We respect your privacy. Your information is safe.It is essential to monitor the cost and schedule of the project. One way to achieve this is by applying the Earn Value Management (EVM) technique.
The EVM technique helps forecast costs and schedule variance so preemptive actions can be taken to correct deviations. But before applying this technique, there is a lot to learn, like:
- Basics of EVM
- Various formulas for evaluating project performance
- Tracking cost and schedule
End your search for efficient project management today by learning about EVM and how it can be implemented across the different phases of a project.
Prerequisites
- Be open to learning
- Basic Excel Knowledge
- Quantitative Aptitude
- Project monthly consumption report
Key Terms And Definitions
|
Key Terms |
Definition |
Example |
|
|
BAC |
Budget at completion |
Calculated budget to complete a project |
|
|
PV or BCWS |
Planned value or budgeted cost of work scheduled |
The cost incurred as per the scheduled time |
Planned Budget |
|
AC or ACWP |
Actual cost or actual cost of work performed |
The actual cost incurred as per the current status of the project |
|
|
EV or BCWP |
Earned value or budgeted cost of work performed |
The value of completed work as per the current status of the project |
|
|
CV |
Cost variance |
Measure the cost performance of the project |
If the CV is 0, the project is on budget If the CV is +ve, the project is under budget If the CV is -ve, the project is over budget |
|
SV |
Schedule variance |
Measure the time performance of the project |
If SV is 0, the project is on schedule If SV is >1, the project is ahead of schedule If SV is <1, the project is behind the schedule |
|
CPI |
Cost performance index |
Measure the value of work done as per the actual cost spent |
If CPI is 0, the project is on budget If CPI is >1, the project is under budget If CPI is <1, the project is over budget |
|
SPI |
Schedule performance index |
Measure the performance of the project as per the planned schedule |
If SPI is 0, the project is on schedule If SPI is >1, the project is ahead of schedule If SPI is <1, the project is behind the schedule |
|
EAC |
Estimate at completion |
The estimated total cost to complete the project depends on the current cost situation and the progress of the work |
|
|
ETC |
Estimate to complete |
The cost required to complete the remaining work of the project |
|
|
TCPI |
To complete the Performance index |
It is the future CPI required to complete the project as per the BAC or EAC |
Formulae
|
Terms |
Formulae |
Examples |
|
PV or BCWS |
% of planned work * BAC |
|
|
EV or BCWP |
% of work completed * BAC |
|
|
CV |
EV-AC |
|
|
SV |
EV-AC |
|
|
CPI |
EV/AC |
|
|
SPI |
EV/PV |
|
|
EAC |
BAC/CPI |
If the project needs to be completed maintaining the current cost incurred |
|
EAC |
AC+( BAC- EV) |
If the budgeted cost exceeds the current stage and the remaining work needs to be completed on time |
|
EAC |
AC+ [(BAC-EV) / (CPI * SPI)] |
If the budgeted cost and time exceed the current stage and the remaining work needs to be completed on time |
|
EAC |
AC + bottom-up estimate to complete |
If the cost of the remaining work is newly estimated |
|
ETC |
Bottom-up cost estimation |
If the cost of the remaining work is newly estimated |
|
ETC |
EAC - AC |
Depending on EAC calculation |
|
TCPI |
(BAC-EV) / ( BAC-AC) |
If the project is currently under budget |
|
TCPI |
(BAC-EV) / ( EAC-AC) |
If the project is currently over budget |
Project Scenarios
Several scenarios will come up throughout a project. A deeper dive into these scenarios is necessary for effective project management.
Ideal Scenario
| Details Available | |
|
Budget |
$1,00,000.00 |
|
Completion Time |
12 Months |
|
Time Completed |
3 Months |
|
% Work Completed |
25% |
|
Cost Incurred Till Now |
$25,000.00 |
Over Budget And Behind Schedule
| Details Available | |
|
Budget |
$1,00,000.00 |
|
Completion Time |
12 Months |
|
Time Completed |
6 Months |
|
% Work Completed |
30% |
|
Cost Incurred Till Now |
$60,000.00 |
Over Budget And On Schedule
| Details Available | |
|
Budget |
$1,00,000.00 |
|
Completion Time |
12 Months |
|
Time Completed |
6 Months |
|
% Work Completed |
50% |
|
Cost Incurred Till Now |
$60,000.00 |
Calculation Of Cost Incurred
The steps required for calculating the total cost incurred are:
- Find the value of the percentage profit margin of the last year
- Once the % profit margin of last year is known, then reduce the % profit margin from the hourly cost of the project
For example, if the hourly project cost is $50, then the actual figure will be
$50 - 10 % profit margin = $45 per hour
Actions for Efficient Implementation
Some action steps that can be taken to utilize the EVM technique learned today are:
- Define the cadence of EVM calculation monthly or every sprint
- Publish the EVM report on the cadence to your stakeholders
- Share the report in project review, account manager (1-1), service area lead, common channel, and with other stakeholders
- If there is a deviation, then raise the risk, add actions, and suggestions
- Monitor the Trend from the start of the project, the Previous month, or sprint
Corrective Actions
If there is a deviation in schedule and cost, then there is an expectation from a Project Manager and Account Manager to mitigate the risk collaboratively. In both scenarios, some action steps can be taken to deal with the variance. These action steps are listed below.
Scheduling Variance
- Raise risk ticket
- Discuss the risk with relevant stakeholders
- Share the risk with the client for visibility
- Identify staffing or technical debt
- Review the scope
- Analyze the committed vs. delivered work
Cost Variance
- Raise risk ticket
- Analyze the root cause
- Identify the opportunity for automation, like introducing a bot for DSM
- Identify staffing or technical debt
- Review the scope
Key Takeaway
After understanding the concept of EVM, budget control, and monitoring, users can start taking precautions. This can be done by following cost and schedule variance measures. It will help users mitigate the risk on time.
Jaspreet Singh, Senior Project Manager
Nickname: Jazz. Family man, obsessed with watching, playing, reading about cricket—if you play a round of "snooker" with him, prepare to lose.
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