Understanding Earned Value Management in Project Management

Earned value management is crucial for project success, enabling effective tracking of budget and schedule performance.

### Understanding Earned Value Management: Key Metrics and Application
* 🎨 Earned Value Management (EVM) is crucial for PMP and CAPM exams, focusing on **promises made regarding project completion** within specific timeframes and budgets.
* 🗓 In a painting project scenario, the task is divided into four days, with each day dedicated to completing **two panels**, promising to finish each day’s work for a budget of **$50**, totaling a Budget at Completion (BAC) of **$200**.
* 📊 The three core metrics of EVM include Planned Value (PV), which for day one is **$50**, representing the **scheduled work value**, and Earned Value (EV), which reflects the **actual work completed**.
* 💰 Actual Cost (AC) is introduced to measure what was actually spent; for day one, if the actual cost **exceeded the planned budget**, it could indicate **cost overruns**.
* 📈 The **Cost Performance Index (CPI)** and **Schedule Performance Index (SPI)** are derived metrics, calculated as **EV divided by AC** and **EV divided by PV**, respectively, indicating **project efficiency** and **schedule adherence**.
* 🔍 The analysis shows that if CPI is less than 1, it indicates **overspending**, while SPI equal to 1 suggests that **all scheduled work was completed on time**.
* 💡 By the end of day two, if only half the work was accomplished, the metrics would reflect a **lower EV and a negative cost variance**, demonstrating project inefficiencies.
* 📅 EVM allows for tracking progress at any point, providing insights into **cumulative performance across the entire project**, essential for **effective project management and decision-making**.

Hello there, let's talk about earned value management. Earned value management is a very important feature on the PMP exam, even the CAPM exam, but it's very rapidly in less than 10 minutes, just cover the basics of earned value. To do that, we'll look at a scenario in which

work needs to be done and this work is a painting project. We have four panels to paint: one panel on day one, one on day two, one on day three, and one on day four. But we've broken out each day into two separate discrete pieces. So on day one, we need to

get both of these pieces done. On day two, we need to get both of these pieces done, and same for days three and four, two pieces. Okay, now the way we've planned out this project is we have made a promise to management. Earned value is based on

promises, promises to get work done within a specific time period and for a particular amount. So look very carefully at day one. If I make this bigger here, on day one, we have told management we will get both of these panels done, and we will accomplish this on day one. So by

the end of day one, we expect to see both of these panels painted yellow. Not just that, we also expect to see the amount of money spent to accomplish this conform to the budget. In other words, our cost at the end of day one will conform to the budget. So we're promising we're

going to get it done in one day, we're going to get it done for a budget of fifty dollars. We can also break down this scenario into two panels done at twenty-five dollars each, hence the total budget of fifty. This is a typical part

it's business as usual it's a pro Mr. Management we've told management the budget for day one now if you look at all the other days we've got day two three and four same budget similar work different colors of paint day two fifty dollars day three fifty dollars day four

fifty dollars so what we're saying is at the end of four days all of these panels will be complete for a total budget of two hundred dollars do you follow that two hundred dollars for the entire project now we refer to that total budget as the

budget at completion we call it the BAC the budget at completion so we can say that the budget at completion for the total project all of these is going to be two hundred dollars fair enough good now let's start looking at these earned value metrics there are three core

metrics that we talked about in value management and I'm going to show you what those three metrics are so let's zoom in a little bit here the first metric is called planned value think about planned value as the value of work scheduled to be done within a particular

time period within a specific time period so if we take a look at this image one more time a time period of one day for day one one day we are setting out to accomplish fifty dollars worth of work within one day and that's really what plan value states the value of work

scheduled to be done within a particular time period so we can actually put in these amounts here day one the value of work scheduled to be performed is fifty dollars worth of work and that is what planned value is so the planned value for day one

is fifty dollars and it's fifty dollars because that's what we've set out to achieve. We've broken it into two discrete parts that have better clarity, better decomposition, but it is fifty dollars. So that's day one plan value. The next metric is percent complete, which I

am going to tie to earned value. So the main metric is really earned value, but you cannot really understand earned value without seeing percent complete. Percent complete is the amount of work you actually achieved. So in an example, let's say we accomplished all of the work for day one. That means there the

value of the work we accomplished is a hundred percent. So let's go in here and put in a few more figures: a hundred percent complete. And if you put in a hundred percent complete, that means we accomplished all the work that was scheduled. So we know fifty dollars worth

of work was scheduled, but earned value is a reflection of how much work we actually got done. If we put enter, we can see we've got the percent complete times a planned value to give the earned value. Percent complete times planned value is earned value. Remember this is day one, so

this is how it actually would look at the end of day one. At the end of day one, we're saying we got both of the panels done. We got a hundred percent of the work that was scheduled done. The work that was scheduled was valued at fifty

dollars, and because we got all the work done in our table here, we can see the earned value is fifty dollars as planned. We plan to get fifty done. We got all of it done. Now this is the final metric. This final metric is called AC

