Project management is a key skill. It helps in completing tasks on time. One important concept in project management is Earned Value (EV). But what is Earned Value? And how do you calculate it? This article will explain everything in simple steps.
What is Earned Value?
Earned Value is a way to measure the progress of a project. It tells you how much work has been done. It also tells you if you are on budget and on schedule. This is very useful for project managers.
Why is Earned Value Important?
Earned Value helps you see the true status of your project. It helps you make better decisions. It can also help you avoid surprises. For example, you can see if you are running out of money. Or if you are behind schedule. This way, you can take action before it is too late.
Basic Terms You Need to Know
Before we go into calculations, let’s learn some basic terms:
- Planned Value (PV): The money you plan to spend by a certain time.
- Actual Cost (AC): The money you have actually spent by that time.
- Earned Value (EV): The value of the work you have completed by that time.
How to Calculate Earned Value
Now, let’s learn how to calculate Earned Value. It is very simple. Here is the formula:
EV = % of Work Completed x Total Budget
Let’s break it down with an example.
Example:
Imagine you have a project. The total budget is $10,000. You planned to finish 50% of the work by now. But you have only finished 40%. So, you want to know the Earned Value.
First, find the % of work completed. In this case, it is 40%.
Next, multiply it by the total budget. In this case, $10,000.
So, the Earned Value (EV) is 40% of $10,000. This is $4,000.
Table Summary:
| Term | Value |
|---|---|
| Total Budget | $10,000 |
| % of Work Completed | 40% |
| Earned Value (EV) | $4,000 |
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Comparing Earned Value with Planned Value and Actual Cost
Now you know how to calculate Earned Value. But how do you use it? You compare it with Planned Value (PV) and Actual Cost (AC).
Example:
Let’s continue with the same example. You planned to finish 50% of the work by now. Your Planned Value (PV) is:
PV = % Planned Work x Total Budget
So, PV = 50% of $10,000 = $5,000.
Your Actual Cost (AC) is the money you have spent. Let’s say you have spent $6,000 so far.
Table Summary:
| Term | Value |
|---|---|
| Planned Value (PV) | $5,000 |
| Actual Cost (AC) | $6,000 |
| Earned Value (EV) | $4,000 |
Analyzing the Results
From the table, you can see:
- Planned Value (PV): $5,000
- Actual Cost (AC): $6,000
- Earned Value (EV): $4,000
What do these numbers tell you?
- You planned to complete $5,000 worth of work.
- You have spent $6,000.
- But you have only completed $4,000 worth of work.
This means you are behind schedule. You have also spent more money than planned.
Important Metrics
There are two important metrics to understand. They help you analyze your project better:
- Schedule Performance Index (SPI): It shows how well you are doing against the schedule.
- Cost Performance Index (CPI): It shows how well you are doing against the budget.
Schedule Performance Index (spi)
The formula for SPI is:
In our example, SPI = $4,000 / $5,000 = 0.8.
If SPI is less than 1, you are behind schedule. If SPI is more than 1, you are ahead of schedule.
Cost Performance Index (cpi)
The formula for CPI is:
In our example, CPI = $4,000 / $6,000 = 0.67.
If CPI is less than 1, you are over budget. If CPI is more than 1, you are under budget.
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Frequently Asked Questions
What Is Earned Value In Project Management?
Earned Value is a project management tool. It measures project performance and progress.
Why Is Earned Value Important?
It helps track project costs and schedules. Ensures project stays on budget.
How Do You Calculate Earned Value?
Earned Value is calculated by multiplying the percent complete by the total project budget.
What Is The Formula For Earned Value?
The formula is: EV = % Complete × Total Budget.
Conclusion
Earned Value is a powerful tool in project management. It helps you track progress. It helps you stay on budget. It helps you stay on schedule. By comparing EV with PV and AC, you get a clear picture. Use SPI and CPI for deeper analysis. This way, you can make better decisions. And complete your projects successfully.
