Earned Value Management

Earned value management (EVM) is a fascinating method of project management. The name is a mouthful, but its overall goal isn't. Instead, it aims to provide an efficient way of determining a project's total cost of performance (TCO). TCO is how much money you can spend on a particular project.

At the same time, EVM ensures your organization spends the same amount on each phase regardless of where in the process they are at. It also empowers you as a project manager by allowing you to go back and revise estimates at any time.

Earned Value Management Overview

An earned value management system is a method for managing the progress towards achieving a milestone (called an 'achievable' or 'milestone') and is used to assess and improve the quality of project results. It is based on the concept that all resources are allocated to projects on a cost-time basis.

The idea behind earned value management is that managers should base decisions on information about actual performance rather than estimates based on past performance, which can be unreliable because they are often based on partial information.

Earned Value Management monitors and manages projects in terms of cost, schedule, scope, quality, and risks. The approach can be applied at any level of project management, including project initiation, planning, and control; execution; post-execution; or performance measurement.

How Does It Work in Project Management?

The primary function of earned value management is to measure and track progress made on projects. In this regard, it establishes a relationship between the expected cost, actual cost, and project performance.

The basic principle of earned value management is that it measures the cost of work done against the job's value (or benefit). This concept is called "value" because it describes what was accomplished with the resources used on a project. The term "earned" means that each resource impacts the accomplishment of objectives, directly or indirectly, through other resources.

Earned Value Management (EVM) is a system for managing projects from start to finish. EVM can be used in any business where you have an executable plan with milestones to meet your goal for completion. In addition, EVM helps you control costs by accurately showing how much money has been spent on each milestone over time.

What are the Benefits of Earned Value Management?

In this world of uncertainty, it is essential to have a system that defines your organization's performance. Earned value management (EVM) is a process used to determine an organization's progress toward its goals. EVM is a measurement of work completed against expected costs.

The benefits of EVM are:

• It provides visibility of all activities by assigning them a cost and time value.
• It helps the organization make better decisions by giving them complete information about their projects, whether they are working on schedule or behind schedule, how much money has already been spent on each project, etc., enabling them to take corrective measures if required.
• It ensures no overspending or underspending of resources at any stage of work, thus helping avoid waste and inefficiency in project implementation.
• It helps improve the quality of new products or services as they develop, allowing you to detect problems early, thereby improving reliability and reducing costs.
• Earned value management is also used in industry sectors such as banking, insurance, and healthcare to manage projects for financial gain.
• Earned value management has been used for decades in government departments such as those responsible for schools and hospitals.
• It provides a way to compare the relative effectiveness of different approaches to project management. It enables you to assess whether a system has been effective in meeting its objectives and whether it warrants continued use.
• It provides an objective basis on which to evaluate progress on projects. This allows for more accurate forecasting and planning than would otherwise be possible.

When to Use Earned Value Management in Project Management?

Earned value management effectively tracks project progress because it uses a set of pre-defined criteria to determine whether or not a project has met its goals. This process allows you to see how much money you have spent, how much time your company has invested, and how many resources have been used during each stage of your project.

While earned value management can be done manually or with computer software, it's important to remember that this method only works if you have good data about your project's goals. If any variables aren't appropriately tracked or aren't known in advance (such as weather conditions), then earned value management won't work well for you.

The EVM process is used to determine the costs, schedule, and budget of the project and identify risks and opportunities. The EVM process uses three primary methods:

Cost-volume-profit analysis. This method determines the overall cost of each activity in the project and compares it to its profit margin. If a project is profitable, it will continue until no more profit is made or its cost is higher than its profit margin. When this occurs, it is time for the project manager to consider reducing scope or increasing scope. These changes can sometimes be made without affecting other parts of the project because they do not change any of its other measurements (such as duration or scope).

Cost performance index (CPI). The CPI compares actual costs with expected costs; it does not compare actual costs with budgeted costs.

Schedule performance index (SPI). The SPI compares actual schedules with expected schedules; it does not compare actual schedules with budgeted schedules.

Conclusion

Earned value management, or EVM, is essential for predicting the project's schedule and budget. EVM incorporates many disciplines into one, making it easy to show a project's status to other employees and help guide future decisions.