Earned Value Management (EVM)

A simple example of Earned Value Management in action.

The Plan

A team is tasked with planting trees on a new housing development.

  • 30 batches of 20 trees (600 trees)
  • 5 batches per day (100 trees)
  • budgeted cost per tree £2.90 (£2.50 per small tree / 40 pence for slow release fertiliser)

Total budget = £1740

Day 1

  • 70 trees were planted (the team hit a patch with stones that had to be removed before the trees could be planted)
  • Total cost was £350 (a special machine was required to remove the stones which cost £147 for the day)

Simple EVM calculation:

  • Earned Value = 70 trees planted x £2.90 = £203
  • Budgeted Cost = 100 trees planned per day x £2.90 = £290
  • Actual Cost = 70 tress planted x £2.90 + £147 for the machine = £350

Think about cost

The team have spent £350, but they should only have spend £203. The CV (Cost Variance) can be calculated as follows; EV-AC (Earned Value - Actual Cost).

The team is over budget and have spent 58%  more budget than anticipated. This is the CPI (Cost Performance Index).

Think about schedule

The team are at the end of day 1, but they should only be a three quarters through the day. The SV (Schedule Variance) can be calculated as follows; EV-BC (Earned Value - Budgeted Cost.

The team is late and have only performed 70% of the work planned. This is SPI (Schedule Performance Index).

The consequences

Extending the Actual Cost into the future gives us the end result if we do not modify the performance of the project.

BAC (Budget at Completion) = £1740

EAT (Estimate at Completion) = £3000

Cost over = the difference between the BAC and EAC.

Planned Finish = 6 Days

EAC Finish = 8.57 Days

Project Slippage = the difference between Planned Finish at EAC

  • If the team continue at this rate, they will need £3000 (Cost EAC) and 8.57 days (Schedule EAC) to finish the work.
  • If the team want to finish on budget, they need to work at 104.3% of the originally planned performance (Planned remaining budget/Actual remaining budget).
  • If the team want to finish on time, they need to work at 106% of the originally planned performance (Actual remaining work/Planned remaining work)

Technical Terms

In real life, the elements calculated above have slightly difference names:

  • The Actual Cost is usually ACWP (Actual Cost of Works Performed.
  • The Planned Cost is usually BCWS (Budgeted Cost of Work Scheduled)
  • The Earned Value us usually BCWP (Budgeted Cost of Work Performed)

Summary

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