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What is Earned Value Management?
Earned Value Management (EVM) is one of the most valuable tools you can use in the world of business at present. EVM helps project managers to visualize and measure a project’s success over time. It is a management approach that combines programs and systems in all levels of management with early discernibility relating to cost and time control, useful in project contrasting. EVM represents a systematic approach to find variances in projects by comparing data of performed and planned activities. Assessing work progress stems from a baseline plan, providing efficient data collection for proactive management action, and presents managers with a comprehensive foundation for decision making.
According to a conference paper entitled Earned Value Management: From Data Analysis to Executive Action, it shows that the additional three graphs representing contract value, estimate value, and variance helps with gauging that the cost and schedules show the importance of Earned Value Management. More data relating from the start of the project to the present gives way to a more meaningful and accurate decision-making process.
Earned Value Management: Definition of Terms
Earned value management comes with various terminologies and jargon that relate to each other. Below are defined terms that are vital to creating and using EVMs.
Components of Earned Value Management
Earned value management is an essential tool for managers in managing, measuring, and benchmarking their business projects. EVMs have standardized guidelines defined under the EIA-748. The guidelines recommend the indication of five principles into the Earned Value Management and are as follows:
How to Make Earned Value Management for Your Business
As EVMs have a standardized format, there are careful steps to follow in designing one for your business. In using this tool, project managers, account managers, and other essential individuals must be present in its creation. Below are helpful steps to guide you through creating an Earned Value Management framework for your following project.
Step 1: Define Project’s Scope, Plan, and Schedule
Start your EVM by defining the scope of the project and the expected deliverables by the end of its term. It is advisable to utilize a work breakdown structure to record the project’s outputs. Ensure the resources you need are present to start the project. Since prices fluctuate during the scheme’s term, it is necessary to identify the number of materials you need to push through. It also describes the overall cost of the plan, including labor and facilities. You can start planning and scheduling the project once you identify your resources. Consider all the tasks’ dependencies when putting an effective work schedule. Take note of the baseline for reference.
Step 2: Estimate Resources and Budgets and Create a Metric System
Upon compiling the inventory list for your project, you can create a cost estimate. Take your all your resource cost to start the project and prepare the project’s overall budget. If you have a project sponsor, it is advisable to bring your estimates to them. The formal budget allows you to compare the actual budget with the predicted budget plan. It is also advisable to create a system allowing you to measure the completion of tasks. You can measure milestones for bigger areas of work and use percentages for the completion of smaller tasks.
Step 3: Indicate Control Account Plans
Control account plans (CAP) help you record the budget for a particular task group. It serves as a helpful tool for accounting and project managers, allowing them to consolidate and track the work progress of teams set on various tasks. However, if it helps save time and effort, you can dismiss creating CAPs only if team assignments are independent of each other.
Step 4: Record Costs and Monitor EV Performance
Enforce a cost and budget management system for your project, a budget worksheet, and a data timeline for recording project costs. These expenditures directly contribute to finishing the tasks. You now have detailed accounts of costs and scope relating to each activity at hand. Create your EVM metrics using the gathered information and make the necessary reports that inform you which systems are no longer on the predicted project outcome. These vital records allow you to calculate, report and track variances to create a concurrent action plan.
Step 5: Use Data to Forecast Possible Project Costs
Another vital point of EVMs is to use the information to determine project performance. You can generalize the data and come up with possible costs for project completion from the project’s present productions. Again, it provides vital information for the sponsorship of your project. It helps sponsors make decisions on the project’s viability and a figure detailing the total expected budget. Don’t forget to show possible deadlines and timelines, including delivery dates, to be aware of probable delays.
Step 6: Manage Project Scope and Incorporate Approved Revisions
In having all information from your project performance reports, it is mandatory to take the necessary actions. EVM does not come with direct instructions from the records you have, so it’s up to you to establish communications with project and account managers. Take the time to speak with your teams and sponsors to prepare the best development paths, whether it’s waiting for delays or overspending on materials. It also allows for status reports regarding the feasibility of finishing the project at the specified time.
How do you calculate for Earned Value Management?
Earned value calculations require three methods; planned value, earned value, and actual cost. Planned value (PV) is the starting point for your calculations and is also referred to as the Budgeted Cost of Work Scheduled (BCWS). Budget At Completion (BAC) refers to the total planned value for the entirety of the project. Calculate planned value by multiplying the project’s progress in percent by its budget. Earned value (EV) measures the project’s development, estimating if the project in its current state is worth it. It is also expressed in monetary value, similar to PV. Calculate EV by multiplying the task budget by its completion. Finally, actual cost (AC) refers to the current costs within the project’s timeframe. There is no computation for AC, but it is necessary to record all total expenditures of the project.
What is the importance of Earned Value Management?
Earned value management provides several benefits to the business and the managers engaged with them. For one, it helps predict project performance. It helps you understand present trends and take corrective actions. It also shows timely data about the performance and progress of the project, if you’ll hit milestones and budgets. Second, it avoids continuous scope changes and lessens risks because of up-to-date information. Third, it helps you forecast your expenditures accurately. It is especially advantageous for capital investments and financial teams, understanding the spending trends of the project. It allows them to manage the budget efficiently and pay for expenses on time. Lastly, it enables open and clear communication between different teams objectively. It helps people to gain responsibility for their work and focus their minds on the project’s completion.
When do you not use Earned Value Management?
According to the study of Jim Baber on the effectiveness of EVM, businesses will not see the benefits of EVMS unless they successfully implement basic project management processes and have a willingness to adapt. Many organizations lack proper project management plans, and the deployment of EVMS can be challenging, especially if there is a lack of leadership in initiating changes. A coherent understanding of EVM and leadership skills is essential for effective Earned Value Management.
Businesses must see to it that they use all relevant and effective tools in terms of visualizing successes. EVM enables organizations to ensure that their projects meet deadlines, stick to proposed budgets, and meet milestones during its implementation. However, it is critical that individuals, especially project and account managers, understand the importance and processes of EVM. Additional knowledge of new systems can help improve your business and secure its development in the future. In the words of Buckminster Fuller, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” Do not undervalue the birth of new processes and ideas; it is necessary to learn from them. Use and download the available Earned Value Management samples above and ensure that your future projects are cost-effective and efficient.