Earned Value (EV), often referred to as the Budgeted Cost of Work Performed (BCWP), is a cornerstone concept in Earned Value Management (EVM). It represents the value of the work that has been completed by a specific time, as opposed to what was planned.
Key Aspects of EV:
- Value of Completed Work: EV doesn’t just represent the raw costs spent on a project. Instead, it represents the budgeted value of the work that has been accomplished. In other words, it quantifies the work done in monetary terms.
- Comparison with PV: While Planned Value (PV) tells you the value of work that should have been completed by a certain time, EV tells you the value of work that has actually been done. The difference between EV and PV gives you the Schedule Variance (SV).
- Comparison with AC: Actual Cost (AC) represents the real costs incurred for the work done. When you compare EV to AC, you get the Cost Variance (CV). If EV is greater than AC, it indicates that you’re under budget. If EV is less than AC, it means you’re over budget.
- Performance Indicators: The relationship between EV, PV, and AC provides two crucial performance metrics:
- Schedule Performance Index (SPI) = EV / PV: A value less than 1 indicates the project is behind schedule.
- Cost Performance Index (CPI) = EV / AC: A value less than one indicates the project is over budget.
- Forecasting: EV can also be used to forecast future performance. For instance, the Estimate at Completion (EAC) can be derived using EV, which predicts the final project cost based on current performance.
Implications:
- EV provides a more comprehensive view of project performance than just looking at expenditures or task completion percentages. It integrates scope, cost, and schedule dimensions, offering a holistic view of project health.
- By regularly monitoring EV against PV and AC, project managers can identify trends, make informed decisions, and take corrective actions if necessary.
- EV is a dynamic measure, changing as work progresses. It provides real-time insights, allowing for agile responses to emerging challenges or opportunities.
In summary, Earned Value (EV) is a powerful metric that offers insights into a project’s cost and schedule performance. It’s a tool that, when used effectively, can help ensure projects are delivered on time and within budget while also providing early warnings of potential issues.
