Earned Value Analysis
How is our patient doing?
Explained by example
The key figures
- The Planned Value (PV). This is the planned amount of money or output. The Planned Value is calculated by multiplying the planned percentage of completion by the planned total cost.
- The Actual Cost (AC). This value reflects the actual costs or the work performed up to this point in time. The Actual Value is calculated from the actual quantity multiplied by the actual costs, i.e., the total costs expended to date.
- The Earned Value (EV). This is the key figure that represents the value of the project up to this point. The Earned Value is calculated by multiplying the actual percentage of completion by the planned total costs.
- The Schedule Variance (SV). This value is calculated from the Earned Value and the Planned Value: SV = EV-PV. Here Maria can see whether she is ahead or behind schedule. If the value is positive, her project is ahead of schedule. If the value is negative, it is behind schedule. If the value is zero, the project is exactly on schedule.
- The Cost Variance (CV). It can be calculated from the Earned Value and the Actual Cost: CV = EV-AC. If the CV is negative, the costs exceed the planning. If it is positive, Maria's team is working cost-effectively. If it is zero, costs are within plan.
- The Schedule Performance Index (SPI). This index indicates the relationship between the Earned Value and the Planned Value: SPI=EV/PV. If the value is less than 1, your project is behind schedule. If the value is greater than 1, your project is ahead of schedule.
- The Cost Performance Index (CPI). The CPI indicates the ratio between the Earned Value and the Actual Costs and is calculated as follows: CPI = EV/AC. A number greater than 1 means that the project was able to achieve a higher value than originally planned. Therefore, the project was particularly cost-efficient. If the value is less than 1, the cost-benefit ratio is worse than planned.
Limitations of earned value analysis
First, complexity: EVM is not a simple procedure. It requires a deep understanding of specific terminology and calculation methods. This can be a real challenge for less experienced project managers and team members.
Another critical issue is the data basis of EVM. It relies on accurate and up-to-date data on costs, units of work and project progress. If this data is faulty or late, it can affect the results of the EVM and lead to distortions.
Furthermore, EVM is based on the assumption of linear and uniform project progress. However, this is rarely the case in practice. Unforeseen project developments may cause EVM to have difficulty in correctly assessing such non-linear progress.
Another potential stumbling block is the limited forecasting ability of EVM. As it is based on historical data and trends, future changes or problems might not be detected in time.
Finally, while EVM is a good tool for monitoring costs and time, other important project aspects such as quality, risks or customer requirements might be underrepresented. This can lead to critical areas of the project being overlooked.
Despite these challenges, EVM remains an important tool in project management. It is particularly valuable when used in conjunction with other control tools and project management techniques. The possible weaknesses of EVM should not lead to underestimating its value, but rather serve as an indication that it should be used carefully and in combination with other methods.