Earned Value Management

Complimentary to a Six Sigma project management strategy, utilizing an Earned Value Management system assists project managers in determining the budget status accurately while also serving as an early risk detection system for projects that are not going as planned. If using an Earned Value Management process, there are three main sources that procure data, these are:

  1. Planned value, also referred to as PV, is the planned budget for a project. It can also be thought of as the value of the work scheduled and is subsequently measured by the date of analysis.
  2. Actual value, also referred to as AC for actual cost, is the amount of funds used for the project on the date of analysis. This is tracked by software or manually via receipts.
  3. Earned value, also referred to as EV, is the physical work completed to date. EV is expressed by the percentage of total resources and effort expended on the project.

The data gathered from those three sources are then used to calculate performance indices for an earned value analysis, these are:

  • Cost variance (CV)
  • Cost performance index (CPI)
  • Schedule variance (SV)
  • Schedule performance index (SPI)

To receive accurate results of how the project is performing, there must be a good project plan in place. This comes from having a strong work breakdown structure, known as a WBS. A WBS outlines the work scope into elements for sufficient planning, scheduling, budgeting, work authorization, cost accounting, progress measuring, and management controls. Once that is complete, the data collection can begin. The project manager can then calculate, analyze, and forecast future production and productivity levels for a specific project. 

This is a simple introduction to a complex system that is Earned Value Management. When used correctly, the ability to provide accurate forecasts of potential performance problems becomes attainable.

 
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