Actual cost, actual cost is how much I paid for the work accomplished within the specific time period. One more time: plan value (PV), earned value (EV), and finally actual cost (AC). Now, in this example, let's assume that instead of getting this work done for the amount we targeted, we had

some cost overruns because there were some environmental factors that affected us. There were weather delays that prevented this external wall from being painted. So, for this scenario, I'm going to say that the actual cost was not fifty dollars. I'll say we went over budget, we

went a little bit over budget. So, let's go back to our table and put in this final amount. Let's say the actual cost was 61 dollars. Now, when I put 61 dollars in, you'll begin to see the right-hand side of the table being populated, but

I'm going to explain what exactly is happening on the right-hand side of the table. I'm not going to show it to you just yet, but when we get there I'll explain it. But for now, I want you to see the three different metrics: plan value,

how much we planned would be done within a particular time period. We value the work to be done at a particular amount and we put it in a time box of one day. And then we actually start the work, we do the work, we get all the work done. So

the work cannot be valued at more than what we, if we promised we're going to get it done for fifty dollars, it is worth fifty dollars when we get it done. Now, the actual cost is the third dimension: how much you actually spend to get it done.

we got all the work done but we had cost overruns. Now when I come back I'm going to show you the last part of this table. We're going to go into the four derivative metrics: cost performance index, scheduled performance index, cost variance, and schedule variance. So now

we've talked about the three core metrics, let's talk about the derivative metrics. Let me introduce you to CPI, SPI, CV, and SV. Now before we go into the calculations let's talk about these at a high level. To get the schedule performance index, as the word index

implies, you're going to divide something: earned value / planned value. In fact if you look at this table you will very quickly realize that earned value is king. Why do I say earned value is king? I say it's king because all of these metrics

start with EV. The indices start with EV / something because they're indices. The variances are EV - something because they're variances. So they all start with EV. If it's a variance you subtract, if it's an index you divide. If it starts with an S, think S for schedule, planned

value. The schedule is the plan. Keep that in mind. If it starts with a C, like cost performance index or cost variance, think C for cost, which is actual cost. And that's the trick to know in these formulas. They all start with EV. Variances subtract, indices divide. S for

schedule, which is the plan. C for cost, which is actual cost. They all start with EV. Take a look. Simple. Once you get it down to that rhythm it becomes easy to, and these formulas to keep them in mind. What does a CPI mean? You must remember if it's an

index greater than one is good, less than one is bad, equal to one is on target. C4 cost performance index, so this means if CPI is greater than one, cost is lower than budget, it's good. Less than one, cost is higher than budget, bad. Equal

to one, project is on target. The same thing for schedule performance index: greater than one is good, ahead of schedule; less than one is bad, behind schedule; equal to one, project is on target. For the variances, greater than zero is good, less than zero is bad, equal to zero, on budget. Schedule variance greater

than zero is good, less than zero is bad, equal to zero, work is on schedule. Now we could go into this in a lot more detail, but I'm trying to keep this at a high level so that we can move along swiftly and understand this first example that I am

showing you on the screen. So remember at the end of day one, these were the core metrics we had: fifty dollars for Peavy, fifty dollars for eV, and fifty dollars for AC. Now when you put these values into the formula, we have point eight two

four CPI. That's bad, that means we are spending more than we're getting done. When we look at SPI, it's equal to 1. That means we accomplished all the work that we scheduled for day one, and we can see that from the fifty dollars worth of

work accomplished. We got all the work done, but we ended up spending eleven dollars more. And lastly, the schedule variance is earned value minus plan value, so that's equal to earned value minus plan value, and we have zero, and that's why we have nothing showing there. So that's 0.

