What is Earned Value Analysis?

Posted by Kevin Brady on Fri 13th April 2007 at 04:42 PM, Filed in Programme Management,  Project Management,  Earned Value

Over the last couple of years, clients are increasingly requiring Earned Value Analysis (EVA) as part of our project progress /performance status reports. EVA is a very powerful project performance indicator, which is becoming more and more widely used.

The purpose of earned value analysis is to measure a project’s progress and help predict its outcome. Earned value analysis involves comparing a project’s actual progress to what the project was expected to achieve (as reflected in a baseline plan) at a specific point in the schedule /budget, and providing forecasts of this relationship going forward.

The main differences between earned value analysis and simpler schedule and cost variance analysis can be summarised as follows:-

• Simple variance analysis answers the question, “What current performance results are we getting?”
• Earned value analysis addresses the question, “For the current performance results we are getting, and are we getting our money’s worth?”

The difference is subtle but important. Here is an example, Let’s say a project has a baseline duration of 160 days and a budget of £282,000. After about half of the baseline duration has elapsed, the actual costs incurred are about £40,000. But what is the projects status?
You cannot tell based on this information alone. Simple distribution of cost over time would suggest that £40,000 spent by the midpoint of an £82,000 project is just about right. But perhaps the project is running ahead of schedule – more work has been completed by midpoint than planned. That would be good news: the project might finish ahead of schedule.

On the other hand, the project might be running behind schedule – less work has been accomplished than was planned. This would be bad news; the project will likely miss its planned finish date, exceed its budget, or both.

Earned value analysis enables you to look at a project performance in a more sophisticated way. It helps you determine two important things: the true cost of project results to date and the performance trend that is likely to continue for the remainder of the project.

Earned value analysis has its origins in large projects carried out for the U.S government, and it remains an essential project status-reporting tool for major government projects. However, because of the usefulness of earned value analysis in predicting future project performance, it is gaining popularity across the
IT industry.

I am planning more posts on this important project metric.

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