Earned Value Management (EVM) in Scrum

 

EVM is a great tool to assess the project's health in terms of performance and progress. It combines the elements of cost, time and scope to reveal performance issues. At various stages of the project, we can calculate the schedule and cost variance, and more importantly the SPI and CPI to get a very clear picture of how our project is performing.

In traditional projects, most of us are very familiar with cost and time variables to populate our EVM formulas. But what about Scrum projects?  They use story points and iterations which sounds a lot more complicated than what we are familiar with. Can we perform EVM in Scrum and Agile?

The good news is we can. In Scrum we break down the Features of our product into User Stories, and then size them relative to each other. For example, if we have a simple piece of work and the team gives that a "1" value, then by relative estimation, a piece of work twice as large would be given a "2" and so forth. Eventually, we can total up all the points for the iteration, release or project, and that becomes our scope. We can then further break down the work into tasks and estimate there hours and costs. For the purposes of EVM in Scrum, we could use points, completed stories, features and so on. The point is that this becomes our measurement for scope. And remember, only completed points, stories etc. can be used. Uncompleted stories are not counted in any calculations such as Velocity, SPI and CPI. They have to go back into the Product Backlog for future consideration if they are incomplete at the end of the Sprint.

Do you remember our SPI and CPI formulas from the PMBOK?

SPI = EV/PV
CPI = EV/AC

Earned Value is the % of points, stories or features completed so far in terms of their budget allocation. Let's say for example that we have completed 30 stories out of a total 120 stories required to complete the project, but we should have completed 40 stories in the same timeframe (or by a certain iteration or Sprint). Our SPI looks like this:

SPI = 30/40
= 0.75

In other words, our Development Team is performing at 75% of the planned rate. We are behind schedule.

Now let's look at CPI. For those 30 stories completed thus far, the budget allocated was $500,000 (this is our EV or Earned Value), but we only spent $485,000 (this is our AC or Actual Cost). Our CPI will therefore look like this:

CPI = 500,000/485,000
= 1.03

In other words, our Development Team is getting $1.03 of value for each $1.00 spent.

There are many other formulas we can use, but for the purposes of this post, the main message is that EVM is just as useful and applicable in Scrum projects as they are in Waterfall projects.
 

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