Earned Value Management - Revision history

Tkokotas at 15:51, 18 December 2018

2018-12-18T15:51:30Z

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			''Developed by Nanna Thorning-Schmidt''


	Earned Value Management (EVM) is a method for measuring a project’s performance. Earned Value Management is a complex task of controlling and adjusting the baseline project schedule during execution, taking into account project scope, timed delivery and total project budget. <ref name="Measuring">Measuring Time: Improving Project Performance Using Earned Value Management (2009), '''Vanhoucke, M.''' <br> ''(A book about how to improve project performance using Earned Value Management. Provides both case studies and simulation studies, and how to scheduling projects with a software.)''</ref>.		Earned Value Management (EVM) is a method for measuring a project’s performance. Earned Value Management is a complex task of controlling and adjusting the baseline project schedule during execution, taking into account project scope, timed delivery and total project budget. <ref name="Measuring">Measuring Time: Improving Project Performance Using Earned Value Management (2009), '''Vanhoucke, M.''' <br> ''(A book about how to improve project performance using Earned Value Management. Provides both case studies and simulation studies, and how to scheduling projects with a software.)''</ref>.
	The method is useful during execution of a project because it tells us where we are going with schedule and costs, indicating any variance to plan.		The method is useful during execution of a project because it tells us where we are going with schedule and costs, indicating any variance to plan.

Nannats: /* Limitations */

2015-09-27T18:17:17Z

Limitations

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	==Limitations==		==Limitations==
	Even though the EVM method is very useful, it has some limitations too. Earned Value as a technique is effective in the management of projects, but has very limited utility in the management of continuous business operations. <ref name="Fleming" /> Therefore it should only be used on projects – preferable on small and simple projects, as large projects has many components which have to be accounted for which can derail in the details.		Even though the EVM method is very useful, it has some limitations too. Earned Value as a technique is effective in the management of projects, but has very limited utility in the management of continuous business operations. <ref name="Fleming" /> Therefore it should only be used on projects – preferable on small and simple projects, as large projects has many components which have to be accounted for which can derail in the details.
	Another crucial aspect is that the EVM method does only consider time and cost, but not the quality. Quality is such an important part of any project, that it necessary to have some kind of quality control. Without that, it means that a project can be on budget and time, but still be a very bad product.		Another crucial aspect is that the EVM method does only consider time and cost, but not the quality. Quality is such an important part of any project, that it is necessary to have some kind of quality control. Without that, it means that a project can be on budget and time, but still be a very bad product.
	Overall, it is also important to remember that the EVM does not tell the whole story, and therefore is the method not attended to be used as a stand-alone tool. <ref name="web1">How Earned Value Management is Limited (2013), http://www.brighthubpm.com/monitoring-projects/10056-how-earned-value-management-is-limited/ <br> ''(Short about the limitations on the Earned Value Managment method.)''</ref> Moreover, the Earned Value Management method requires that the project scope, schedule and budget is well-defined. The Earned Value Management method may be a waste of time, if the proejct's goals and outcomes are vague and if the [[Work Breakdown Structure (WBS)]] is incomplete.		Overall, it is also important to remember that the EVM does not tell the whole story, and therefore is the method not attended to be used as a stand-alone tool. <ref name="web1">How Earned Value Management is Limited (2013), http://www.brighthubpm.com/monitoring-projects/10056-how-earned-value-management-is-limited/ <br> ''(Short about the limitations on the Earned Value Managment method.)''</ref> Moreover, the Earned Value Management method requires that the project scope, schedule and budget is well-defined. The Earned Value Management method may be a waste of time, if the proejct's goals and outcomes are vague and if the [[Work Breakdown Structure (WBS)]] is incomplete.

