08 Nov Earned Value Management (EVM)
Having a correct view on how a project is performing during its execution has a profound impact on the quality of the decisions made by the project manager (Bendoly and Swink, 2007). One of the most frequently used techniques to create such performance data is earned value management, a technique which has been in use since the 1960s (Vanhoucke, 2010a) and which has been continually refined (Cioffi, 2006a) and formalized (Cioffi, 2006b) during the subsequent decades. The key advantage of this technique being the low effort required to track the performance of a project. In spite of its considerable age, earned value management and its more recent extension earned schedule have been the topic of numerous publications in recent years (Acebes et al., 2015; Batselier and Vanhoucke, 2015; Chen et al., 2016; Elshaer, 2013; Khamooshi and Golafshani, 2014; Naeni et al., 2014; Kerkhove and Vanhoucke, 2016).
Earned Value Management (EVM) is a powerful performance management and feedback tool for project management. EVM depicts the project progress in terms of scope, cost, and schedule and provides future predictions based on trends and patterns of the past.
The Earned Value concept has been used in industrial manufacturing since the late 1800s (Anbari, 2003). In the early American factories, it was used in its most fundamental form by measuring the performance of “planned standards” using “earned standards” gained against “actual expenses”.
EVM formally introduced as a project management tool by the US Navy in 1962. Since then, it has been evolved and spread out to the private industry, other governmental agencies and the other countries (Project Management Institute, 2017; ANSI/EIA, 1998; Project performance measurement, 2006). In 1998, EVM was formally issued as a standard by American National Standards Institute (ANSI, 1998). Project Management Institute (PMI) first included EVM into its PMBOK and later updated in every new version. Also, in 2007, PMI published a separate guideline “Practice Standard of Earned Value Management” as a supplement to PMBOK Guide to facilitate its role in effective project management (Project Management Institute, 2017; Project performance measurement, 2006).
EVM is commonly used performance management tool to measure project progress objectively in terms of scope, cost and schedule. It basically compares the planned work and accomplished work in a project and calculates the value of this accomplished work. EVM is called as “Management with the lights on” (Project Management Institute, 2017) since it clearly identifies where the project is at a specific time and where it is going based on the trends.
EVM is tightly connected with the traditional project management methods and as such it assumes that the plan will be stable over the life of the project. Initial planning and baselines are significant for EVM, as it basically depicts how much the project is aligned with the initial plan. EVM does not offer any special treatment for later changes.
EVM has two major key practices, which are establishing a performance measurement baseline and measuring the performance against this baseline (Project Management Institute, 2017). It has three key data elements: (1) Planned Value (PV) is the sum of all the budgets for all planned work in the schedule. (2) Earned Value (EV) is the value of the work accomplished at a given point in time. (3) Actual Cost (AC) is the summation of the resources expended for the time period (Efe and Demirors, 2019).
- Acebes, F., Pereda, M., Poza, D., Pajares, J., Galán, J.M. (2015). “Stochastic earned value analysis using monte carlo simulation and statistical learning techniques”. Int. J. Proj. Manag. 33 (7), 1597–1609.
- Anbari, F. (2003). “Earned value project management method and extensions”. Project Manag. J., 34 (4), pp. 12-13.
- ANSI/EIA -748A: American National Standard Institute / Electronic Industries Alliance/ Standard for Earned Value Management Systems, 1998.
- AS 4817-2006: Project performance measurement using Earned Value, 2006.
- Batselier, J., Vanhoucke, M. (2015). “Construction and evaluation framework for a real-life project database”. Int. J. Proj. Manag. 33, 697–710.
- Bendoly, E., Swink, M. (2007). “Moderating effects of information access on project management behavior, performance and perceptions”. J. Oper. Manag. 25 (3), 604–622.
- Chen, H.L., Chen, W.T., Lin, Y.L. (2016). “Earned value project management: improving the predictive power of planned value”. Int. J. Proj. Manag. 34 (1), 22–29.
- Cioffi, D. (2006a). “Completing projects according to plans: an earned-value improvement index”. J. Oper. Res. Soc. 57, 290–295.
- Cioffi, D.F. (2006b). “Designing project management: a scientific notation and an improved formalism for earned value calculations”. Int. J. Proj. Manag. 24 (2), 136–144.
- Efe, P., Demirors, O. (2019). “A change management model and its application in software development projects”. Computer Standards & Interfaces, Volume 66, 103353.
- Elshaer, R. (2013). “Impact of sensitivity information on the prediction of project’s duration using earned schedule method”. Int. J. Proj. Manag. 31, 579–588.
- Kerkhove, L.-P., Vanhoucke, M. (2016). “Extensions of earned value management: Using the earned incentive metric to improve signal quality”. International Journal of Project Management 35 (2016) 148–168.
- Khamooshi, H., Golafshani, H. (2014). “EDM: earned duration management, a new approach to schedule performance management and measurement”. Int. J. Proj. Manag. 32 (6), 1019–1041.
- Naeni, L.M., Shadrokh, S., Salehipour, A. (2014). “A fuzzy approach for the earned value management”. Int. J. Proj. Manag. 32 (4) 709–716.
- Project Management Institute: A Guide to the Project Management Body of Knowledge (PMBOK® Guide), (sixth ed.), Project Management Institute, Newtown Square, PA, USA (2017).
- Project Management Institute: Practice Standard for Earned Value Management, Newtown Square, PA, USA (2005).
- Vanhoucke, M. (2010a). “Measuring Time – Improving Project Performance Using Earned Value Management”. Vol. 136 of International Series in Operations Research and Management, Science Springer.