Project Management

What Is The Earned Value (EV) Of A Project

last edited by: Latha Thamma reddi on Apr 14, 2023 11:26 PM 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.

Earned value can be computed this way :

Eearned 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.

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.

last edited by: Latha Thamma reddi on Apr 14, 2023 11:26 PM login/register to edit this page

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