	==References and Annotated Bibliography==		==References and Annotated Bibliography==
	<references />		<references />

Nannats: /* EVM vs. Traditional Cost Management */

2015-09-27T18:15:53Z

EVM vs. Traditional Cost Management

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	==EVM vs. Traditional Cost Management==		==EVM vs. Traditional Cost Management==
	[[File:~~Traditional~~.~~jpg~~\|400px\|right\|thumb\|Figure 7. Traditional Project Cost Management vs. EVM. ~~<ref name="Fleming" />~~]]		[[File:Traditional2.PNG\|400px\|right\|thumb\|Figure 7. Traditional Project Cost Management vs. EVM.]]
	There is a fundamental distinction between using a traditional cost control approach and the Earned Value management. In traditional project cost management the plan-versus-actual cost comparison gives no way to ascertain how much of the physical work that has been accomplished. Such displays merely represent the relationship of what was planned to be spent versus the funds actually spent.<ref name="Fleming" />		There is a fundamental distinction between using a traditional cost control approach and the Earned Value management. In traditional project cost management the plan-versus-actual cost comparison gives no way to ascertain how much of the physical work that has been accomplished. Such displays merely represent the relationship of what was planned to be spent versus the funds actually spent.<ref name="Fleming" />

	If we take a look at ~~another~~ example and look at the cost performance in top of Figure 7, it indicates great results against the original spending plan, where the planned funds are equal to the actual costs. This is only useful as a reflection of whether a project has stayed within the funds authorized by management, i.e. funding performance. This does not reflect the actual cost performance.<ref name="Fleming" />		If we take a look at the example which has been used through the article and look at the cost performance in top of Figure 7, it indicates great results against the original spending plan, where the planned funds are equal to the actual costs. This is only useful as a reflection of whether a project has stayed within the funds authorized by management, i.e. funding performance. This does not reflect the actual cost performance.<ref name="Fleming" />

	In contrast, Earned Value Management displays three dimensions of data: the Planned Value of the physical work authorized, the Earned Value of the physical work accomplished and the Actual Costs incurred to accomplish the Earned Value. Thus, under an earned value approach, the two critical variances may be ascertained. The schedule variance, SV, shows that the project is experiencing a negative schedule variance of $~~100~~.000 from its planned work. This shows that the project management team is clearly behind the planned schedule. When used together with other scheduling techniques, for example [[The Critical Path Method (CPM)]], it could provide invaluable insight into the true schedule status of the project.		In contrast, Earned Value Management displays three dimensions of data: the Planned Value of the physical work authorized, the Earned Value of the physical work accomplished and the Actual Costs incurred to accomplish the Earned Value. Thus, under an earned value approach, the two critical variances may be ascertained. The schedule variance, SV, shows that the project is experiencing a negative schedule variance of $10.000 from its planned work. This shows that the project management team is clearly behind the planned schedule. When used together with other scheduling techniques, for example [[The Critical Path Method (CPM)]], it could provide invaluable insight into the true schedule status of the project.
	The other variance, namely the cost variance, CV, ~~we see~~ that the project has a cost overrun of $~~100~~.000 for the work performed to date. Experiences has shown that such cost overruns tend to get worse over time, and it is therefore of critical importance to the project. <ref name="Fleming" />		The other variance, namely the cost variance, CV, shows that the project has a cost overrun of $20.000 for the work performed to date. Experiences has shown that such cost overruns tend to get worse over time, and it is therefore of critical importance to the project. <ref name="Fleming" />

	==Limitations==		==Limitations==

Nannats: /* EVM vs. Traditional Cost Management */

2015-09-27T17:43:09Z

EVM vs. Traditional Cost Management

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	There is a fundamental distinction between using a traditional cost control approach and the Earned Value management. In traditional project cost management the plan-versus-actual cost comparison gives no way to ascertain how much of the physical work that has been accomplished. Such displays merely represent the relationship of what was planned to be spent versus the funds actually spent.<ref name="Fleming" />		There is a fundamental distinction between using a traditional cost control approach and the Earned Value management. In traditional project cost management the plan-versus-actual cost comparison gives no way to ascertain how much of the physical work that has been accomplished. Such displays merely represent the relationship of what was planned to be spent versus the funds actually spent.<ref name="Fleming" />

