Earned Value Management (EVM) Explained
When running my PMP Seminars, there is one particular part of the the PMBOK® Guide that puts fear into the hearts of my delegates – Earned Value Management!
Okay so you need a bit of math experience – but only adding, subtracting, multiplying and dividing – first grade stuff really…
So that can’t be the real reason why folks are put off the topic, can it? Nope. Is it remembering the 13 key formula then? Well, they are not that hard, and frankly, once I give you my multiple-formula ‘memory trick’ you could write them all down straight off the bat no problem…
So here’s the real hidden reason why folks are fearfull of Earned Value. They always start by comparing the progress information against the planned information. Big Mistake. Think about it. “So Joe, how far are we behind schedule?” or, “Hey Sally, how much more have we spent over budget according to the plan?”
These are ingrained since youth, we instinctively think of our progress, or otherwise, against The Plan. Ouch!
Another Big Mistake.
You see, earned value is the dollar amount of our actual percentage complete on a task. If an activity is budgeted at $1000 and you are 50% complete, then you have ‘earned’ $500. But plans are very seldom linear. So what if your planned spend halfway through was $600? That’s when delegates brains start getting fried – so here’s the secret.
Earned Value Secret.
ALWAYS start with Earned Value as your point of reference, and ‘see’ the other two variables (planned cost and actual cost) in value relation to earned value. Put simply, if earned value is a lower dollar amount than actual cost, then you can predict you will overspend (and vice-versa). If your earned value dollar amount is less than planned cost, then you can predict you will come in late (and vice-versa).
To summarize, in relation to the dollar amount of Earned Value: actual cost gives you future spend predictions, and planned cost gives you future schedule predictions. ….And relax.
The trick is the frame of reference – ALWAYS start with earned value and you can’t go wrong. As an example, suppose part way through your project, you calculated that earned value was $700, planned cost at that point was $600, and actual cost was $750.
What will you now report to your boss…?
Hmmmm. Don’t panic. Just start with earned value and you will see in the above example, that you are earning more than you planned – so you are ahead of schedule, but you are spending more than you have earned, so you are predicting that you will overspend…Not so hard now was it?
And once you have got that juicy little tip nailed down, ALL the other formulas just click into place.
To get all the other inside knowledge and easy step-by-step approaches to PMBOK® Guide, and fly through your PMP® exam CLICK HERE
David spent 25 years as a senior project manager for US multinationals and now develops a wide range of project-related video training products under the Primer brand. In addition, David runs training seminars across the world, and is a prolific writer on the many topics of project management. He currently lives in Spain with his wife Jude.
“PMI” and “PMP” are registered marks of Project Management Institute, Inc.