Earned Value Analysis: Planned Value (PV), Earned Value (EV), Cost Variance (CV), Schedule Variance (SV)
Earned Value Analysis (EVA) is an industry standard method of measuring a project’s progress at any given point in time, forecasting its completion date and final cost, and analyzing variances in the schedule and budget as the project proceeds. It compares the planned amount of work with what has actually been completed, to determine if the cost, schedule, and work accomplished are progressing in accordance with the plan. As work is completed, it is considered “earned”.
Planned Value (PV)
This is the first element of earned value management. Planned Value is the approved value of the work to be completed in a given time.
According to the PMBOK Guide, “Planned Value (PV) is the authorized budget assigned to work to be accomplished for an activity or WBS component.”
You must calculate Planned Value before actually doing the work; it also serves as a baseline.
The total Planned Value for the project is known as Budget at Completion (BAC). Planned Value is also called Budgeted Cost of Work Scheduled (BCWS).
Formula for Planned Value (PV)
The formula to calculate Planned Value is simple. Multiply the planned percentage of the completed work by the project budget. That will give you the Planned Value.
Planned Value = (Planned % Complete) X (BAC)
Earned Value (EV)
This is the third and last element of earned value management. Earned Value is the work actually completed to date. It shows you the value that the project has produced if it were terminated today.
According to the PMBOK Guide, “Earned Value (EV) is the value of work performed expressed in terms of the approved budget assigned to that work for an activity or WBS component.”
Although all three elements have their significance, Earned Value is the most useful because it shows you how much value you have earned from the money you have spent to date, management is always looking for this information.
Earned Value is also known as Budgeted Cost of Work Performed (BCWP).
Aspirants often get confuse Planned Value and Earned Value. Planned Value shows you how much value you expected to earn within a given time, while Earned Value shows how much value you have actually earned.
Formula for Earned Value (EV)
The formula to calculate the Earned Value is simple. Multiply the actual percentage of the completed work by the project budget.
Earned Value = % of completed work X BAC (Budget at Completion).
Cost Variance (CV)
A cost variance is the difference between the cost actually incurred and the budgeted or planned amount of cost that should have been incurred. Cost variances are most commonly tracked for expense line items, but can also be tracked at the job or project level, as long as there is a budget or standard against which it can be calculated. These variances form a standard part of many management reporting systems. Some cost variances are formalized into standard calculations. The following are examples of variances related to specific types of costs:
- Direct material price variance
- Fixed overhead spending variance
- Labor rate variance
- Purchase price variance
- Variable overhead spending variance
Schedule Variance (SV)
Schedule variance is an indicator of whether a project schedule is ahead or behind and is typically used within Earned Value Management (EVM). Schedule Variance can be calculated by subtracting the Budgeted Cost of Work Scheduled (BCWS) from the Budgeted Cost of Work Performed (BCWP). The BCWS measures the budget for the entire project and the BCWP measures the cost of actual work done. The difference is the schedule variance.