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3.4.3. Earned Value Management (EVM) Basics

💡 First Principle: Earned Value Management provides an integrated and objective measure of project performance by comparing the planned amount of work with what has actually been completed and what has been spent.

Scenario: A project sponsor asks, "We're halfway through the schedule and we've spent half the budget. Are we on track?" The project manager uses EVM to answer. They calculate that the SPI is 0.8 (behind schedule) and the CPI is 0.9 (over budget), providing an objective, data-driven status update and a forecast that the project will likely finish late and over budget if no corrective action is taken.

EVM provides an objective measure of project performance by integrating scope, schedule, and cost.

  • Purpose: Objective measure integrating scope, schedule, cost.
  • Core Metrics: PV (Planned Value - Budgeted Cost of Work Scheduled), EV (Earned Value - Budgeted Cost of Work Performed), AC (Actual Cost - Actual Cost of Work Performed).
  • Key Calcs: Cost Variance (CV) = EV - AC (Negative = over budget); Schedule Variance (SV) = EV - PV (Negative = behind schedule); Cost Performance Index (CPI) = EV / AC (<1 = cost inefficient); Schedule Performance Index (SPI) = EV / PV (<1 = time inefficient).
  • Forecasts: Estimate At Completion (EAC) ≈ BAC / CPI (Forecast total cost); Estimate To Complete (ETC) = EAC - AC (Forecast remaining cost); Variance At Completion (VAC) = BAC - EAC (Forecast final budget variance).
  • Interpretation: Variances show deviation; Indices show efficiency; EAC forecasts likely final cost.

⚠️ Common Pitfall: Misinterpreting Schedule Variance (SV) at the end of the project. As the project nears completion, PV and EV will converge, making SV approach zero, even if the project is very late. SPI is a more reliable long-term indicator of time efficiency.

Key Trade-Offs:
  • Data Collection Effort vs. Accuracy of Insight: Implementing EVM requires disciplined data collection, which can be an overhead. However, it provides far more accurate and integrated performance insights than looking at cost or schedule in isolation.

Reflection Question: Why is "Earned Value (EV)" the most critical metric in EVM, and how does it connect the concepts of schedule progress and budgeted cost?