Project Management 101

Friday, March 14, 2008

Earned Value Management (EVM)

Earned Value Management (EVM) - a project management technique that combines schedule & cost performance and it is about the investment returns in a given project.

It helps to answer the following question: “What did we get for the money we spent?”

Basic concepts of EVM:
  • All project steps “earn” value as work is completed.
  • The Earned Value (EV) can then be compared to actual costs and planned costs to determine project performance and forecast performance trends.
  • Actual physical progress is measured in terms of dollars, hence schedule and cost performance can be analyzed in the same terms.
  • Planned Value (PV)- the timephased budget and schedule, incremental plan which gives cost and schedule baseline.

The DOD Australia, DMO website on Performance Management defines the following as such:

  • PV - The sum of the budgets for all work effort planned to be accomplished (ie. the plan).
  • EV - The sum of the budgets for all work effort actually accomplished.
  • Actual Cost (AC) - The actual costs incurred to date.
  • Budget At Completion (BAC) - The sum of all budgets allocated to the contract. This does not include the contractor Management Reserve.
  • Estimate at Completion (EAC) - Actual costs to date plus an estimate for work remaining.

In the next post, I will talk about the other EVM terms and formulae and how these help in measuring project performance.

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