	If we take a look at another example and look at the cost performance on top of Figure 7, it indicates great results against the original spending plan, where the planned funds are equal to the actual costs. This is only useful as a reflection of whether a project has stayed within the funds authorized by management, i.e. funding performance. This does not reflect the actual cost performance.<ref name="Fleming" />		If we take a look at another example and look at the cost performance in top of Figure 7, it indicates great results against the original spending plan, where the planned funds are equal to the actual costs. This is only useful as a reflection of whether a project has stayed within the funds authorized by management, i.e. funding performance. This does not reflect the actual cost performance.<ref name="Fleming" />

	In contrast, Earned Value Management displays three dimensions of data: the Planned Value of the physical work authorized, the Earned Value of the physical work accomplished and the Actual Costs incurred to accomplish the Earned Value. Thus, under an earned value approach, the two critical variances may be ascertained. The schedule variance, SV, shows that the project is experiencing a negative schedule variance of $100.000 from its planned work. This shows that the project management team is clearly behind the planned schedule. When used together with other scheduling techniques, for example [[The Critical Path Method (CPM)]], it could provide invaluable insight into the true schedule status of the project.		In contrast, Earned Value Management displays three dimensions of data: the Planned Value of the physical work authorized, the Earned Value of the physical work accomplished and the Actual Costs incurred to accomplish the Earned Value. Thus, under an earned value approach, the two critical variances may be ascertained. The schedule variance, SV, shows that the project is experiencing a negative schedule variance of $100.000 from its planned work. This shows that the project management team is clearly behind the planned schedule. When used together with other scheduling techniques, for example [[The Critical Path Method (CPM)]], it could provide invaluable insight into the true schedule status of the project.

Nannats: /* EVM vs. Traditional Cost Management */

2015-09-27T17:42:55Z

EVM vs. Traditional Cost Management

← Older revision		Revision as of 17:42, 27 September 2015
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	There is a fundamental distinction between using a traditional cost control approach and the Earned Value management. In traditional project cost management the plan-versus-actual cost comparison gives no way to ascertain how much of the physical work that has been accomplished. Such displays merely represent the relationship of what was planned to be spent versus the funds actually spent.<ref name="Fleming" />		There is a fundamental distinction between using a traditional cost control approach and the Earned Value management. In traditional project cost management the plan-versus-actual cost comparison gives no way to ascertain how much of the physical work that has been accomplished. Such displays merely represent the relationship of what was planned to be spent versus the funds actually spent.<ref name="Fleming" />

	If we take a look at another example and look at the cost performance on top of Figure 4, it indicates great results against the original spending plan, where the planned funds are equal to the actual costs. This is only useful as a reflection of whether a project has stayed within the funds authorized by management, i.e. funding performance. This does not reflect the actual cost performance.<ref name="Fleming" />		If we take a look at another example and look at the cost performance on top of Figure 7, it indicates great results against the original spending plan, where the planned funds are equal to the actual costs. This is only useful as a reflection of whether a project has stayed within the funds authorized by management, i.e. funding performance. This does not reflect the actual cost performance.<ref name="Fleming" />

	In contrast, Earned Value Management displays three dimensions of data: the Planned Value of the physical work authorized, the Earned Value of the physical work accomplished and the Actual Costs incurred to accomplish the Earned Value. Thus, under an earned value approach, the two critical variances may be ascertained. The schedule variance, SV, shows that the project is experiencing a negative schedule variance of $100.000 from its planned work. This shows that the project management team is clearly behind the planned schedule. When used together with other scheduling techniques, for example [[The Critical Path Method (CPM)]], it could provide invaluable insight into the true schedule status of the project.		In contrast, Earned Value Management displays three dimensions of data: the Planned Value of the physical work authorized, the Earned Value of the physical work accomplished and the Actual Costs incurred to accomplish the Earned Value. Thus, under an earned value approach, the two critical variances may be ascertained. The schedule variance, SV, shows that the project is experiencing a negative schedule variance of $100.000 from its planned work. This shows that the project management team is clearly behind the planned schedule. When used together with other scheduling techniques, for example [[The Critical Path Method (CPM)]], it could provide invaluable insight into the true schedule status of the project.

