Earned Value Management

Question 1

what is the definition of Earned Value Management

Answer 1

Earned value management (EVM) is a project control process based on a structured approach to planning, cost collection and performance measurement. It facilitates the integration of project scope, time and cost objectives and the establishment of a baseline plan for performance measurement.”

Question 2

why is earned value needed

Answer 2

Most organisations already have methods in place to measure actual expenditure against planned expenditure. This analysis only provides part of the story. EVM adds a third dimension, the value of work performed to date (i.e. Earned Value). Another way to think of Earned Value is “useful work done”

Question 3

what 8 elements need to be in place for EVM to be effectively applied

Answer 3

1. a work breakdown structure WBS
2. assigned responsibilities for each task
3. allocation of direct cost budget via the WBS
4. all tasks scheduled
5. a method of measuring achievement for each task
6. cost and achievement data collected t regular planned intervals
7. a time phased budget baseline plan
8. baseline changes managed through change control

Question 4

what does the success of EVM relies on

Answer 4

EVM relies on both the accuracy of the baseline input and the accuracy of the progress measurement data provided.

Question 5

what 6 questions regarding present project status does EVM give insight into

Answer 5

1. How does the useful work done (EV) compare against the Actual Cost (AC)?
2. Has the effort required to achieve this work cost more or less than planned? (CV – Cost Variance)?
3. How efficiently is the budget, whether money or effort, being managed (CPI – Cost Performance Index)?
4. How does the useful work done (EV) compare against the Planned Cost (PC) of work at this point in the project?
5. Is the project ahead or behind the planned schedule at this present point in time? (SV – Schedule Variance)?
6. How efficiently is the time being managed (SPI – Schedule Performance Index)?

Question 6

what 6 indicators does EVM provide on future project performance

Answer 6

1. ongoing performance of the project based on present performance
2. eventual cost and schedule variance as well as likely performance trends
3. measures of cost and schedule efficiency (CPI and SPI)
4. final outturn cost (Estimate at Complete – cost: EAC)
5. final duration of the project (Estimated Final Duration: ETC)
6. what type of corrective action is required to improve or rectify project performance

Question 7

what 4 components are identified by EVM either in planning or through monitoring and control:

Answer 7

1. Budget at Completion -
   BAC - Planning - The sum total of the time-phased budgets for the project (i.e. the total Planned Cost).Performance Measurement Baseline (PMB)
2. Planned Duration - PD -Planning - Estimated final duration of the project
3. Planned Cost - PC - Planning - Planned cost of work that should have been achieved at a specific point in time. Also known as:
   PV – Planned Value
   BCWS – Budgeted Cost of Work Scheduled
4. Actual Cost - AC - During Implementation - Cumulative cost of work accrued on the project so far. Also known as: ACWP – Actual Cost of Work Performed

Question 8

what is the calculation used to determine Earned Value - EV

Answer 8

EV =
% Complete x Budget

Value of work performed expressed in terms of budget assigned to that work. Also known as:
BCWP – Budgeted Cost of Work Performed

Question 9

what is the calculation used to determine Cost Variance - CV

Answer 9

CV = EV – AC

Difference between the value of the work performed and the actual costs incurred. A negative number indicates poor performance whereas a positive number indicates favourable performance.

Question 10

what is the calculation used to determine Schedule Variance - SV

Answer 10

SV = EV – PC

Difference between the value of the work performed and the planned cost of the work that should have been performed at this point in time.
A negative number indicates poor performance whereas a positive number indicates favourable performance.

Question 11

what is the calculation used to determine Cost Performance Index - CPI

Answer 11

CPI = EV / AC

Cost efficiency ratio that measures work accomplished against costs incurred at a specific point in time. Number above 1 indicates favourable performance; below 1 indicates poor performance.

Question 12

what is the calculation used to determine Schedule Performance Index - SPI

Answer 12

SPI = EV / PC

Schedule efficiency ratio that measures work accomplished against work planned at a specific point in time.
Number above 1 indicates favourable performance; below indicates poor performance.

Question 13

what is the calculation used to determine Estimated Cost at Completion (Cost) - EAC

Answer 13

EAC = BAC / CPI

Projected final cost for the project (also known as the projected outturn cost)

Question 14

what is the calculation used to determine Estimated Final Duration
(or Estimated Time to Complete) - FD (also known as EACT or ETC)

Answer 14

FD = PD / SPI

Projected final duration for the project

Question 15

what are 2 of the more commonly used methods of graphical EVM reporting

Answer 15

1. Control Charts

2. ‘Bull’s-eye’ Charts

Question 16

what are 5 advantages of EVM

Answer 16

1. focuses on useful work done not just money/time spent
2. measures the whole project rather than focusing on the critical path
3. s us to forecast the project outcome using different assumptions
4. allows us to easily plot and monitor trends
5. the requirement to measure %age complete demands tighter control

Question 17

what are 6 disadvantages of EVM

Answer 17

1. because the technique takes a whole view, over-performance in one area may hide under-performance in another
2. the method relies heavily on the need to accurately measure %age complete
3. slippage forecast based on SV or SPI only give the same result as the schedule if all the slippage is on the critical path
4. slippage forecasts take the average slope of the EV line up to the current time so take no account of any recent change in the trend
5. it requires considerable administrative organisation and effort
6. there is a lack of understanding of the method amongst non-project personnel