What is Earned Value Management in Projects?
Earned value management (EVM) is a project management technique used to track a project’s progress against its original plans for scope, schedule, and cost.
EVM was originally developed by the U.S. government in the 1960s for use on large defence contracts and is now used throughout the private sector and in other countries. EVM provides a clear and objective picture of whether a project is on schedule, on budget, or delivering the required scope of work. It is used to assess whether a project is likely to achieve its objectives and identify potential problems early on to take corrective action.
Components of Earned Value Management
EVM is based on three key elements:
- Planned Value (PV): The total budgeted cost of work scheduled to be completed by a certain date.
- Actual Cost (AC): The total actual cost of work completed to date.
- Earned Value (EV): The value of work completed to date, measured against the original baseline schedule and budget.
Earned value management is a powerful project management tool that can be used to improve project performance and delivery. EVM provides a clear picture of project progress, cost, and schedule and can help identify potential problems early on. When used correctly, EVM can help project managers to deliver successful projects.
How Does Value Management Support Cost Controlling?
Earned value management is a process of identifying and tracking the progress in meeting a project’s quality and quantity objectives. Using earned value analysis and project management software to calculate the expected costs and benefits of various work activities, the project management team can compare the project’s actual progress against the expected progress to identify project inefficiencies, which can lead to cost overruns.
The benefits of performing cost control during a project are obvious: By keeping an eye on the project’s costs, you can prevent expensive project overruns. The challenges of cost control typically revolve around establishing accurate baselines, ensuring effective control of overhead costs, and developing a culture of measurement throughout the project.
Establishing an accurate baseline, a cost estimate or a budget
With any large, multi-phase project, establishing a baseline and developing cost estimates and budgets are important because they let you know how your project compares to similar projects in the past. The goal is to ensure that the project budget is realistic and reasonable so that your project will be completed on time and on budget.
One important component of setting up an accurate baseline is estimating the number of people needed to complete the project. By dividing the project duration into smaller increments, you can easily identify the total number of work hours to be used for each activity. To avoid over or underestimating the number of hours needed for each activity, you should take into account the time needed to plan and document each activity and review the estimated time frame for each activity. Another effective technique for estimating people is using a task-tracking tool that can be customized to your project needs.
After identifying the number of hours for each activity, you’ll want to use a task management tool to track the progress of each activity. A task management tool allows the project management team to identify and report on each activity’s status easily, including start and finish dates, resources used, and the status of the activity in terms of completion.
Setting the overall project scope usually requires input from the project sponsor, the project managers and the project stakeholders. Typically, the project managers will perform the initial scope planning. First, you’ll want to decide on the overall project requirements. Then, the project requirements are divided into deliverables that will be required to complete the project. In other words, a project can’t be considered complete unless it has all the planned deliverables.
It is important to note that the planned deliverables are only the end result of the project scope. To help the project managers track the progress of the project, the project team will need to estimate the tasks and identify the resources needed to complete the project. By performing this process in advance of starting the project, the project manager has a good idea of how much time will be required to complete the deliverables.
Creating cost controls
Once you have a reasonable estimate of the project’s scope and duration, it’s time to put your plan in motion and control the project’s costs. In doing so, you should consider the following factors to ensure a project remains on track:
Establish an accurate baseline.
Establishing an accurate baseline is the first step toward cost control. To establish an accurate baseline, a team can use a project management tool to track activities, determine the total number of hours that will be used for each activity, calculate the project’s budget or cost estimate and make other appropriate adjustments.
Establish a realistic and reasonable project budget.
It’s a common mistake to overestimate the cost of a project. To avoid this problem, you’ll want to use a project management tool to set the project budget or cost estimate.
Use a tool for project planning.
To effectively implement cost controls and track project progress, you’ll want to use a tool that allows you to track the tasks and manage your project’s resources and materials. You should plan and track all activities, including estimating the resources and materials needed for each task.
Perform cost control
Once your plan is in place, your project managers should be ready to perform cost control and track the project’s progress. However, to achieve effective cost control, you must identify and control project overhead costs.
One of the first steps in cost control is determining whether or not to budget for the overhead costs of a project. By not accounting for overhead costs in the project budget, you’ll be unable to identify whether or not the project budget is realistic. However, performing cost controls may reduce the size of the project budget by requiring additional funds to be spent on materials or labour.
Another way to effectively perform cost control is by establishing a project budget and ensuring the team adheres to the budget. However, the team needs to consider any potential changes in the project, such as additions to the scope or schedule, to ensure the budget is realistic.
