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Feb

Earned Value - Clearly Defined in Layman’s Terms

By Gabe Y (18 posts -- read other by posts Gabe Y)

Earned value analysis is a tool that can be used to track performance on your project. From a PMI perspective, it’s part of the cost control and schedule control processes.

In this writeup, I’m simply going to start you off with the four critical pieces of data that are used as the framework.

BAC (Budget at Completion) = Baseline budget

EV (Earned Value; formerly known as Budgeted Cost of Work Performed) = Value of the work completed

PV (Planned Value; formerly known as Budgeted Cost of Work Scheduled) = Value of the work scheduled

AC (Actual Cost; formerly knowns as Actual Cost of Work Performed) = How much was spent

So how are they used? Let’s just say that you have a project that requires you to create 10 widgets, each estimated to take a $1,000 and 1 day to produce. We decided to track progress at the end of day 5 and realize that we only produced 4 widgets and spent $6,000. It doesn’t take a rocket scientist to recognize that we are behind schedule and overbudget but let’s take a look at the earned value numbers.

Each widget was estimated to take $1,000 and since we are expected to produce 10 of them, the overall project budget at the start was $10,000. Therefore, the BAC is simply $10,000. At day 5, we produced only 4 widgets, thus the value of the work completed, or EV, is $4,000. However, we had planned on completing 1 per day so the PV at day 5 is $5,000. We also took $6,000 to produce those 5 widgets which gives us a AC of $6,000.

That’s the toughest part of earned value. — plucking those four pieces of data. The rest are just plugged into formulas.

In my future writings, I’ll show you how to calculate the other earned value components and explain how you can use them to manage expectations. I’ll even show you how you can use MS Project to present all of it to you with a few clicks!

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