Originating in US Department of Defense programs in the 1960s, earned value management (EVM) is now one of today’s most effective and popular approaches to project management. It can help project managers navigate issues relating to costs and timescales.

What is earned value management (EVM) in project management?

Earned value management is an evaluation technique for measuring and forecasting a project’s performance. Integrating the elements of time, cost, and scope to help project managers measure planned work against completed work, EVM provides insights into deviations from schedule and budget baselines.

EVM is a structured, systematic approach that aids in making informed, data-led decisions during a project lifecycle by identifying variances. It centers on comparing three core concepts:

  • Earned value (EV) — The estimated monetary value of the work already performed at a specific time. It is calculated by multiplying the percentage of the project that has been completed with the project budget. For example, on a 75% complete project with a $1,000,000 budget, earned value is $750,000. EV is sometimes referred to as Budgeted Cost of Work Performed (BCWP).
  • Planned value (PV) — The estimated monetary value of the work that should have been performed, if everything had happened according to plan. It is calculated by multiplying the planned percentage completion with the project budget. PV is sometimes referred to as Budgeted Cost for Work Scheduled (BCWS).
  • Actual cost (AC) — The amount of money spent to perform the work that has been completed by a specific date. AC is sometimes referred to as Actual Cost of Work Performed (ACWP).

These indicators allow project managers to calculate a schedule variance (SV) and a cost variance (CV).

  • Schedule variance (SV) — Calculated by EV - PV. It is the difference between progress planned to make and the actual progress made.
  • Cost variance (CV) — Calculated by EV - AC. It is the difference between planned budgets and the actual amounts spent.

Schedule performance index (SPI) and cost performance index (CPI) are popular alternatives to SV and CV. These values can be easily compared across projects.

  • Schedule performance index (SPI) — Calculated by EV ÷ PV. SPI over 1.00 means a project is ahead of schedule; CPI lower than 1.00 means the project is behind schedule.
  • Cost performance index (CPI) — Calculated by EV ÷ AC. CPI over 1.00 means a project is spending less than forecast; CPI lower than 1.00 means the project is currently over budget.

Earned value management systems (EVMS) are used to refer to software, processes, and solutions that use EVM methods.

The benefits of earned value management

By using progress so far to forecast future performance, EVM can be a powerful predictive tool. It is now considered a best practice, helping project managers to continually evaluate the health of a project and make necessary adjustments.

The US Departments of Defense and Energy, NASA, the FAA, and other technology-related agencies have adopted EVM as a central tool for the management and performance measurement of their procurement programs—it is actually a requirement of the US government.

  • Accurate forecasting: EVM is an objective way of measuring the performance of a project against a baseline. Since past performance is the best indicator of future success, EVM gives you a clear view of how potentially high-risk programs are performing.
  • Identification of issues: As it is scheduled-focused and data-driven, EVM empowers project managers to proactively intervene in a timely manner — for example by managing expectations, tweaking project scope or securing more resources. It also helps project managers to focus on the issues that have the most impact.
  • Accountability: The entire principle of EVM is measuring and benchmarking against a pre-agreed plan, making for better cost and schedule control. It promotes greater project visibility, transparency, and accountability by delivering clear data based on schedule, budget, and work.
  • Scalability: EVM can provide valuable insights for projects of varying size, scope, duration, and complexity, including at the portfolio level. 

To reap these benefits, good data is crucial—time must be invested in defining the project baseline (schedule, cost and scope).

Integrating strategic portfolio management (SPM) with traditional EVM can bring further benefits to your projects. Discover more by downloading our eBook, The Future of Earned Value Management with SPM.

At Planisware, our solutions help you to transform how you plan your projects, coordinate your teams, develop products and deliver your organization’s mission.