Earned Value Management System (EVMS)

Earned Value (EV) is a method that allows the project manager to measure the amount of work actually performed on a project against planned value. Oftentimes the term “earned value” is defined as the “budgeted cost of worked performed” or BCWP.

In order to understand EV, it is worth to understand Planned Value (PV) and Actual Cost.

Planned value (PV) is referred to the schedule of work that is planned to be completed at any given point in time. It is also known as “Budgeted cost of work scheduled” BCWS

Whereas Actual Cost (AC) is the total of a cost incurred while executing the work on material, workers, and overhead. It is also referred to as “Actual Cost of Work Performed” or ACBP

In most of our financial report, we understand variance as the difference between Planned Cost and Actual Cost. But the problem here is, it only measures the cost difference. A business also wants to know how efficiently it is performing.

In order to measure the performance of an operation, Earned Value (EV) is required.

Example:

If Activity A Planned Value (PV) is $70 for 2 days to complete. And Actual Cost end of Day 1 is $40.

That means Planned Value in Day1, it is $35 and Day 2, it will be $35 considering 50% task completed in each day.

Now if on Day 1, it has actually done 60% instead of 50%, that means it has performed better than planned.

So the Earned Value will be $70 x 60% = $42

Planned Value = $35

Let us now see the Variance Analysis:

Schedule Variance (SC) = BCWP – BCWS

= $42 – $35

= $7 positive

Cost Variance (CV) = BCWP – ACWP

= $42 – $40

= $2 positive

Schedule Efficiency (SPI) = BCWP / BCWS

= 42/35

= 1.2

Which means it has performed 20% above Plan

Cost Performance Index (CPI) = BCWP / ACWP

= 42/40

= 1.05 %

Which means Efficiency is 5% above the actual cost

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