Earned Value Management is a method of measuring the performance of work efforts that have been budgeted and the work planned in a time phased manner.
Earned Value should be named Eraned Budget - you earn your budget for the work.
Why is Earned Value unique in the world of project management?
- Performance is measured by tangible evidence of progress to plan
- Future performance is based on past performance, adjusted for productivity, risk, and technical complexity
- The efficiency of the work is the basis of performance measurement, rather than the passage of time and consumption of resources.
Applying Earned Value is simple
- Define the work in units of measure meaningful to the decision makers. What is the tangible evidence that the produced product or service meets the needs ot the buyer?
- Define the budget and time phasing needed to produce this outcome, or incremental versions of the outcome.
- Perform the work during the planned period.
- Measure the physical productivity from the work effort. The Physical Percent Complete.
- Compare the planned Physical Percent Complete with the actual Physical Percent Complete
- Compare the planned budget for reaching the planned Physical Percent Complete with the actual cost of reaching the actual Physical Percent Complete.
With these numbers calculate the Earned Value for the work performed to date:
With this result - the cost variance and the schedule variance - you can now forecast the future performance of your project. This means that when someone asks how are we doing? Or asks, when will we be done? Or even better, how much will this cost when we're done? You can answer with a definitive set of numbers in units meaningful to the decison maker.
- If we keep going like we're going, we'll be 87 days late
- If we keep going like we're going, we'll be $102,000 over budget
These types of answers are not available, when you measure progress to plan with the passage of time and consumption of money. While agile suggests that it is doing Earned Value, it does not measure the cost of doing the work, nor does it measure the pre-defined phsyical percent complete in units of techncial performance.
Earned Value provides you with insight into the physical progress to plan, in units of measure you can use to make adjustments to the project to keep on schedule, stay on budget, and provide visibility to the increasing maturity of the products or services your project is delivering.
Here's the next level of understanding Earned Value in Five Easy Pieces.