What is earned value project management?

Earned Value Management (EVM) is a project management technique that provides schedule and cost performance data about the progress of the project. It has been practiced since 1960. Key elements of EVM include:

1. Having a defined scope of work agreed by stakeholders

2. Assigning a budget to subtasks (work packages or tasks) within the project.

3. Distributing the budget over the timespan of the work, creating a time phased budget for the work, and the whole project through summation. This is the Planned Value (PV) to be gained each period if the planned work is completed, and in total represents the budget planned to be spent getting all the work completed.

4. Once underway the progress of each work package is evaluated without regard to the time or funds spent. Progress is quantified with respect to the PV. This gives a value called Earned Value (EV). The EV to-date may be greater that the PV to-date, showing ahead of schedule condition; or EV to-date may be less than PV to-date showing a behind schedule condition.

5. Actual costs (AC) are recorded for the work underway.

6. A schedule variance (SV) is EV-PV

7. A cost variance (CV) is EV-AC. NOTE that there is no comparison between what was spent and what was planned to be spent. All variances are with respect to what was actually completed.

Powerful analytical formulas use the key EVM data (PV, EV, AC, budget) to forecast final completion cost and completion date.

In the USA ANSI 748 is the guiding standard for US Government projects. Other standards exist for the UK and Australia. PMI has published a "practice standard" for EVM.

AACE International offers an Earned Value Professional (EVP) certification based upon ANSI 748.

Within the engineering, design, construction industry EVM also plays a role in determining progress payments. See below.

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Earned Value is based on the principle of "Quantum Meruit" or the value deserved. In order for a contractor to claim payment under earned value, the work must meet three criteria:

1) It must have been physically completed;

2) It must be in SUBSTANTIAL CONFORMANCE to the technical specifications, and;

3) It must have been done in compliance with/fulfillment of the contractual terms and conditions- the "shall" clauses.

If the contractor has fulfilled all three of these criteria, then the payment must be prompt.

As a side benefit, the data from earned value can be used in multiple ways to measure or assess how effectively or efficiently the project is actually running against the plan, both in terms of time and cost.

Unfortunately, many organizations have forgotten the important link between earned value and prompt payment, and have been focusing only on the various measurement metrics, such as Cost Variance, (CV); Schedule Variance, SV; Cost Performance Index, (CPI) and Schedule Performance Index, (SPI).

While those are important and valuable uses of the data, from a practical perspective, the real value of using Earned Value Management derives first and foremost from ensuring healthy cash flows to the contractor, based on the timely and correct performance of work.