Earned Value Management (EVM)
It Can't Be Alphabet Soup!
EVM: Huh -- What is it good for?
Earned Value Management (EVM) is a rigorous way to keep track of work progress and compare actuals to plan so as to maintain situational awareness and report status.
EVM is a topic covered on the PMP certification exam, and it is one topic that gives many students a good deal of trouble.
And yes, EVM is used in the real world -- for example by government contractors, who are required to use it on large US federal government contracts.
The Conceptual Foundation
EVM is cost-based. For each piece of work, the estimated cost to complete that work is called the 'Planned Value' (PV) of that piece of work. Once the piece of work is completed, we say that 'Planned Value' has been converted to 'Earned Value' (EV). So earned value is a measure of work completed -- valued at the cost that was estimated to be required to complete the piece of work. Along the way, costs will be incurred, and the costs incurred to complete the work are called the 'Actual Cost' (AC).
So the thought bubble is: planned value is converted to earned value as actual costs are incurred over time.
The Key Metrics -- CPI & SPI
There are two key metrics: CPI and SPI.
- CPI (Cost Performance Index) is EV / AC, and a value of less than 1.0 is BAD.
- SPI (Schedule Performance Index) is EV / PV, and a value of less than 1.0 is BAD.
Scenarios (assumptions about the future)
EVM can be used to make projections about the future, based on some combination of original estimates and experience to date.
Different formulas are used in making the projections, depending upon the assumptions made for future vs. past performance.
Too often, EVM is presented as a scattered smattering of disparate formulas, with the result that it all starts looking like alphabet soup.
The video above presents the EVM equations in the context of the scenarios (or assumption sets) for which they are relevant.
The summary graphic used in the video is also available in our eBook, which you can download at no charge, print in color and use for reference.
Brain Dump, Page 2
The EVM formulas will make up a large part of page two of your brain dump -- per our recommendations.
EVM -- Practice vs. Theory
As elegant as EVM appears in theory, you should keep in mind certain challenges of using it in practice:
- Lack of understanding
- One of our students had to back off and "keep it to herself" because her management just wasn't psych'd to see EVM metrics
- Lack of cost data
- Accurate project cost data is surprisingly rare in many organizations. Without this data, EVM is a stillborn tool.
- Subject to subjectivity
- As rigorous at EVM theory appears, it can still fall prey to subjectivity. Earned value recognition rules can be abused. Eventually the truth tends to manifest itself, and the use of earned value management tends to help speed up that process, which is a good thing.