If your project is facing some difficulties and is deviating from its original course, the project manager can rely on a strong management process to resolve issues. Even more, using the "Earned Value Management" method will help navigate those bumpy roads.

But diving into the world of EVMs can be daunting and overwhelming with the amount of technical information that is floating around it. So that’s why today we will take a look at what it is, its core concepts, the different formulas and metrics that you should use on your project management tool, and some templates to ease your search.

Utilizing earned value management in an effective way will improve the planning process and allow you to map work with costs, converting those unknown numbers into quantifiable factors. You can compare the current status of the project management against the baseline to identify any critical path that may occur. 

Other benefits are that it establishes a clear responsibility for work effort; integrates technical, schedule, and cost performance; and you can create a framework with the EVM data that will allow you to make accurate decisions in the future, intervening fast and ahead of schedule.

Lastly, earned value management provides insight into the big picture of the project. It enhances visibility and creates accountability in stakeholders through clear metrics.

We start with five guidelines that focus on organizing the work scope. These recommend we create three important documents:

• Work Breakdown Structure (WBS): Create a WBS flowchart that divides a high-level deliverable into a smaller work package. With this graphical representation, you have a clear view of the scope of the work planned.
• Organization Breakdown Structure (OBS): This organizational chart shows the people, departments, and teams that are involved in the project work, along with roles and responsibilities. It identifies the hierarchy of the work effort.
• Responsibility Assignment Matrix (RAM): It intervenes between the WBS and OBS, determining exactly which task will be done by whom. Each of these control accounts will be measured in future stages.

This is the foundation for ensuring scheduling, budgeting, planning, work authorization, and cost accumulation processes are integrated.

The ten guidelines over this concept help define the project baseline in solidified terms. Through these parameters, you will monitor and control the project during its lifecycle. 

These guidelines cover the basic requirements for scheduling, planning, and establishing the time-phased budget for the task. The integrated master schedule will be the roadmap for your project to meet its objectives. It must be resource loaded to determine the budget for the work scheduled. 

This resource is the monthly budget for each task and also the project. This time-phased budget is the performance measurement baseline (PMB). Then, we have the total budget for each control account, task, and the entire project defined as the budget to complete (BAC). 

Additionally, some project managers set aside a part of the project value as a management reserve (MR) to cover any risk that could arise. 

Accounting Considerations and Actual Cost

This is a very straightforward section, as there are six guidelines that discuss the process of cost calculation and actual costs expended for project work effort. 

It's important to have systems in place that can track costs, as, without them, you'll have a bad time measuring progress accurately. Also, you might be paying out the actual costs a few months later, but you have to allocate a portion much earlier to calculate the earned value. 

These six guidelines emphasize accounting for accruals to avoid very misleading cost variance calculations, known as "booking lags."

Project Performance Analysis and Report

This fourth section comprises six very important guidelines that emphasize its attention to cost and schedule variances, determining a new estimate at completion (if warranted), and documenting cause, impact, and corrective action. 

These guidelines describe the calculations of Planned Value, Earned Value, and Actual Cost, along with other variances and indexes. The variance calculations during earned value management analysis are usually done at the control account level, which summarizes the data through the WBS and the OBS. The final idea is to consistently report these numbers to team members and senior leaders to have visibility into project progress. 

You should define variance thresholds as you can spot the problematic tasks when the cost performance reports indicate a breach in a control account.

Baseline Revisions and Data Maintenance

The last five guidelines under these principles acknowledge that the project baseline can fluctuate, especially when problem areas appear in the middle of the project. But as you can overlook the project management all the time waiting for an issue to arise, there are some scenarios that these guidelines recommend revising. Those are when there is an unauthorized change over the project scope, cost, or on the project schedule or when there is fluctuation in rates.

Some of the activities that are in this category are seeking necessary approvals, changing management and risk management plans, and evaluating the need to dip into management reserve.

There are many terminologies associated with earned value management and its project management methodology. So, the next thing that we are going to look forward to is each one of these concepts, as they all play a key role in improving program management. 

Earned Value (EV)

Also known as the Budgeted Cost of the Work Performed (BCWP) indicates how much work is done during a specific time period. It gives you the answer for what's the budgeted cost for work performed. 

