management system can help you avoid scope creep and reduce risk because it surfaces information to help you see what is going on in the project. What would happen if you approved that change and added extra requirements into scope? Metrics and EV reporting can help you model and predict whether or not you can still achieve your goals.
  • Forecast expenditure accurately
    You'll see another benefit in forecasting and budget planning as well. This can be really useful to your capital investment and Finance teams because it helps them understand when the money will be leaving the business. They can better manage operational cash flow with that data, and your supplier invoices will be paid on time.
  • Communicate progress objectively
    A further benefit of Earned Value Management is that you can use the data to communicate progress in an objective way. This helps with ensuring people take accountability for their work and can focus the minds of executive stakeholders when it comes to decision making!

Limitations of EVM

The main limitations of EVM are:

  • It will tell you the variance but not what to do about it
  • Reporting is only as good as the underlying data
  • Stakeholders find the reporting complicated to understand
  • The process has limited use for Agile projects
  • There's no measure for quality
Let's explore those limitations so you can decide if taking this kind of objective performance tracking approach is going to suit the work you do.

It will tell you the variance but not what to do about it

The output from your calculations will tell you there is a variance in the actual plan compared to what you had forecast. That's useful data, but it isn't the whole picture.

Let's face it: EVM is just math. The metrics still need to be interpreted, understood and acted on. You'll need to use your professional judgement for that.

Reporting is only as good as the underlying data

Your EVM analysis and information is only as good as the data you feed into the Earned Value Management formulas. There are many variables, and therefore plenty of places where the data analysis could go a little bit wrong. Your data has to be up-to-date and realistic to be any use. That might be difficult in teams where people are not used to reporting in real-time or measuring progress in this way.

In particular, timesheet data needs to be accurate and captured quickly so it can be fed into the system and used to calculate real progress. If your team doesn't track time today, moving to a system where they do have to measure the time spent on tasks could be a challenge -- let alone the additional overhead of introducing EVM principles.

Stakeholders find the reporting difficult to understand

OK, not all stakeholders will find the reports from EVM difficult to understand but some of them definitely will if they haven't used this kind of progress tracking before.

If you are going to use Earned Value Management techniques for tracking progress, it’s important to get buy in from stakeholders and team members. Often, people haven’t had exposure to this powerful way of measuring project performance. And you want them to support you implementing this new technique. Talk to them about the benefits of project control and how useful the data will be, and make the changes slowly and with support.

The process has limited use for Agile projects

In order to get the most out of the earned value tracking approach, you need a full work breakdown structure and full-costed budget as a baseline. Without those elements, your reporting isn't going to be much use.

You'll have those if you work in a predictive project environment that mainly follows the Waterfall approach to delivery. However, if you work on Agile projects, or even in a hybrid environment, you may not have enough concrete detail at the start of the project to feed into your EVMS.

That's not necessarily a problem. There are other tools you can use to track progress on Agile, iterative and hybrid projects. But don't try to use EVM and then wonder why the results aren't that good: it really does need you to have a clear plan that you intend to follow.

There's no measure for quality

The 'value' in earned value is to do with time and cost. The reporting focuses heavily on whether or not your work is on time and progressing to schedule, and hitting the expected financial targets.

In other words, the technique does not care much about quality. As long as you are on track and not overspending, your reports will look good. The results you are delivering could be low quality and failing to meet customer expectations, but EVM won't give you any indication of that.

You do have other ways to investigate and track project quality, as you will have documented in a quality management plan. You would also expect that if the deliverables are not fit for purpose, you'll see a lot of change requests coming through as stakeholders get to see parts of the project that are being delivered. However, it's worth bearing in mind that progress is not the same as quality and you will need other, proactive ways to satisfy yourself that what you are doing is delivering an output that meets stakeholder needs.

How to Measure Earned Value Management for Project Performance

Here’s a quick overview of the different steps involved in setting up a basic EVM framework for your project.

Step 1

Define the project scope (objectives and deliverables).
First, define the scope of the project and list all the deliverables. The easiest way to do this is to use the work breakdown structure to document all the things that the project will deliver.

Step 2

Determine who will perform the work.
Next, make sure you've got a resource available to do each piece of work. This is important because different resources are changed at different amounts and you will need to know the overall cost for the activity. That includes the resource cost for the person doing the task. Knowing who is responsible for the work also helps you with the next step.

Step 3

Plan and schedule the work.
Work with the assigned resource to plan and schedule the work. Establish what dependencies there are around each task and make sure these are taken into consideration when you put the project timeline together. Build a schedule using your project management software as you'll need to capture a baseline as something to compare back to.

Step 4

Estimate the required resources and formally authorize budgets.
Now you know how long each task will take and you have a project schedule, you can formally complete the estimates for project cost. Take the resource costs, along with any other equipment or costs required to deliver the work, and prepare your overall budget. Take this to your project sponsor for authorization. The formal budget is what you will use to compare actual spend against forecasted spend.

