What is earned value?
Earned value is the budgeted cost of the work actually completed to date, and comparing it with what was spent shows whether a project is running over or under its budget.
Also called EV, earned value management, EVM.
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Earned value in plain words
If a project's budget is 100 and half the work is done, the earned value is 50. If 60 has been spent to get there, the project has spent 10 more than the work it has completed was budgeted at. The same comparison against what was planned shows whether it is ahead or behind schedule.
How is earned value calculated?
earned value = percent complete × budget at completion; cost variance = earned value − actual cost
A negative cost variance means the completed work cost more than budgeted. Cost performance index is earned value divided by actual cost.
Why does earned value matter?
Earned value separates spending from progress. A project can be on its cash plan and behind on work, and only the comparison shows it.
Where does earned value mislead?
It rests on an honest percent complete, which on many sites is a judgement and not a measurement. Earned value is also a cost measure, not a cash measure: it says nothing about when the client will pay for the work.
What do people get wrong about earned value?
- Using billed value as percent complete
- Billing follows certification, which lags execution. Using it understates progress and makes a healthy project look behind.
- Treating it as a cash forecast
- Earned value says how much work is done against budget, not when it will turn into money. Certification and payment terms decide that.