for scheduled variants and that means we're doing great as far as schedule is concerned enter zero there it doesn't make any difference as a configuration of this particular sheet let's go on to day two let's see what happens in day two at the end of day two oh we've only

accomplished half of what we set out to so the planned value what we plan to accomplish with both of these right we plan to get that done but when we take a look we can see we only got half of it done that means we only got twenty-five

dollars done for day two so if you go to a sheet here and put in the plan value fifty dollars what's the percent complete we only got half of it done so that's fifty percent complete and then we and we can see with the fifty percent

complete we now have twenty-five dollars as our value remember this is our own variable okay so we can see our own value is 25 for the sake of this illustration I'll say that the actual cost spent at the end of day two let's take a look one more time this is at the

end of day two remember day one wasn't very good we spent 60 Mondo's do both of this end of day two we've got only half done how much have we spent for the sake of this illustration I'm going to say we've spent thirty dollars so let's put

that in and when you take a look at the formulas what do you see when you take a look at the formulas you see the CPI is point 83 what does that mean it means that out of the work that we set out to accomplish we take a look at the cost and take a

look at what was accomplished we got twenty-five dollars worth of work done but we spent thirty dollars so 25/30 keeps us there and that tells us as far as past we're not doing very well in terms of schedule we're only fifty

percent efficient that's what that point five means it means we only got half of the work done for that time period accomplished now if we look at the cost variance the cost variance shows us we are five dollars over budget so it shows

us how much we are over budget in context of the work complete so it's not judging us based on the work we planned to get done it's judging us based on how much we have accomplished so management would be happy to see that while we only

had this amount of work done twenty-five dollars worth of work done we haven't spent fifty dollars we've spent thirty which is not very good but not as bad as having spent fifty dollars to get only twenty-five dollars worth of work done if you follow what I'm saying so that's

the cost variance and lastly the schedule variance is $25 minus twenty-five dollars so let me call your attention to this though these numbers in brackets are negative okay and this is Excel and it's the way it's being configured but this is a minus

so minus this is a minus I should have pointed that out first that you have positive variances or negative variances negative variances are bad positive variances are good if it wasn't in brackets it would have been a positive variance so just bear that in mind as

You go through these examples, okay? There's something else I'll call your attention to before I round this up. I also like to call your attention to the fact that you could calculate the planned value across the entire project at any point in time. Same thing, the value

across the entire project and the actual cost. And I have a little formula down here that is doing this for me. So at the moment, as I've got a planned value of one hundred dollars, cumulative percent complete across the total project is point three seven five. And if I look at my other

metrics, I can see how well I'm doing. And I'll just make these general. And right now, I can actually see how well I'm doing as far as the entire project is concerned. So my CPNS PIRO for these are my variances based on where I'm at the

moment. So as you look at earned value management, bear in mind that you could look at it across the entire project or you could look at it in terms of days, okay? I hope that helps you have a better idea of value. I have additional days, day three, and on day three we got these done.

I'll leave it up to you to calculate what day three PV and well, you know what the PV is, but what's the EV? And if I say the actual cost spent at the end of day three is eighty dollars, what do you think those metrics would be?

AC is 80 and you can go back to the table and putting those numbers and see what you come out with. I hope that helps you. This is just a very brief tutorial. It's not meant to be an all-encompassing view of earned value, but I hope that helps.

you get some ideas of what to expect on the exam, all the best

Earned Value Management REVISITED

Praizion (Leadership, Agile, PMP)

Introduction to Earned Value Management and Project Scenario

Earned value management is a key concept in PMP and CAPM exams.

A painting project with four panels (two parts each) is used as an example.

Earned value is based on promises made to management regarding work completion and budget.

Day one's promise: completing two panels for $50.

Total project budget (Budget at Completion or BAC) is $200.

Planned Value (PV): Value of work scheduled for a specific time period.

Percent Complete: Amount of work actually achieved.

Earned Value (EV): Percent complete * Planned Value.

Actual Cost (AC): Actual amount spent for the work.

Example with cost overrun due to weather delays, resulting in AC of $61 for day one.

Earned Value (EV) is the basis for all these metrics.

Indices (CPI, SPI) use division; variances (CV, SV) use subtraction.

Interpretation of CPI, SPI, CV, and SV values (greater than 1 is good, less than 1 is bad).

Day 1 results: CPI = 0.824 (bad), SPI = 1 (on target), CV = $11 (over budget), SV = 0 (on schedule).

Day 2: Only half the planned work is completed.

Day 2 results: CPI = 0.83 (bad), SPI = 0.5 (behind schedule), CV = $5 (over budget), SV = -$25 (behind schedule).

Cumulative project metrics are also calculated.

Day 3 exercise: Calculate metrics given PV and AC.

Summary: This is a brief overview of earned value management.