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What Is The Earned Value (EV) Of A Project
| last edited by: Michael Effanga PMP PMI-PBA PMI-ACP on Sep 26, 2024 11:03 AM | login/register to edit this page |
 Earned value (EV), also known as Budgeted Cost of Work Performed (BCWP), helps project managers measure a project's performance. It's the relationship between the budget and the percentage of completion of a project. It is a method used to calculate the health and status of any project by taking time and cost into consideration. It's essential to realize that it is more than just a snapshot of a project's progress—it's a dynamic tool that integrates both time and cost into a single metric. Earned Value measures the actual value of the work completed at any given point, allowing project managers to compare this value against the planned costs and schedule. This dual perspective offers powerful insights, as it doesn’t simply show what’s been spent or how much time has passed, but rather what has been achieved for that investment. By calculating Earned Value (EV), project managers can objectively assess whether the project is on track to meet its financial goals. If the EV is lower than expected, it signals potential delays or inefficiencies, enabling managers to course-correct early. On the other hand, an EV higher than planned could indicate that the project is ahead of schedule or under budget. Earned value can be computed this way : Earned Value = Percent complete (actual) x Task Budget. For example, if the actual percent complete is 50% and the task budget is $10,000 then the earned value of the project is $5,000, 50% of the budget provided for this project. So, EV = 50% x $10,000= $5,000 After applying this method, the project manager should know whether the project is behind or ahead of schedule and whether the project is under or over budget. Example 2 Imagine a project where the team has completed 60% of the work on a task with a $20,000 budget. The earned value would be: EV=60%×20,000=12,000 This means that the project has delivered $12,000 worth of work, regardless of what has been spent or how much time has passed. Earned Value thus provides a more accurate representation of progress than time-based tracking alone, making it an indispensable tool for managing projects effectively. What are the main components?' Earned Value management is a project management classic that began in the 1960s with the US Air Force. Another project management tool that was also inspired by the military is VUCA. There are three important indicators to keep in mind when calculating the earned value of a project: 1. Earned value represents the amount of the work that's actually completed. It's the value the project has produced. It will allow you to compare the work that has been completed with the planned costs of your project. This calculation will allow you to objectively and quantitatively measure the success of your project. As mentioned earlier here is the formula to calculate the earned value: EV = Percent complete (actual) x Task Budget. 2. The planned value also known as Budgeted Cost of Work Scheduled (BCWS) is the amount of the task that is supposed to have been completed. Here is the formula: PV = Percent Complete (planned) x Task Budget Let's say that our task budget is $ 1,000 for a project that must last 5 days. On the 4th day, your planned value will be equal to $ 800. This amount refers to your task budget divided by the number of days required to complete it and multiplied by the progress of your project which is in this case 80% (4 out of 5 days). So, PV = 80% X $1,000 = $800 3. The third indicator is actual cost, also known as Actual Cost of Work Performed (ACWP) is the actual amount of money that has been spent for the work completed by a specific date. AC = Actual Cost of the Task In the example above, we have a budget of $1,000 to complete a project in 5 days. On day 4, there is $ 750 of actual expenses incurred. The actual cost corresponds to $ 750 while the planned value remains at $ 800. Remember, these indicators must be interdependent. It is their relationship that will help you better manage your projects.
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| last edited by: Michael Effanga PMP PMI-PBA PMI-ACP on Sep 26, 2024 11:03 AM | login/register to edit this page |
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