Earned Value Management: What does it mean in Project Management?
Today, projects are an essential part of any organization’s ability to achieve its strategic and operational objectives. Companies should follow the Project Management Institute’s (PMI) project management guidelines and principles in PMBOK (Project Management Body Of Knowledge). These project management principles and approaches will allow an organization to manage and control the projects. Earned value analysis is one of the most effective techniques to monitor and control the triple constraints that project faces. The three constraints, as prescribed by PMI are scope, schedule and budget.
These are the essential constraints that a Project manager must deal with and manage effectively. It is essential for project managers to keep track of the status of projects in real-time with respect to these constraints. Earned Valu Analysis (EVA), which can be done at any time during a project’s life, helps to provide early warnings about potential problems.
EVA is a valuable tool for project managers and, more importantly, for management to receive early warnings. They can then plan for the rest of the project work to recoup losses or modify estimates based on these warnings.
Project managers love Earned Value Analysis. There is no other tool that addresses the real-time issues of schedule and budgeted costs as effectively as EVA. EVA answers the following questions during a project:
What is the status of the project at any given time?
How is the project going according to the budget?
When is the project expected to be completed?
What is the estimated cost of the entire project?
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The Project Manager can use EVA to identify cost and schedule issues early in the project. What can you do to get the project back on track if it is running behind schedule or exceeding budget?
What is Earned Valu Analysis (EVA), and how can it help you?
EVA is a method to monitor and control the performance of projects. The concept of earned value was first introduced by the United States Air Force in 1960. It was originally called the Cost/ Schedule Control System Criteria, or C/SCS. C/SCS was later rewritten by DoD and private industry in 1996. C/SCS had been replaced by ANSI EIA 748. The PMI also released its PMBOK guide that year. PMI derived earned values concept from ANSI standard.
What is Earned Valu Management?
The Earned Value Management tool integrates project scope, schedule, and cost. A single tool can provide a lot of information that helps project managers make informed decisions. EVM uses Performance Measurement Baseline to compare it with actual cost or schedule performance. Earned value analysis is based on Performance Measurement Baseline.
Earned Value Management (EVM), Three Dimensions
It is important to understand the following key components in order to apply Earned Value Management to a Project.
Planned value (PV) is also known as the Budgeted Cost of Work Scheduled, or BCWS. PV is the amount of the budget that was authorized for the work. It is the approved budget for work to be done on an activity, work package (or control account). This budget does not include any management reserve. The cumulative PV is also known as Performance Measurement Baseline, (PMB). The PV for a complete project is the Budget at Completion (BAC).
Earned Value (EV), also known as the Budgeted Cost Of Work Performed, or BCWP, is an acronym for Earned Valuation. EV is the value you get from your work.