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Earned Value Analysis in Project Management Method
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Earned Value Analysis or Earned Value Management - EVM Analysis is an essential part of project management. The methodology allows project managers to measure the amount of work done by the team members and evaluate the value of that work. The analysis is made beyond the fundamental review of the cost and scheduled reports of the project management. It helps the managers to get a keen insight into the intensity of the progress that has been achieved.
Project management is a scientific course that helps you quantify progress achieved in your project. It is a very objective method and measures performance based on scope, time and cost. If you want to learn in detail about Project management, check PMP course, which will immensely help you learn more about earned value analysis.
What is Earned Value Analysis?
Project Earned Value Analysis or EVA is a key tool and technique in Project management. The method helps in understanding the progress of the project based on a quantitative analysis of the Task Budget with the actual value of the task that has been completed. It implies gauging progress based on earning money. The better the progress is, the more money can be earned. Earned Value Calculation is an objective method to measure project performance. Earned Value Analysis PMP metrics are generally used in health project performances. This helps the project manager to have a keen knowledge of the EV analysis and count the progress altogether.
Earned Value Analysis in project management provides the window to evaluate the success to be achieved. Earned Value Analysis is a very competent way to compute the progress of any project. For example, Earned Value= Percent Complete (Actual) X Task Budget. If you have completed 50% of your task and your budget is $10,000 then the earned value analysis of your project will be $5,000.
The Earned Value Analysis formula is solely dependent upon the Task Budget and the progress that has been achieved so far. The Task Budget talks about the budget that has been set aside by the project manager for the particular project. The Earned Value Analysis is made by multiplying the Task Budget with the percentage of projects that have been completed by the project team members. There are four fundamental indicators of Earned Value Analysis. They are:
- Earned Value (EV)
- Planned Value (PV)
- Actual Cost (AC) and;
- Budget At Completion (BAC).
These indicators help in understanding the progress at large, controlling the cost processes. and calculating the single period or cumulative for multiple periods of the project or the entire project altogether. One of the finest Earned Value Calculation example is work package or control at the accounts level.
Purpose of Earned Value
The sole purpose of Earned Value Analysis in the project management technique is to estimate the progress of the project based on the budget and its schedules. If the purpose of the Earned Value Analysis is to be matched, then the project would be completed during the given time period by calculating EVM.
Earned Value Analysis provides concise information about any normal project. It tracks the project in a precise method which ensures project tracking in a detailed method. It holds greater visibility to make a proper Earned Value Management analysis and finish the project in the given time. It also helps you to assess your costs in project management and reach greater heights. Earned Value Analysis helps you to make informed decisions about your project. It helps you to create a complete baseline to monitor the projects properly without hassle. Earned Value Analysis is an effective management method that will allow supervisors to look at the status of their projects. Earned Value Analysis helps the supervisor to go through documented data and show an effective project budget.
There are a plethora of purposes for Earned Value Analysis in software project management. To know more about clear concepts of Project Management, check out Project Management training program. You will have proper knowledge of Project Management as well as Earned Value Analysis example problem. This will help you increase your earning potential. You can learn different methods of project management from industry experts with practical knowledge.
What are the Earned Value Methods Data Source?
Earn Value methods of data source refer to the method of answering the three primal questions:
- Where were we? (Planned value)
- Where are we now? (Actual value)
- Where will we be going? (Earned value of the completed work)
It is a new method of Earned Value Analysis that helps in optimizing the data in a very quantified way. They help to improve the workflow and have a staunch method to achieve optimal productivity.
There are three primary methods of Earned Value. Let's read to get a keen knowledge of those three methods.
Planned Value
Planned Value primarily answers the question, "Where were we?" It describes the extent of the activities of the project presented on its determined point and cost estimation. It describes the baseline of the project and how it all started. The cumulative PV or Planned Value is the sum of the approved budget that has to be performed throughout the project.
