Project Management Software
Earned value analysis is a powerful tool that can be used in project management to monitor and forecast project costs and delivery dates. If you are not utilizing earned value analysis on your project, chances are you already have the data available to begin right away. To do so, you will need to familiarize yourself with the metrics that are combined to calculate Earned Value.
If these metrics are already being tracked on your project you’re ready to go. If not, you may need to make modifications to your status reporting standards in order to capture the necessary information.
A solid understanding of earned value analysis can provide more accurate quantitative data which can be used to communicate with project stakeholders and team members.
The PMBOK defines earned as the real work achieved including the authorized budget for this work. Additionally, earned value analysis is defined as a method of performance measurement integrating scope cost and schedule measures. Tracking earned value over the course of a project is a combination of several basic metrics:
- Planned Value (PV) consists of the planned (or budgeted) labour units (and
their associated costs) for project activities over a given period.
Planned Value = (Planned % Complete) X (BAC)
i.e., (BAC = Budget at Completion)
- Actual Cost (AC) is the actual labor units spent (and their associated costs)
on project activities completed over a given period.
- Remaining Cost (RC) is the forecast labor units remaining (and their associated costs) on project activities over a given period. When no actual labor units have been spent, this will likely equal planned (or budgeted) labor units. When actual labor units have been recorded but the activity is not yet complete this will need to be estimated. Percent spent is calculated by dividing your Actual Cost by the sum of Actual and Remaining Costs.
The formula for this is Percent Spent = AC / (AC + RC).
- Earned Value (EV) can be calculated by multiplying the Planned Value and the Percent Spent. For example, a task has a Planned Value of 10 labor units. The most recent status indicates that 4 actual labor units have been spent and the task is 50% complete. Multiplying the Actual Cost (4 labor units) by the Percent Spent (0.5) provides a current Earned Value metric of 5 labor units.
By tracking earned value at a task level in the project schedule you will be able to determine the level of contribution relative to budgeted costs of each team and resource. Project managers can use this information to make necessary adjustments to ensure that projects are delivered on-time and on-budget.