5th Edition PMBOK® Guide Chapter 7: Earned Value Management (part 2)


The most powerful of the tool & techniques of process 7.4 Control Costs is Earned Value Management or EVM. The whole point of earned value management is to find out how the project is performing as compared to the cost and schedule performance baselines. The last post discussed the quantities PV, EV, AC, which are the “building blocks” of the all the EVM variance formulas that I am going to discuss in this post.

1. Variances

A measure of how a project is doing is a variance, which is calculated by taking the earned value (EV) and subtracting either the actual cost (AC) or the planned value (PV).

Here are the variances that are used to measure the performance of a project, together with their definition and the formula of how they are calculated.

Variance

Definition

Formula

Cost Variance (CV)

 

The amount of budget deficit or surplus. CV = EV – AC
Schedule Variance (SV) The amount by which the project is ahead or behind schedule. SV = EV – PV
Variance at Completion (VAC) A projection of the amount of budget deficit or surplus at the end of the project. VAC = BAC – EAC

With all of these variances, if the result is positive, then that is good: the project is either under budget or ahead of schedule. If the result is negative, then that is bad: the project is either over budget or behind schedule.

2. Performance Indexes

Another measure of how a project is doing is a performance index, which is calculated by taking the earned value (EV) and dividing by either the actual (AC) or the planned value (PV). Here are the performance indexes that are used to measure the performance of a project, together with their definition and the formula of how they are calculated.

Performance Index

Definition

Formula

Cost Performance Index (CPI)

 

The amount of budget deficit or surplus. CPI = EV/AC
Schedule Performance Index (SPI) The amount by which the project is ahead or behind schedule. SPI = EV/PV

With all of these variances, if the result is greater than one, then that is good: the project is either under budget or ahead of schedule. If the result is less than one, then that is bad: the project is either over budget or behind schedule.

These variances or performance indexes are used to find out whether the project is performing better or worse than expected.

The next posts on this topic will show how they can be used to forecast the amount of money it will take to complete the project, as well as the amount of time it will take to complete it.

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