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6 benefits of earned value management (EVM)

Do your projects run over budget and behind schedule? Discover the benefits of earned value management for measuring performance and staying on track.
From Team '23

Tempo Team

Project managers often struggle to determine where their project stands. With earned value management (EVM), you can develop objective measures to establish a clear, unbiased view of your project’s overall health.

EVM is a systematic approach that integrates cost, schedule, and scope for objective performance measurement, ensuring profitability. By comparing planned work to actual work completed, EVM provides accurate insights into your project’s status so you can catch issues before they snowball.

We’ll explore the benefits of earned value management for project managers. You’ll learn how EVM can inform data-driven decisions, keep your team motivated, and deliver successful projects on time and under budget.

What is earned value management, and why do you need it?

The purpose of an earned value management system is to help project management leaders monitor and control their projects through objective progress and performance metrics. EVM merges a project’s scope, schedule, and cost data into a single, integrated system to produce a comprehensive overview of the project’s health.

EVM compres planned work to completed work at a given point in a project. By assigning a monetary value to each task or deliverable, EVM objectively measures how much work has been done, how much that work has cost, and how much value has been earned.

Without EVM, you may think your project is running smoothly, only to realize later that you’ve burned through most of your budget or the work isn’t meeting expectations. One advantage of earned value management is that it helps you catch these issues early so you can correct them before they spiral out of control.

EVM can be adapted for many project management approaches. For example, agile EVM adapts the traditional EVM approach to fit the iterative and incremental nature of agile projects. This way, project managers can track progress and performance in a more flexible and responsive way.

Basic concepts of earned value management

To understand the benefits of EVM, you must grasp its basic concepts. Here are its most essential elements:

Budget at completion (BAC)

BAC represents the total approved budget for the project. It includes all the associated costs from start to finish. If you’re managing a project to build a new website in 10 weeks with an approved project budget of $100,000, your BAC is $100,000.

Planned value (PV)

PV, also known as the budgeted cost of work scheduled (BCWS), represents the amount of money you expect to spend on a project up to a specified date based on the project baseline.

In the website example, you might expect to complete $50,000 worth of work by the end of Week 5. In that case, your PV at Week 5 is $50,000.

Earned value (EV)

EV, or the budgeted cost of work performed (BCWP), represents the cost of the work completed so far. It tells you how much value you’ve earned for your work up to a certain point based on your planned budget.

Returning to the website example, imagine you’ve completed 50% of the total work by the end of Week 5. Since your total budget (BAC) is $100,000, your EV at Week 5 would be 50% of $100,000, or $50,000.

Actual cost (AC)

AC is the total money you’ve spent on the project at a given point. In the website example, if you’ve spent $45,000 on the work completed by the end of Week 5, your AC at Week 5 would be $45,000.

You can compare planned value, earned value, and actual cost to gauge your project’s performance in terms of schedule and budget.

Schedule variance (SV)

Schedule variance shows you whether a project is progressing on schedule. You can calculate it by subtracting planned value from earned value. If SV is positive, the project is ahead of schedule. If it’s negative, the project is behind schedule.

Now, we can bring it all together to see earned value management in action. With earned value and planned value for the website project both at $50,000 at Week 5, we get EV−PV = $50,000−$50,000 = $0. This means the project is right on schedule.

Cost variance (CV)

Cost variance is similar to schedule variance, but it shows you how close you are to your planned budget rather than your schedule. You can calculate cost variance by subtracting actual cost from earned value. If the CV is positive, the project is under budget. If it’s negative, the project is over budget.

In the website example, the cost variance at Week 5 is EV−AC = $50,000−$45,000 = $5,000. With a $5,000 surplus, the project is coming in under budget.

These are just a few of the metrics used in earned value management, but they form the foundation for many others.

Other vital EVM metrics 

The previous example showed how earned value management takes the guesswork out of gauging project progress. By assigning dollar values to different aspects of the project, you can assess whether it’s running on schedule and within your budget instead of relying on intuition.

Other valuable metrics used in earned value management include the following:

Cost Performance Index (CPI)

CPI measures the cost efficiency of a project. It’s calculated by dividing the earned value by the actual cost. A CPI greater than one shows that the project is under budget, whereas a CPI less than one shows that the project is over budget.

Schedule Performance Index (SPI)

Analogous to CPI, SPI measures a project’s schedule efficiency. You can calculate it by dividing the earned value by the planned value. An SPI greater than one means the project is ahead of schedule. An SPI less than one indicates the project is running behind.

Estimate at Completion (EAC)

EAC is the expected total cost of a project based on current performance. It accounts for the expenses incurred at a particular time and the expected future costs based on the project’s performance trends. This measurement helps project managers forecast a project’s final cost and decide whether adjustments are needed to stay within budget.

6 key benefits of using earned value management

With a solid understanding of earned value management, we can examine some of its primary benefits for project management.

1. Enforces up-front planning

To effectively utilize EVM, you must clearly define your project’s scope, schedule, and budget from the outset. This requires you to break down your project into manageable tasks, assign resources, and estimate the requisite time and costs for each task.

A well-defined project plan keeps your project organized and enables you to identify potential issues early on so you can mitigate them. It also helps communicate your project’s goals and expectations to your team and stakeholders, ensuring everyone is on the same page.

2. Maintains objectivity

As we discovered with the website project example, EVM provides an unbiased view of your project’s performance. This objectivity is crucial when making decisions about your project because it allows you to base your choices on hard data rather than gut feelings and subjective opinions.

3. Simplifies project management

EVM project management streamlines reporting and decision-making processes by providing objective, real-time data on project performance. Managers can quickly identify issues, take corrective action, and generate reports on project health to share with other stakeholders.

EVM also simplifies project forecasting and resource allocation, helping managers make informed decisions to avoid delays and resource shortages.

Finally, EVM ensures all stakeholders clearly understand the project’s progress. You can set defined goals and expectations to work toward while minimizing ambiguity.

4. Increases accountability

EVM’s objectivity ensures each team member’s contribution is measured and tracked in an unbiased way. This transparency holds team members accountable for their work and helps managers quickly identify who is over- or under-performing.

5. Anticipates problems

By regularly monitoring EVM metrics like schedule and cost variance, project managers can quickly spot deviations from the planned schedule or budget and take appropriate action to get back on track.

6. Motivates your team

EVM helps team members understand their roles, responsibilities, and contributions to the project’s overall success by measuring progress against clear, objective targets. Team members are more likely to feel motivated and engaged when their work is recognized and generates tangible progress toward the project’s goals.

How Tempo can help

Take control of your project finances with Financial Manager, the top financial management software for Jira. Access real-time views into costs, budgets, and profits across your entire portfolio to make informed decisions and lead your project to the finish line.