Actual Value
The actual value (AV) is the real cost that has occurred in the execution of the project. The actual value can either be more or less than the Planned Value. The cumulative Actual Value is the sum of the actual cost and the planned Value.
Earned Value of Completed Work
The earned value of the completed work denotes the sum of the planned Value and the actual value. Planned Value is the speculative value of the work. Earned Value is thereby measured to monitor the level of work and project the plan. The Earned Value can be calculated by multiplying the percentage completed by the total budget incurred.
Requirements for Earned Value Analysis
To have a proper Earned Value Analysis calculator, the calculation needs to be accurate. A solid project plan needs to be created. The Earned Value Analysis could only be achieved by Work Breakdown Structure or WBS. This is a deliverable-oriented hierarchical decomposition of work structure. It helps them to accomplish an objective work structure that can provide the required variables. Earned Value Analysis table is a scientific method of project management. One of the necessary parameters that are required for Earned Value Analysis report are:
- A release plan with a proper number of sprints.
- An estimated backlog of a product.
- The actual cost of work that has been performed.
- The estimated development velocity.
EVM Fundamental Concepts
Earn Value Analysis is a fundamental concept of project management methodology that integrates schedules and costs. It provides optimal scope to measure project performance altogether. Project Earned Value Analysis helps to predict the future and adjusts the project accordingly. It is a quantitative technique that is used to evaluate the performance of the project by analyzing scheduled cost variances.
Earned Value Assessment uses Earned Value Management (EVM) strategies to work on software procedures and other templates. These templates are widely used for EVM. The fundamentals of Earned Value Management can be determined by the guidelines that have been embedded under the EIA-748 standards. Five broad principles talk about the projection of EVM. These are determined by the factors of organizational maturity, the size of the project with the contractual requirements. They are:
- Organization and Scope of the Project: The organization and the scope of the project are important to determine the “what” element of the project. They are determined by the work breakdown structure or WBS with the help of a graphical representation. The EVM also consists of an Organization Breakdown Structure or (OBS) by making a chart of an organization that shows the different elements that are involved in the team such as teams, departments and managers. It shows in a hierarchy of the different roles and responsibilities that are involved in the project. Finally, it shows the Responsibility Assignment Matrix or RAM that shows the task performance as a whole. It also determines who has been performing the tasks and who has completed them. These mappings help to control the accounts in future stages.
- Planning, Scheduling and Budgeting: This defines the project baseline in concrete methods. These parameters are monitored and controlled in the lifecycle. This is determined by the WBS in the planning stage. They ensure multiple activities are grouped in a single package controlled by a single account. Each account manager monitors the progress and therefore manages multiple accounts together. They move closely on a time-phased budget allocation which is proportionate to the total budget of the work package.
- Accounting for Actual Costs: Actual Costs determine the original cost that has been incurred in the project. It focuses on measuring the actual cost and tracks the cost at a work package level. These costs are allocated much earlier for calculating an earned value or making an earned value assessment.
- Analyzing and Reporting on Project Performance: The calculations of PV and EV and AC along with other variances are described with the help of indexes. The idea is to consistently report these numbers to the team members for understanding the visibility of the project's progress. The focus, however, strongly remains on identifying the correlative actions that are taken against the baseline of reporting numbers.
- Revision and Data Maintenance: Each and every baseline cannot be revised all the time. However, in some scenarios, these guidelines require revision. If there is room for changing the authorized baseline of the scope, cost or schedule of the project, then that should be made immediately to ensure seamless project management.
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Principles of EVM
Certain principles should be abided by to have a concise method of EVM. The principles have seven breakdown structures that enhance the process of keen Earned Value Management. They are:
- Planning all Work Scope into Completion: With the help of a work breakdown structure, Earned Value Analysis table becomes easier to handle. When the work scope is planned at ease, the determination of actual costs will be easier in the future.
