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Earned Value Analysis
You’ll see earned value analysis come up a lot in the PMP (project management professional) exam and in your project management career. Earned value provides a current view on the scope, the schedule and the cost performance of your project. What it helps do is compare the performance of your project, or what was actually planned to what’s happening in your project – the actual schedule and the actual cost performance as our project goes along.
There are three main concepts for earned value management and earned value analysis.
The first one is Planned Value (PV), which is what we’ve planned for our project. Then Earned Value (EV) which is the percentage of what we’ve delivered for our project, and then the Actual Cost (AC). So what we’ve actually spent on our project so far. We also use all of this when we’re looking at variance analysis. Other factors we will use include the budget at completion (BAC), which is what we had planned as our budget for the project.
Let’s look at a couple of examples Planned Value. PV is the authorized budget allocated by phase over the life of the project – as the project is going on at a given point in time. Planned value defines the physical work that should have been accomplished at this stage.
So let’s have a look at what that means. If we’ve got a project budget at completion (BAC) of $10,000 where 30% has been completed but we had 40% that we had planned to be completed at this stage, and we’ve spent $5,000, then our Planned Value is what we’ve planned to be completed – 40% of $10,000. That’s $4,000 as our Planned Value.
Earned value (EV) in this case is the budget associated with the authorized work that has actually been completed. Earned value is often used to calculate the percent complete of the project. It’s what we have delivered so far for our customers. Now obviously that’s not the same as what we have spent on our project so far and that’s why we separate the two.
So in our example, $10,000 where 30% is completed, 40% was planned and $5,000 was spent so far, Earned Value is what we’ve earned on our project and it’s 30% of $10,000, which is $3,000.
Actual cost is simply the total cost incurred. So anytime you see how much we’ve spent, that is the actual cost of a project. For our example we have $5,000 spent so far, so the Actual Cost is five thousand dollars.
Now once we know all of these things and the budget at completion that we had planned we can use these for variance analysis to see how a project is tracking. This will give us things like the cost performance index, schedule performance index, cost variance and schedule variance, and we will be using all of our earned value analysis tools, the things that we’ve just looked at, to plug into all of these calculations as well.
And that is earned value analysis.
– David McLachlan