Earned Value (EV)

Earned Value is a way of measuring progress.

In the 1960’s, the US Department of Defense began to mandate the use of earned value on defense related projects.

As you might expect, if the government is contracting out projects worth hundreds of millions, or billions, or dollars, they want project progress updates to consist of more than “we seem to be on target.”

Earned Value calculations can provide a better sense for exactly where the project is against the baseline and provide an early warning if the trends indicate that the project will be overbudget or over its deadline.

The logic behind earned value is as follows. There is value associated with completing work on a project. With earned value, you are earning the value of the project on an incremental scale as the project is executing.

For instance, when 50% of the work is completed, you could say that 50% of the value of the project has been realized as well.

The general idea behind earned value is to compare where you actually are against where you planned to be. Let’s refine this idea a bit further.

Let’s say you are currently working on activities numbered 49, 87, 88, 100 and 108 in your workplan and that all of the dependent activities in front of them have been completed.

Since these activities are spread out in various portions of the workplan, it may be hard for the project manager to tell exactly where the project stands in terms of schedule and budget.

Earned value allows you to quantify all of the work that has been accomplished so far on the project. It also allows you to quantify all of the work that should have been done on the project so far.

Then, you can compare the work that has been done against the work that should have been done to determine if you are on schedule, ahead of schedule or behind schedule.

Likewise, given where you are today, earned value calculations allow you to determine the total cost of the work done so far, as well as the total cost of all the work you expected to have completed by now.

Comparing these two numbers gives you a sense for whether you are trending overbudget, under budget or on budget.

Utilizing both the schedule and cost metrics gives you more information as well. You may well be spending your budget faster than you anticipated, but what if the reason is because you are ahead of schedule as well? That is, you may be spending more because your team may be getting more work done than planned.

That may be fine. Likewise, if your project is behind schedule, but you are also behind in your spending, that may be fine as well. Perhaps you were not able to get the team members allocated as fast as you planned.

So, your project is behind schedule, as is your spending rate. If you have a critical end date, this may be a problem. If your end date is a little flexible, you may be fine as long as you don’t overspend your budget.

Earned value gives you the information you need to make the right decisions.
There are two ways to define the term “earned value”.

First, earned value is used to define the entire concept around understanding where you are at on your project that is described above. In addition, the term Earned Value (EV) is also used to define a specific variable.

In this definition, Earned Value is calculated by adding up the budgeted cost of every activity that has been completed. (Remember, this is not the actual cost of the work activities. This is the budgeted cost.)

EV is the basic measure of how much value the project has achieved so far. By itself, it does not tell you too much. So, we use it in combination with other calculations to determine your status.

Economic Value Added (EVA)

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