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четверг, 2 марта 2023 г.

What is Earned Value Management?

 

This is our short and simple guide to EVM. It's updated for 2023, and tells you all the basics in plain English.

Overview

Earned value management (EVM) is a project management technique. It helps you predict whether your initiatives will be finished on time and within budget.

 

Similarly, let’s say you’ve gotten half of the work done while spending half of your budget. That means you’re on budget regardless of how long it’s taken you.

 

For both cost and schedule, EVM compares something you’ve spent (time or money) against how much progress you’ve been able to make on your initiative. This initiative progress is the “value” that you’re “earning” in earned value management.

 

Although we track cost and schedule separately, that doesn’t mean they’re completely independent. It’s quite the opposite. The relationships between cost and schedule give EVM its true power, the ability to predict performance

EVM looks at cost and schedule separately. Let’s say you’re 6 months into a year-long initiative and you’ve gotten half of the work done. That means you’re right on schedule regardless of how much money you’ve spent.


The Lines

There are three lines on an EVM chart. They show the work goal, work completed, and money spent.

 

The work goal line is an S-curve that shows the pace of most initiatives. Not much is accomplished in the early phases of a project as you’re planning everything out, but then things really pick up steam in the middle. At the end you start to wrap things up and everything slows down again.

 

In official EVM terminology, this work goal line is called either Planned Value (PV) or Budgeted Cost for Work Scheduled (BCWS). In plain English, this line represents the goal for how much of your project you’ll be completing over time.


Next we’ll add the work completed line showing our initiative’s actual progress. You’re ahead of schedule if your percent complete is above the work goal. Higher is better.

 

The official term for measuring how much of your initiative is finished is either Earned Value (EV) or Budgeted Cost for Work Performed (BCWP). And, instead of tracking this progress by percent complete, EVM academics prefer to track how much money that completed work was worth. It’s a simple conversion.

 

If your initiative’s total budget is $100,000 and you’re 25% finished, you’ve done $25,000 worth of work. That’s the “earned value” in “earned value management.”

 

Traditional EVM visualizes how much work you’ve completed in terms of its monetary value. We think it’s more intuitive as percent complete. Either way, the lines look the same and the math is identical. It’s just different labels on the Y axis.



Finally, we’ll add the money spent line that shows how much this initiative has cost so far. Lower is better for this one. EVM purists call this line Actual Cost of Work Performed (ACWP).

 

Based on the relationships between these three lines, we can predict when the initiative will be finished, and how much money we’ll end up spending. That’s what we’ll explore next.



The Magic

Tracking an initiative’s progress is helpful, but earned value management’s real power is being able to predict outcomes.

Let’s look at the work goal and work completed lines again. The horizontal distance between our actual progress and the goal tells us how many days we’re ahead or behind schedule. You can then add or subtract that time from your initiative’s end date to get a good idea of when you’ll actually finish.


To predict the final cost of our initiative, we compare money spent to work completed. If you’ve been able to get 50% of the work done while only spending 40% of the money, your project is 10% under budget. Subtract that 10% from your total budget to see how much money you’re going to end up spending in total. The chart below shows this cost prediction in action.

49.8% over budget
Projected Cost: $225K
Projected Variance: 
$75K over budge

Notice how we’re not comparing anything to the work goal line here. That's because our cost predictions are entirely based on how much progress you've been able to make with the money you've spent. You could be months behind on your initiative, but if you've gotten 50% of the work done while spending 50% of the money, you're right on track as far as cost is concerned.

 

Ignoring the schedule when predicting how much you’ll end up spending on an initiative is the tricky part about EVM that sometimes throws people for a loop. It does make sense when you think about it, though.

 

Now let's put it all together. This is our finished EVM chart showing projected cost and schedule. You can adjust the sliders to see how each one affects the overall predictions.



Math

If you’re using performance management software to track your initiatives, there’s a good chance it can already predict cost and schedule using earned value management. You can do it on your own with a calculator, though.

To start, you’ll need 6 pieces of information about your initiative:

total budgetstart datedue datedays since startpercent (of work) completemoney spent to date

First, let’s calculate the Earned Value. As explained above, this is how much money the work you’ve done so far is worth.

earned value = percent complete × total budget

From there we can predict how much money you’ll spend on your initiative.

Projected Total Cost = money spent to date + total budget ‐ earned value

Next we’ll calculate Earned Time, which is the number of days worth of work you’ve completed so far. This is a little tricky because we have to calculate a point on the work goal curve, yet EVM doesn’t explicitly tell us how to draw that S-curve. Don’t worry, though. We’ve found that a curve like this works well.

wave scale = 7 / ((due date ‐ start date ‐ 1) / 2)wave value = ‐1 × ( ln(( 1 / percent complete) ‐1))work goal = start date + ((wave value + 7) / wave scale)earned time = work goal ‐ start date

With that out of the way, we can finally estimate when you’ll finish your initiative.

Projected End Date = due date ‐ earned time + days since start

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