Earned value calculation
| Earned value calculation |
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Earned value calculation is a project management technique that allows the project manager to measure the progress of the project in terms of both cost and schedule. It involves comparing the value of the work performed against the planned value of the work to be done. The earned value is calculated by taking the budgeted cost of the work completed and dividing it by the planned value of the total project. This provides a snapshot of the project’s progress in both cost and time, which can be used to make decisions about how to allocate resources or adjust project schedules.
Example of earned value calculation
- For example, if a project manager is managing a construction project, they can use earned value calculation to determine how much of the project budget has already been spent, and how much of the planned work has been completed. The manager can compare the actual cost of the project against the planned cost, and the actual time spent against the planned timeline. This allows the manager to identify any potential issues or delays in the project and adjust resources or timelines accordingly.
- Another example of earned value calculation is a software development project. A project manager can use earned value calculation to compare the budgeted cost of development and the actual cost of development. This allows the project manager to identify any cost overruns and make adjustments accordingly. Additionally, the manager can compare the actual time spent on development against the planned timeline to ensure that the project is on track.
- A third example is a marketing project. The project manager can use earned value calculation to compare the budgeted cost for the project against the actual cost, and the actual time spent against the planned timeline. This allows the manager to identify any potential issues with the project and make adjustments to the budget or timeline accordingly. Additionally, the manager can measure the effectiveness of the marketing campaign by comparing the planned outcomes against the actual results.
Best practices of earned value calculation
- Establish an accurate baseline: The project baseline should include accurate estimates of the scope, cost, and schedule of the project. This baseline should be updated and revised throughout the project to ensure it reflects any changes in scope, cost, or schedule.
- Track actual performance regularly: Project managers should track actual performance on a regular basis and compare it to the project baseline. This allows the project manager to identify any discrepancies between the actual performance and the expected performance.
- Monitor trends: Project managers should monitor trends in earned value calculation to identify any trends that could impact the project’s progress. This allows them to make proactive decisions to address any issues that could arise.
- Use integrated metrics: Earned value calculation should be integrated with other metrics such as budget, resources, and schedule. This allows the project manager to get a comprehensive view of the project’s performance.
- Communicate performance: Project managers should communicate performance to the stakeholders on a regular basis. This helps ensure that stakeholders are aware of the project’s progress and any potential risks or issues that could arise.
When to use earned value calculation
Earned value calculation can be a powerful tool for project managers to track progress and make informed decisions. It can be applied in the following situations:
- To monitor the progress of the project and identify any potential issues in terms of cost and schedule.
- To estimate the cost and duration of a project and compare it to the planned values.
- To assess the performance of team members, contractors, and vendors by comparing the actual cost and duration of their work to the planned values.
- To analyze the impact of changes on the project’s cost and schedule.
- To determine the expected completion date and cost of a project.
- To forecast future project costs and identify potential risks.
Types of earned value calculation
Earned value calculation is a project management tool that allows the project manager to measure the progress of the project in terms of both cost and schedule. There are several types of earned value calculations that can be used to measure the progress of a project:
- budgeted cost of work performed (BCWP): This is the planned value of the work that has been completed, expressed in terms of budgeted cost.
- actual cost of work performed (ACWP): This is the actual cost of the work that has been completed, expressed in terms of actual cost.
- schedule performance index (SPI): This is a measure of the project’s performance against its planned schedule. It is calculated by dividing the BCWP by the planned value of the total project.
- cost performance index (CPI): This is a measure of the project’s performance against its planned cost. It is calculated by dividing the BCWP by the ACWP.
- estimate at completion (EAC): This is an estimate of the total cost of the project, based on the current performance.
- variance at completion (VAC): This is the difference between the EAC and the planned budget of the project.
Advantages of earned value calculation
Earned value calculation is a useful project management technique that provides a snapshot of the project’s progress in both cost and time. The following are some of the advantages of using earned value calculation:
- It allows the project manager to measure the progress of the project in terms of both cost and schedule.
- It enables the project manager to identify trends and potential problems early, giving them time to take corrective action.
- It allows the project manager to compare the actual costs and actual results against the planned costs and planned results, giving them insight into how their decisions can affect the project.
- It allows the project manager to compare the progress of the project to similar projects and benchmark performance.
- It enables the project manager to make more accurate predictions about the project’s future costs and schedule.
Limitations of earned value calculation
Earned value calculation is a helpful tool for project managers to monitor the progress of their project, but it is not without its limitations. The following are some of the potential drawbacks of using earned value calculation:
- The complexity of the calculation can make it difficult to accurately measure progress. It requires careful planning and tracking of all project costs and hours worked.
- It is often difficult to accurately estimate the total cost of a project and the budgeted cost of the work completed, which can lead to inaccurate calculations.
- It does not account for external factors that can affect the project, such as market conditions or changes in the scope of the project.
- It does not take into account the quality of the work performed, which can lead to inaccurate assessments of the project's progress.
- It does not give any indication of how well the project is meeting customer expectations.
Earned value calculation is a project management technique that allows the project manager to measure the progress of the project in terms of both cost and schedule. Here are some other approaches related to earned value calculation:
- Variance Analysis: This method is used to compare the actual performance of the project against the planned performance. Variance analysis can help identify potential problems and areas of improvement in the project management process.
- Cost Performance Index (CPI): This is a metric used to measure the cost efficiency of the project. It is calculated by dividing the earned value by the actual cost and is used to determine if the project is staying on budget.
- Schedule Performance Index (SPI): This is a metric used to measure the progress of the project against the planned schedule. It is calculated by dividing the earned value by the planned value and is used to determine if the project is on track with the timeline.
- Estimate at Completion (EAC): This is an estimate of the total cost of the project at completion. It is calculated by taking the earned value and adjusting it for any variances that have occurred.
In summary, earned value calculation is an important tool for project managers to measure the progress of their projects. Other approaches related to earned value calculation include variance analysis, cost performance index, schedule performance index, and estimate at completion. These tools can help project managers ensure their projects stay on budget and on schedule.
Suggested literature
- Lipke, W., Zwikael, O., Henderson, K., & Anbari, F. (2009). Prediction of project outcome: The application of statistical methods to earned value management and earned schedule performance indexes. International journal of project management, 27(4), 400-407.
- Bhosekar, S. K., & Vyas, G. (2012). Cost controlling using earned value analysis in construction industries. International Journal of Engineering and Innovative Technology (IJEIT), 1(4), 324-332.
- Cioffi, D. F. (2006). Designing project management: A scientific notation and an improved formalism for earned value calculations. International journal of project management, 24(2), 136-144.