Step 5

Determine the metrics you will use to convert Planned Value into Earned Value.
What measures are you going to use to mark a task as complete (and thus having earned its value)? Typically, milestones are used for bigger chunks of work, but you'll need a way of measuring 'done' on each task. Percent complete is one way of doing this.

Step 6

Create a performance measurement baseline and agree the points of management control. These are known as Control Account Plans.
A control account plan (CAP) is simply a way of documenting how several tasks together will be managed under a single budget. You might not need to set up CAPs on your project if the tasks can be managed independently of each other. However, they can be a useful tool for a team leader as they provide a way of consolidating and tracking the work of a team on various tasks.

Step 7

Record all the project’s direct costs.
Use your budget management system and timesheet data to record all the project's direct costs. This is expenditure specifically related to the project. You probably do this anyway because you'll need that information to track the project budget.

Step 8

Monitor the Earned Value performance to determine where cost and schedule no longer align to the baseline plan. These are schedule variances and cost variances.
This is the step where the magic happens! You've got detailed scope and costs that are tracked at a level that allows them to be linked to work. Use this information to create your EVM metrics and create the reports. The reports will let you see where the schedule and cost metrics are no longer tracking along the predicted course. Calculate, report and track schedule and cost variances, acting on the information they give you.

Step 9

Use the Earned Value data to forecast the anticipated project costs based on actual performance and communicate this if it is different to your approved budget.

Another hugely useful part of EVM comes into play here: you can use the data to forecast project performance. Based on the current performance, you can extrapolate the data and work out what your cost at completion is likely to be. Your project sponsor will find that information valuable because it helps inform decisions about whether the project is still viable and what the total expected budget is likely to be.

The same goes for timelines. Share the anticipated delivery dates with the customer so they are aware of any potential delays.

Step 10

Actively manage project scope and incorporate any approved changes into the baseline so you can track against the new expectations.
Finally, take action using what you know. You've got access to rich, detailed information on project performance but EVM reports won't tell you what to do with that information. You will have to work with the team and your sponsor to establish the best course of action to either accept delays and overspend or curb what is happening on the project so it remains possible to deliver on time and within budget.

EVM Best Practices

EVM is a complicated topic, and whole books have been written about it. Here are some best practices and next steps for you to act on if you want to get started.
  • Use a Work Breakdown Structure to organize the project scope.
  • Create a logical schedule, with a hierarchical breakdown and adequate milestones.
  • Be ‘hands-on’ with managing the budget, making sure costs are allocated to time-boxed sections of the project.
  • Think about how you are going to measure progress so you can calculate the indicators effectively and consistently.
Jump into EVM! If you are going to do it, embrace it and use the data for calculating variances, forecasting cost at completion and making changes to the schedule to ensure you stay on track. We would also suggest that you dive deeper into the materials, starting with our curated selection of podcasts, to help you broaden your knowledge of the subject.
It’s time for singular ownership and accountability for organizational strategic planning and execution. It’s time for dedicated focus on organizational resource planning, allocation and utilization. It’s time for focused attention regarding return on investment, earned value on execution, appropriate risk management and post-execution benefit capture. And finally, it’s time for single-sourced, unambiguous communication regarding strategic balance, allocation of resources and prioritization of the directives that constitute the portfolio of investments that the organization makes on its own behalf.
Paul R. Williams, PMP

PM Podcast Episodes for Earned Value Management.

In this section you'll find a curated selection of podcast episodes that cover a range of topics related to EVM in projects. Whether you are just starting out or have experience in this area, you are sure to find something relevant to you.

Simple Earned Value Management for Your Project

In this episode with management expert Quentin Fleming, you'll hear more about the history of earned value in project management. You'll take away 10 clear steps for implementing EVM as a technique on your project. This simple approach will help you get started quickly.
Episode Details
Quentin Fleming
Quentin Fleming

Understanding Project Metrics

In this episode, you'll hear about project metrics. You will learn what makes a 'good' metric, how metrics should be developed, and that we also need specific project metrics and project portfolio metrics.
Episode Details
Denise McRoberts and Cornelius Fichtner
Denise McRoberts and Cornelius Fichtner

Planning and Controlling Mega Projects

Earned Value is often used in mega project management to provide monitoring and control, as well as early warning signals for projects that go off track. Mega projects are characterized by high value (often defined as greater than $1 billion), comparably high benefits, years-long timelines, and correspondingly high risk. In this interview Frank Parth looks at the classical project management approaches that focus on delivering the final product within cost and schedule constraints once the project enters the execution phase. You'll take away an understanding of the challenges of projects at this scale.
Episode Details
Frank Parth
Frank Parth
See more episodes on Project Schedule Management

Summary

Earned Value Management is often considered an advanced project management technique as it is not required on all projects. Many businesses choose to track project performance in other ways. Many executive stakeholders have never seen EVM reports before and are not sure how to interpret and use them.

However, EVM is a powerful tool for providing data to help decision making. It tracks performance like no other metric. Once you’ve made the move to earned value, you won’t look back!

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