Ok, so you might have heard of Earned Value (EV) but what is it and why isn’t it an important factor in a lot of projects?
It’s a tough one to say why it’s not used a lot. Away from construction projects, in the past 20 or so years I’ve only ever seen it being used in anger once. I’ve never been asked to report on it, I’ve seen Clarity PPM attempt to report it for me, badly most of the time, but it’s just not a project tool that many understand or simply avoid. I’ve considered writing about it many times over the years, but its limited use has meant that I’ve always decided to leave it on the list, inevitably somewhere near the bottom. I woke up this morning however and decided that it needs to come off my list and I need to talk about it. So, hold on to your hats, curb the enthusiasm a little and let’s talk earned value.
At its simplest it’s a metric to measure project performance indicating spend to date versus what’s been delivered and therefore how much we have left in order to get the job done. Think of it as the amount of effort required to complete what’s been done costed against what efforts left to be done and what the remaining budget is. EV if used correctly should serve as a basic indicator of project performance and the likelihood of an overrun. Yeah, that hurt just writing it, reading it was no doubt not much fun either. Let’s look at a few definitions:
Microsoft Project 2003 defines Earned Value as, a method for measuring project performance. It indicates how much of the budget should have been spent, in view of the amount of work done so far and the baseline cost for the task, assignment, or resources.
NASA defines it as, an integrated management control system for assessing, understanding and quantifying what a contractor or field activity is achieving with program dollars. EVM provides project management with objective, accurate and timely data for effective decision making.
Did that help? I thought probably not. Let me try and give a more practical example,
A project is established based upon the fitting of 250 windows in a new building over 4 weeks. To date 100 windows have been installed. We can say that the progress is 40% complete (The formula is 100/250). If the budget for the installations is 50,000, the earned value is 20,000 or calculated as 0.40 x 50,000.
If we set the spend per day is 500 per day so we have 100 days to fit the windows (50,000/500) . If we reach 40% of the allotted time (40 days) we have spent 20,000.
Now if we have managed to fit 75 windows, we have a progress of 30% against a target of 100. We clearly have a mismatch of planned value against actuals. We can therefore conclude that we have an issue and we can turn this into our forecast and reporting process. We can also use these figures to calculate projected budgets, slippage and so forth.
The graph illustrated in the title above and included below, shows what a chart might look like if we were to plot an example of planned work (PV) versus earned value (EV) and what the actual spend (AC) might look like. In the above example our EV is below our planned PV yet our AC is above the EV showing that we are behind schedule and we face an overrun on costs. This is not a healthy project.
And that’s it, Earned Value in a nutshell. Not as complicated as it first appears.
I accept that the above example is a simple illustration using basic parameters, but the concept is expandable fairly easily. Microsoft project has very good tools available to help calculator and present earned value charts and there are great articles from Microsoft on this subject. https://tinyurl.com/r3qbc25 will take you to a recent one.
In closing, if EV as we now call it works as a constructive indicator of project health, aids reporting and can flag issues to others, why are they not used more? I think in part because they’re misunderstood or simply not included in organisational project processes. Should EV they be used more it typically is? Absolutely.
If you haven’t used EV before, good luck on your journey towards its use. If you have any questions, drop me a message, I’m happy to help