Earned value management

What it means

Earned value management is a way of measuring project performance by comparing planned value, work actually completed and actual cost at a given date. It answers two questions at once: is the project on schedule, and is it within budget.

Planned value is how much work, in money terms, should have been done according to the schedule. Earned value is the budgeted value of work actually completed, and actual cost is what was paid for it. Their ratios give the schedule and cost performance indices.

The method complements classic project management tools such as the Gantt chart and milestones. While those show dates, earned value links time, scope and cost, all three sides of the project management triangle.

How it works in practice

Example: a 100,000-euro project should be half complete, so planned value is 50,000 euros. Only a third of the work is done, earned value is 33,000 euros, and 45,000 euros have been spent. The project is both late and over budget, as more was paid for the work done than planned.

A cost index below one means every euro buys less work than planned, and it can be used to forecast the project's final cost. With regular tracking, for example monthly in the PMO, problems show up before it is too late to act.

It requires scope broken down into measurable work packages and reliable cost allocation. Smaller firms can use a simplified version, for example rating each package as zero, fifty or one hundred percent complete.

What to watch out for

The method is only as good as its data. If percent complete is estimated optimistically, earned value looks better than reality. Assessments should rest on objective criteria, such as deliverables handed over.

Earned value says nothing about quality. A project can be on time and on budget while its outputs fail to meet the customer's needs. It is therefore complemented by quality control and KPIs that measure the project's benefits, not just its progress.