Earned Value Management Example

Earned Value Management Analysis Examples
Earned Value Management Example

The concept of Earned value Management Analysis can be understood better by solving some problems and understanding the practical aspects of implementation of this technique while executing the project. However, implementation of EVM technique offers some challenges and the most important ones are developing implementation methodology, assessment of percentage work completed, timely collection of work progress data, and availability of actual cost data as organizations have different principles in collection and reporting of actual project cost data. Given the challenges faced with implementation of evm technique it is an effective and a reliable tool to report project progress and forecast project performance.

EVM Implementation Methodology

Gaining Support

Not everyone in the organization is aware of the concepts of the earned value management, hence it would be a good idea to organize a presentation for the project management team and the project team members and appraise every one of the advantages and explanation of the concepts involved. Team members should understand the advantages that evm analysis can bring to project schedule and cost control and how it can help in forecasting key project metrics.

Project Planning

Each project has various types of activities which are performed to produce project deliverable and each of these activities have an appropriate method of measuring the quantum of work performed. These activities are classified as

  • Discrete effort

  • Apportioned effort

  • Level of effort

Hence it is imperative that the correct activities are identified at the planning stage itself so that appropriate measurement methods can be applied to each activity for the purpose of earned value management analysis.

As a pilot project the analysis may be implement for a work breakdown structure (WBS) component of the project; for example engineering or construction wbs/phase of the project.

Assessment of Percentage of Work Completed

As far as possible quantitative measures should be adopted to arrive at the percent of work completed for activities or work packages. This further validates the requirement that correct activity types be used while developing the evm implementation methodology and each one has a unique method of measurement of work completed. Activity that can be planned and measured and which results in specific work output are called discrete effort and these can be measured in four different ways.

The most common measurement methods are percent work complete and measurement of physical work completed. Other measurement methods described in Practice Standard for Earned Value Management are Fixed Formula and Weighted Milestone. Therefore, project manager should choose the correct measurement method and use it consistently.

Timely Collection of Project Data

Not being able to access project performance data after every fixed period of time is a major challenge. Inconsistent data can lead to errors in reporting of evm data and result in wrong analysis of the project performance. Organizations MIS processes and reporting tools have a major role to play in ensuring that the project team has the desired data at every fixed duration of time.

Availability of Actual Cost Data

Another big challenge is to have access to actual cost data for work packages. Without availability of this data the evm analysis is incomplete. This is the most important data in the analysis process as it cannot be assumed or extrapolated in any way. There is considerable time lag between completion of activity/ work packages and availability of actual cost data. This problem is very evident for procurement and manufacturing activities where delivery lead times could be in months and the actual cost booked on the project may not be available until the invoices are paid by the bills payable department .

The above paragraphs were to highlight some of the challenges faced during the implementation of evm technique in a real world scenario.

Solved Examples of Earned Value Management Analysis

Here are some of the solved examples of earned value problems which could be beneficial to pmp aspirants. Every problem comes with a brief story and some extra data, for the sake of simplicity I am only concentrating on the necessary data for problem solving.

Problem 1

Compute Estimate At Completion (EAC) if both SPI and CPI influence the project work when given variables are

  • Budget At Completion (BAC) = $22,000
  • Earned Value (EV) = $13,000
  • Planned Value (PV) = $14,000
  • Actual Cost (AC) = $15,000

Solution:

EAC (if the both SPI and CPI influence the project work) = AC + [(BAC – EV) / (CPI x SPI)]

  1. Schedule Performance Index (SPI) = EV/PV = $13,000/$14,000 = 0.93 Since SPI is less than 1, this indicates that the project is behind schedule
  2. Cost Performance Index (CPI) = EV/AC = $13,000/$15,000 = 0.87 Since CPI is less than 1, this indicates that the project is over budget.
  3. EAC = $15000 + [($22,000 – $13,000)/(0.93 X 0.87)] = $26,123

Problem 2

For the following project calculate SV,CV, SPI and CPI at the end of second month.

Month 1 2 3 4
Planned Value ₹ 11,10,000 ₹ 6,00,000 ₹ 25,00,000 ₹ 8,00,000
Earned Value ₹ 10,00,000 ₹ 7,50,000
Actual Cost ₹ 12,50,000 ₹ 5,00,000

Solution

First calculate cumulative data

Month 1 2 3 4
Planned Value ₹ 11,10,000 ₹ 6,00,000 ₹ 25,00,000 ₹ 8,00,000
(PV) cumulative ₹ 11,10,000 ₹ 17,10,000
Earned Value ₹ 10,00,000 ₹ 7,50,000
(EV) cumulative ₹ 10,00,000 ₹ 17,50,000
Actual Cost ₹ 12,50,000 ₹ 5,00,000
(AC) cumulative ₹ 12,50,000 ₹ 17,50,000
Schedule Variance (SV) = EV – PV = (₹ 17,50,000 – ₹ 17,10,000) = ₹ 40,000
Schedule Performance Index (SPI) = EV / PV = (₹ 17,50,000 / ₹ 17,10,000) = 1.0233918
Cost Variance (CV) = EV – AC = (₹ 17,50,000 – ₹ 17,50,000) ₹ 0
Cost Performance Index (CPI) = EV / AC = (₹ 17,50,000 / ₹ 17,50,000) = 1

Since SV is positive and SPI is greater than zero the above project is ahead of schedule.

As CV is equal to zero and CPI is equal to one the project is on budget.

Conclusion

Understanding of the concepts of earned value project management is very critical for successful implementation of this technique in real life projects. If all the required details like hourly resource rates, material costs are fed in microsoft project it tabulates all the desired earned value data for analysis and interpretation.

Hope this post was able to highlight the challenges faced while implementing earned value management technique in a project and how solving problems can help in understanding the concepts of evm analysis.

Further reading on Earned Value Management

For any queries you may use the Contact form to get in touch.

About Author

| About | Competencies | Experience | Resume | Gallery |

Advertisements

8 thoughts on “Earned Value Management Example

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s