- Breaking Down the Program Scope into Finite Pieces, which can be Assigned to a Particular Person or an Organization: These roles are assigned to the person or an organization to do the work with utmost scrutiny. These scheduling functions include network scheduling with horizontal and vertical traceability. This scheduling ensures the work is done within the proper period of time with a proper Task Budget.
- Integrating the Program Work Scope, Schedule and Cost Objectives: This will help in having an optimal performance measurement baseline. This can integrally control the changes in the baseline promptly.
- Using the Actual Costs that Have been Incurred to Accomplish the Work Performed: The actual costs are accumulated in a formal accounting system that has been properly planned and budgeted. This is done with the help of an integrated coding system that allows summarizations through higher levels of WBS.
- Assessing the Work Performance Level Objectively: This helps to get a proper insight into getting the work done in a much more objective method. This can be achieved if the value assessment is fine once every month.
- Analyzing the Significant Variances from the Plan, Forecast Impacts, or Making an Estimate of Completion Based on the Work Performance: This principle acts according to the Cost Performance Index or CPI and Schedule Performance Index or SPI. The To-Complete Performance Index (TCPI) is encouraged for this principle. This is correlated to writing a proper variance report for the Program Managers.
- Using Earned Value Information for the Company's Management Procedures: This helps the Program Management to use the data and further manage the program's technical scheduling and cost issues. They help in understanding the data in a proper decision-making process.
How is Earned Value Analysis Calculated?
Earned Value Measurement talks about the work that has been completed. It talks about the value of the project that has been produced. It helps to make a comparative analysis between the completed work and the work that has been done, initially. This reduces any kind of documentation that is needed. This provides flexibility in managing the necessary programs. With the help of the above seven principles, it becomes easier to have a proper compliance review. Here are some ways to calculate the Earned Value or perform projected earned value analysis.
Earned Value= Percentage Completed (actual) X Task Budget
Here, Planned Value is also denoted as the Budgeted Cost of Work Scheduled or BCWS that should have been completed. Therefore, the formula thereby becomes:
PV= Percentage Completed (Planned) X Task Budget.
Conclusion
Earned Value Analysis is an essential segment of Project Management. It helps in understanding the project at large and assesses the purpose of Earned Value Analysis is to help with project management. There is a vast spectrum of how Earned Value Analysis has been interpreted. They can be interpreted with the help of the given time frame by providing a Gnatt chart which will integrate the results properly. It also helps the project manager to get a keen insight into the performance of the team members. This helps in giving them an idea about the performance of the team members precisely. To learn more about Project Management, enroll for KnowldegeHut PMP course.
Frequently Asked Questions (FAQs)
1. How is Earned Value Analysis calculated?
Earned Value Analysis is calculated with the multiplication of Percentage Completed X Task Budget.
2. What are the 2 variables in Earned Value Analysis?
The 2 variables of Earned Value Analysis are Planned Value (PV) and Budget at Completion (BAC).
3. Is there a difference between Earned Value Analysis and Earned Value Management?
The goal of Earned Value Analysis is to support and control the cost processes. On the other hand, the results of Earned Value Analysis are used for Earned Value Management (EVM) which helps in analyzing variances, trends, and forecasts of the EVA results.
4. Which are the most valuable EVA (Earned Value Analysis) formulas to Project Managers and why?
The most used formula is the Earned Value= Percentage Completed X Task Budget. These are valuable to the project managers because it helps them analyze the performance done by the team members for the project.
5. What is the Earned Value Analysis and why do we use it?
Earned Value Analysis is a method that is used by project managers to measure the amount of work that has been performed in the project beyond the costs and schedule reports. It is used to measure the progress that has been achieved.
6. Does Earned Value Analysis affect project quality?
Yes, Earned Value Analysis does affect project quality. It helps to determine the betterment of the project or whether it has worsened or it.
7. Why is Earned Value Analysis important in the communication procedure?
Earned Value Analysis is important in the communication procedure to improve project visibility and accountability. They offer the value to the piece of work that is equal to the number of funds that have been budgeted to complete the project.
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