So, by measuring the actual work done at a point in the schedule, you get the next formula:

• % of the actual work * Total project cost = Earned Value

Planned Value (PV)

Also referred to as the Budgeted Cost of the Work Scheduled (BCWS), it is the authorized budget set to the scheduled work without including the management reserve. 

It will indicate how much work should have been finished at a point in time to check if you are falling behind schedule. With this in mind, the formula would be:

• Planned % complete * Total project cost = Planned Value

Actual Costs (AC)

Named also as Actual Cost of Work Performed (ACWP) is the realized cost incurred for the work accomplished on an activity during a certain time period. It is very straightforward, although it could include some hidden costs (licenses, material, resources, etc.), and you can look at the Actual Cost cumulatively, taking into account all the activities performed from the beginning of the project until a specific date. 

• Actual % complete * Total project cost = Actual Cost

Budget at Completion (BAC)

This is how you can name the total project cost, too. It is the sum of all budgets established for the planned work. It determines how much was initially set for the project to cost. 

The budget at Completion is derived by checking the total budgeted cost of the project. So, there is no formula for this one.

Cost Variance (CV)

Cost variances are calculated with the difference between what we expected to spend and what was actually spent. It is expressed with the following formula:

• Earned Value - Actual Cost = Cost Variance

Schedule Variance (SV)

Schedule variance is the difference between where we should be in the schedule and where we actually are. It is expressed with the next formula:

• Earned Value - Planned Value = Schedule Variance

Cost Performance Index (CPI)

It is the rate at which the project performance is linked with cost expectations during a specific timeframe. It is described as a ratio of the EV to the actual cost, being its formula the next one:

• Earned Value / Actual Cost = Cost Performance Index

Schedule Performance Index (SPI)

It is the rate to check if the project performance is meeting schedule expectations. It is expressed with this formula:

• Earned Value / Planned Value = Schedule Performance Index

To Complete Performance Index (TCPI)

It refers to the performance that you should reach to meet the financial or schedule objectives. It is described as a ratio of the cost to complete the outstanding work to the available budget, being its formulas the next ones:

• Total Project Cost - Earned Value / Total Project Cost - Actual Cost = To Complete Performance Index (the efficiency that must be maintained to finish to plan)
• Total Project Cost - Earned Value / Estimate at Completion - Actual Cost = To Complete Performance Index (the efficiency that must be maintained to finish the current EAC)

Estimate at Completion (EAC)

It is the expected total cost of completing the work. It expresses the total cost at completion based on the performance of the project up to a point in time. There are several formulas for this one:

• Total Project Cost / Cost Performance Index = Estimate at Completion (if the Cost Performance Index is expected to be the same for the rest of the project, you can calculate the EAC with this formula)
• Total Project Cost + Actual Cost - Earned Value = EAC (you can use this formula if the future work is completed at a planned rate)
• Actual Cost + Bottom-Up Estimate to Complete = EAC (use this formula if the initial plan is no longer valid)
• Actual Cost + (Total Project Cost - Earned Value) / (CPI * Schedule Performance Index) = EAC (if the SPI and CPI influence the remaining work, you can calculate the EAC with this formula)

Estimate To Complete (ETC)

It is the expected cost to finish the rest of the established work. It describes how much more will be spent based on past performances. The formula is:

• Estimate at Completion - Actual Cost = Estimate to Complete

Variance at Completion (VAC)

It is the projection of the amount of budget surplus or deficit. It is expressed with the next formula:

• Total Project Cost - Estimate at Completion = Variance at Completion

This one comes with three sheets to not only lay down your earned value management but also actual costs and earned value to calculate the cumulative EV. You can download it from the Smartsheet website.

EVM Calculator Template

This template is already built with a calculator in its cells with the many formulas that we listed before. So, combining this template with the previous one could be ideal for your project. You can download it from Agile-Mercurial.

Earned Value Analysis Report Template

This template comes with a chart and graph for better visibility and presentation. It also has an Actual Costs sheet and an Earned Value sheet. You can get it from the Vertex42 website.