Terminologies of Earned Value Management In Project Management
Earned value management is an important and useful part of performance measurement in the whole project cycle. The terminologies are important to remember (or at least to know) to manage Earned Value of the project. I will list the most basic ones in this blog entry, as a simple source of reference.
Cost - the amount of money for completing the project. Note this is NOT the price which the customer pays. For example, a bottle of soda costs $0.5 for production, but the price in the store of the same soda is $1.00.
Planned Value - The planned cost of the project. We have this value before project starts.
Earned Value - The planned cost of the project as it is at some point of the progress. We have this value when the project has started and in progress.
Actual Cost - The actual cost of the project as it is at some point of the progress. We have this value when the project has started and in progress.
For example, if we have a project planned for 2 days, the first day has $500 planned budget and the second day has $300 planned budget. But when the project actually starts, it only has done half in the first day and done the originally planned first day's work in the end of the second day. Then at the end of the second day:
1. The Planned Cost for the first day is $500 and for the second day is $300. Total $800.
2. The Earned Value for the first day is $500 (because project members are working full day), and for the second day is $0. Total $500.
3. The Actual Cost for the planned first day's work is $700 (suppose), the planned second day's work hasn't started yet so no Actual Cost for that. Total $700.
So we can calculate some important values:
1. Cost Variance: Earned Value - Actual Cost = $500 - $700 = - $200, which means the actual cost exceeds the planned budget at this point of progress.
2. Cost Performance Index: Earned Value / Actual Cost = $500 / $ 700 = 0.714 = 71.4%, which means we get 71.4% of what we spent (or invested).
3. Schedule Variance: Earned Value - Planned Value = $500 - $800 = - $300, which means we are behind schedule (negative value).
4. Schedule Performance Index: Earned Value / Planned Value = $500 / $800 = 0.625 = 62.5%, which means our productivity is 62.5% of planned.
5. Estimated Costs At Completion: Planned Cost at Completion / Cost Performance Index = $800 / .714 = $1120, which means now we need to estimate $1120 for the total project.