From the course: Project Management Foundations

How and when to use earned value analysis

From the course: Project Management Foundations

How and when to use earned value analysis

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- With Earned Value Analysis, a project earns value by completing work. It helps you evaluate project schedule and cost performance. Government projects typically require it. Earned Value Analysis is helpful because project measures can be deceiving. Say 50% of your project's duration has passed, and 50% of the budget has been spent. Sounds like things are right on track, but if only 25% of the work is complete, there's a problem. You have to finish 75% of the work, with only 50% of the time and money left. I don't know about you but I would not count on that happening. Earned Value Analysis uncovers problems like these, because it looks at your schedule, and budget in monetary terms over time. Of course costs are already money based, but you also measure work in terms of money, by calculating how much it costs for people to perform the work. Earned Value Analysis is based on three measures, calculated through the project status date. First, you measure planned value. That's how much you plan to spend to complete the work scheduled through the status date. It's also called budgeted cost of work scheduled. Say your baseline shows $5,000 spent on a task through May 12th. That's the planned value. Second, earned value is the amount of money you've earned by completing work. Its other name is budgeted cost of work performed. Say the team worked 30 hours through May 12th, and the planned labor cost for those hours is $3,000, through the May 12th status date, the project has earned $3,000 by completing that work. The third measure is the actual cost for the completed work. Suppose you brought in a more expensive resource, so the labor cost is actually $3,500. That's your actual cost. A graph of these values helps you see whether your project is on schedule and within budget. Here's how you read the graph. Time is along the horizontal access, and cost is on the vertical axis. You want to see earned value above planned value. That means you've completed more work than you planned. In other words, the task or project is ahead of schedule. You also want to see actual cost below earned value. That means you've actually spent less for the work you've completed than you planned. In this example, earned value is below planned value, so the project is behind schedule, darn it. On the other hand, actual cost is below earned value, so the project is under budget. That's good news. Earned Value Analysis has more measures for evaluating your project's performance. If you're interested in Earned Value, research this tool in more detail. In the meantime, there is an Earned Value graph in the exercise files. For practice, determine whether the projects shown in the graph is ahead of or behind schedule, and over or under budget.

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