OperationsKPI / metricModelAccessible

Earned value (EV) metric

How should earned value (ev) metric be measured and interpreted?

AccessibleOperationalProgram / project2 min read

Contents

Helps managers answer: To what extent are our projects making the desired progress?

Earned value management integrates scope, schedule and cost to show how much budgeted work a project has actually completed at a given status date. It gives management an early view of progress and likely final cost rather than waiting until the project ends.

When to use it

Answer the key performance question: “To what extent are our projects making the desired progress?”
Assess this KPI within the Operational processes and supply chain perspective.
Plan data collection, formula use, reporting frequency, and data-source requirements for this KPI.
Compare results against the targets, benchmarks, examples, or trend guidance available for this KPI.

Origins

Earned value grew from industrial cost and production control and took its modern form in United States defence programmes. PERT/Cost introduced a related cost-of-work measure in nineteen sixty-two, and the Department of Defense later formalised cost and schedule control criteria. Professional standards generalised the method beyond defence by comparing planned value, earned value and actual cost against a time-phased baseline.

What it is

Perspective: Operational processes and supply chain perspective.

Key performance question: To what extent are our projects making the desired progress?

Earned value, or EV, is the approved budget value of the work actually completed by the status date. It is not the amount spent and not simply an elapsed-time percentage.

The Microsoft Project 2003 user guide described the idea as the portion of budget that should have been spent given the completed work and baseline cost. Comparing EV with planned value reveals schedule performance in budget terms; comparing EV with actual cost reveals cost performance.

The same relationships can forecast final project cost if recent efficiency continues, but forecasts should be interpreted with remaining risk, changed scope and whether past performance is representative.

How to use it

Measurement

Freeze an authorised, time-phased performance baseline. At each status date, determine planned value, assess completed work with an agreed earning rule, calculate earned value and obtain actual cost from the accounting system. Then analyse variances, indices and forecast.

Data collection method

Combine the integrated project plan, work-package progress and actual costs. Each control account needs scope, budget, schedule, ownership and an objective method for recognising completion.

Formula

Use cost variance and schedule variance to show absolute differences, and cost and schedule performance indices to show efficiency. Name the forecast formula used, because estimates at completion can assume different future performance.

Frequency

Update weekly for fast-moving work or monthly for longer projects, aligned with the accounting and control cycle. The interval must be short enough for corrective action.

Source of the data

Use project-management records, the authorised baseline, progress evidence and the financial system.

Cost/effort in collecting the data

The method can be costly when work packages, status and actuals require extensive manual reconciliation. Integrated scheduling and accounting tools reduce collection effort, but automation cannot repair a weak baseline or subjective progress claim.

Target setting/benchmarks

The project’s approved scope, schedule and budget provide the baseline. Variance thresholds should reflect materiality and trigger investigation rather than become arbitrary external benchmarks.

Example

The following example shows the basic logic.

Project A has an estimated total cost of £600. Actual cost of work performed is £200, while assessed completion is only 20%.

Earned value is £600 × 20% = £120.

The performance ratio is:

Using the stated forecast relationship, £200 produces an estimated £866.67, worse than plan and therefore over budget.

Project B has an estimated cost of £800. Actual cost is £400 and completion is assessed at 70%.

Earned value is £800 × 70% = £560.

The performance ratio is:

The predicted forecast is:

This forecast is below the original estimate.

Top practical tip

Protect the integrity of progress measurement. Use objective completion rules and independent evidence where possible. An artificially long schedule, easy work front-loaded into the plan or exaggerated completion can make the index look healthy while delivery risk accumulates.

Top pitfall

Do not manage the index instead of the project. Project B may look better than Project A because experienced, expensive resources accelerated work; or lower-cost resources may be underperforming despite favourable spending. Investigate scope, critical path, quality, resource mix and remaining risk behind every variance.