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Study EVM (Earned Value Management) – Part 1

Sunday, November 7, 2010 10:17 AM
Written by Wayne Ye
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During the past few days I was studying Project Time Management in PMBOK, for preparing the upcoming PMP exam on 4th December 2010, while I spent a few hours on understanding/mastering EVM, I log my memory hereSmile

EVM stands for Eearned Value Management, it is a complementary for Critical Path Method schedule management, its purpose could be described as “What did we get for the money we spent?” the definition of is in Wikipedia is below:

Earned value management (EVM) is a project management technique for measuring project progress in an objective manner. EVM has the ability to combine measurements of scope, schedule, and cost in a single integrated system. When properly applied, EVM provides an early warning of performance problems. Additionally, EVM promises to improve the definition of project scope, prevent scope creep, communicate objective progress to stakeholders, and keep the project team focused on achieving progress.

There are three fundamental glossaries in EVM, they are:

  • PV Plan Value (also called BCWS – Badget Cost for Work Scheduled)
  • AC Actual Cost (also called ACWP – Actual Cost for Work Performed)
  • EV Earned Value (also called BCWP Badget Cost for Worked Performed), so
    EV = BAC (Budget At Completion) * [Finished work]%
    EV formula from Wikipedia:

EV

For simple and straight-forward, in my understanding:

  • PV is on a specified timestamp, what is the planed budget.
  • AC is on a specified timestamp, what is the actual cost.
  • EV is on a specified timestamp, how much percent of work has been done while how much cost was expected.
    During the project implementing process, Program Manager tracks the schedule and cost using EVM, and calculate SV&SV, SPI&CPI, they are:

SV Schedule Variance

SV = EV – PV

CV Cost Variance

CV = EV – AC


SPI Schedule Performance Index

SPI = EV/PV

CPI Cost Performance Index

CPI = EV/CV

I take a simple example for better understanding, assume I am managing a 10 days project code name “Lambda”, Lambda project has a BAC of $100, and the detailed project schedule was determined below:

Day# 1 2 3 4 5 6 7 8 9 10
Budget $10 $10 $10 $10 $10 $10 $10 $10 $10 $10

The scenario is at the end of day 3, I (PM) called up team member and held a meeting to track status, we found:

We got 40% of the entire work done, on the other hand, we’ve already spent $60, based on this fact, I (PM) will get to know:

PV: 3 days past, initially we planed/supposed to spend $30 according to the schedule, so PV=30.

AC: We’ve spent &60, so AC=60.

EV: we finished 40% of work, initially we planed/supposed to spend $40 to get 40% work done, so EV=40

OK, then:

SV = EV – PV = 40 – 30 = 10, greater than 0, it is good, we are ahead scheduleSmile

CV = EV- CV = 40 – 60 = -20, smaller than 0, it is not good, we are overspending moneySmile

SPI = EV/PV = 40/30 = 1.3 > 1 greater than 1, good.
CPI = EV/CV = 40/60 = 0.66 < 1, smaller than 1, not good.

+U+U to myself, I put a flag here, I believe I will pass the exam!

References

EVM on Wikipedia
http://en.wikipedia.org/wiki/Earned_value_management

EVM official web site
http://www.earnedvaluemanagement.com/

 

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Tag: Category:Project Management»PMP

 

 


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