Nannats: /* Example */

2015-09-27T17:41:26Z

Example

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	: 1. '''Variances are typical '''		: 1. '''Variances are typical '''
	: Due to a flood, the material is more expensive to transport than original calculated, and thereby it costs a lot of money. But this event is not expected to occur in the future. In this case the Estimated Cost at Completion ~~therefore~~ is:		: Due to a flood, the material is more expensive to transport than original calculated, and thereby it costs a lot of money. But this event is not expected to occur in the future. In this case the Estimated Cost at Completion is:
	: <math>		: <math>
	\begin{align}		\begin{align}
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	: 2. '''Past estimating assumptions are not valid'''		: 2. '''Past estimating assumptions are not valid'''
	: When calculting the Earned Value, it shows that the EV is $40.000. However, according to the schedule we should have earned $60.000. In this case the Estimated Cost at Completion ~~therefore~~ is: <br>		: When calculting the Earned Value, it shows that the EV is $40.000. However, according to the schedule we should have earned $60.000. In this case the Estimated Cost at Completion is: <br>
	: <math>		: <math>
	\begin{align}		\begin{align}
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	: 3. '''Variances will be present in the future'''		: 3. '''Variances will be present in the future'''
	The project will continue to perform to the end as it was performing until now. In this case the Estimated Cost at Completion ~~therefore~~ is: <br>		The project will continue to perform to the end as it was performing until now. In this case the Estimated Cost at Completion is: <br>
	: <math>		: <math>
	\begin{align}		\begin{align}

Nannats: /* Example */

2015-09-27T17:40:46Z

Example

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	====Example====		====Example====
	The example is ~~based~~ on the previous examples.		The example is build on the previous examples.

	: 1. '''Variances are typical '''		: 1. '''Variances are typical '''

Nannats: /* Performance Indices */

2015-09-27T17:39:07Z

Performance Indices

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	A ratio equal 1.0 indicates that performance is efficient and on target. A ratio greater than 1.0 indicates excellent, highly efficient performance. A ratio less than 1.0 indicates poor, inefficient performance. <br>		A ratio equal 1.0 indicates that performance is efficient and on target. A ratio greater than 1.0 indicates excellent, highly efficient performance. A ratio less than 1.0 indicates poor, inefficient performance. <br>
	[[File:CPISPI.PNG\|350px\|right\|thumb\|Figure 6. Illustrating the example with the CPI and SPI. ~~They~~ are ~~bother~~ less than 1.0. <ref name="Frank" />]]		[[File:CPISPI.PNG\|350px\|right\|thumb\|Figure 6. Illustrating the example with the CPI and SPI. CPI and SPI are both less than 1.0, which indicates a poor performance. <ref name="Frank" />]]

	====Example====		====Example====

Nannats: /* Variances */

2015-09-27T17:36:39Z

Variances

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	====Variances====		====Variances====
	[[File:SVCV.PNG\|400px\|right\|thumb\|Figure 5. The same example as Figure 4~~, but also illustrating the~~ SV and CV. <ref name="Frank" />]]		[[File:SVCV.PNG\|400px\|right\|thumb\|Figure 5. The same example as Figure 4 where SV and CV are also illustrated. <ref name="Frank" />]]
	* The '''Cost Variance (CV)''' is the difference between the Earned Value (EV) and the Actual Cost (AC), i.e. a measure of budgetary conformance of actual cost of work performed. In other word, CV indicates how much over or under budget the project is. <br>		* The '''Cost Variance (CV)''' is the difference between the Earned Value (EV) and the Actual Cost (AC), i.e. a measure of budgetary conformance of actual cost of work performed. In other word, CV indicates how much over or under budget the project is. <br>
	: <math>		: <math>

Nannats: /* Example */

2015-09-27T17:34:54Z

Example

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	====Example====		====Example====
	If we ~~go back to~~ the example mentioned above, we can calculate the cost variance and the schedule variance. <br>		If we build on the example mentioned above, we can calculate the cost variance and the schedule variance. <br>

	: <math>		: <math>