Earned Value Management Explained: Crowdbotics Blog

4/19/2021 Earned Value Management Explained
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30 SEPTEMBER 2020 / PROJECT MANAGEMENT
Earned Value Management

Explained
Despite recent market turbulence, we are currently witnessing

sustained growth among software companies that build apps for
mid-market, enterprise, and multinational clients. However, from
the perspective of these software companies, managing a project
remains a tedious task. It requires a lot of close monitoring in the
form of project timelines, cost analysis, project milestones, risk
analysis, and so forth.
This need to constantly monitor several factors isn't a new problem.

In fact, over a half-century ago, it prompted the creation of a project
management framework that came to be known as Earned Value
Management. Let's explore this framework in detail for a better
d t di t h it
https://blog.crowdbotics.com/earned-value-management-explained/ d li l f ft 1/14
understanding as to how it can deliver value for your software
company.
What is the De nition of Earned Value
Management?
Earned Value Management (EVM) is an analysis technique used in

project management to track and monitor the progress of any
project. A project involves a lot of planning, which is done prior to
initiating the actual execution. Several projections are made to
de ne the scope, total cost, milestones, scheduled reports,
progress tracking, project deadlines, and likely contingencies. Most
project managers use EVM to track scope, time, and cost as the
primary metrics.
What is the History of EVM and Where Has It Been

Used in the Past?
How did Earned Value Management come into existence? What was
the problem that it initially solved? Let's understand the history of
EVM to learn more about it.
This concept in its nascent form dates to the turn of the last century
when it was used in industrial manufacturing. The essential
principle, as conceived of by Frank Gilbreth, was to identify the "one
best way" to accomplish a task. Gilbreth was speci cally focused on
reducing the e ort and fatigue of manual labor, but the process of
tracking di erent work methods within an industrialized workplace
and identifying the optimal approach had applications beyond its
initial use.
EVM eventually rose to prominence in the 1960s, when the Defense

Department of the U.S. started using it as a PERT (Program
Evaluation & Review Technique) for Air Force programs. It evolved
over time until the early 1990s, when it was adopted by civilian
project managers. By then, the EVM technique was employed by
NASA th D t t fE
https://blog.crowdbotics.com/earned-value-management-explained/ d th h t 2/14
NASA, the Department of Energy, and other such government
agencies.
The construction sector and other real estate-adjacent industries
were known to be early adopters of EVM in the U.S. EVM has now
been an integral component in federal project risk management
since 2005. Even today, the O ce of Management and Budget
prefers using EVM in software projects as a performance
management system.
How Does EVM Work?
Like many project management methodologies, EVM begins with

collecting statistics needed for informed decision making. This
calculation-intensive methodology computes the value of work
completed at a speci c stage in the project. Then, it compares the
computed value with the value of work that should have been
completed according to the initial plan.
The calculation aims to nd variances in project execution by

comparing work performed vs. work planned. Project forecasting is
done using cost and schedule control which provides quantitative
data for informed decision making.
Planned Value, Actual Cost, and Earned Value
Planned Value (PV) in EVM means the total estimated costs that
will be incurred by completing the project. Actual Cost (AC) is the
value of actual work done at a particular time in the project. Earned
Value (EV) quanti es the total worth of work done at that particular
moment in the project. EV is computed by multiplying the total
budget and percentage of work done.
Let’s understand these terms with an example: Suppose a software

company like Crowdbotics is given a project to develop a mobile
application composed of 10 modules of $500 each. Crowdbotics
ti t th t th t t l t
https://blog.crowdbotics.com/earned-value-management-explained/ ill b $5000 d th ti t k ld 3/14
estimates that the total cost will be $5000 and the time taken would
be 2 months. Thus, the PV here is $5000. After a month,
Crowdbotics sends a bill of $2300 to the client after developing 4
modules. This $2300 is the AC of work done in one month. Ideally,
50% of the work amounting to $2500 should have been done by
now, but only 40% ($2000 worth) of work is done so far. Thus, the
EV is 0.40 * $5000 =$2000. Now, a graph is plotted like the one
below for a pictorial representation to answer three main
questions. These questions are:
1. Where are we currently?
2. Where are we going?
3. How long will it take to nish it?
The graph below shows the progress of the project at the time of
the EVM analysis.
Image courtesy of PMI.org
After computing the above, a Crowdbotics project manager will

conduct a variance analysis to know the deviation of the current
completion from what was planned during the project baseline.
This process of variance analysis includes computing cost variance
and schedule variance. Cost Variance (CV) can be measured by
bt ti th t l t (AC) f
https://blog.crowdbotics.com/earned-value-management-explained/ th d l (EV) f 4/14
subtracting the actual costs (AC) from the earned value (EV) of a
project.
Here it is mathematically:
CV = EV - AC
If the resulting cost variance is a positive number, then the project

is below the budget. However, if the cost variance is negative, then
you are overshooting the budget. Lastly, if the variance is zero, then
you are on the right track.
Schedule Variance (SV) tells you how much you have progressed
with the schedule that was set initially. Are you ahead of what was
planned or behind?
It is calculated by subtracting planned value (PV) from the earned

value (EV).
Here it is mathematically:
SV = EV - PV
If the resulting schedule variance is positive, then you are ahead of

schedule. If it is negative, then you need to pull up your socks, as
you are behind schedule. A value of zero indicates you are right on
schedule.
In the software development example provided above,

Crowdbotics’ CV is -300, and its SV is -3000, which means the
Crowdbotics is behind schedule and over budget. In such situations,
Crowdbotics’ project manager will pay close attention to the
reasons behind delays and resolve them to bring the project back
on schedule.
Indexing Performance
Th t id ti
https://blog.crowdbotics.com/earned-value-management-explained/ j t' f i di hi h 5/14
The next considerations are a project's performance indices, which
are its cost performance index (CPI) and schedule performance
index (SPI). CPI and SPI signify the CV and SV in proportion to the
scale of work done by far. They are calculated using the following
formulae:
CPI = EV/AC
SPI = EV/ PV
Image courtesy of Praxis
In the example above, CPI is 0.86 and SPI is 0.40. These indices will
help you forecast the current trend of the project and where it will
lead you. This forecasting is done by computing the estimated cost
at completion (EAC) and estimated time at completion (ETC).
The former gure gives you the forecasted nal cost of the project,
and the latter gives you the forecasted number of days to nish the
project. They are calculated as follows:
EAC = BAC (Budgeted At Completion – in the Crowdbotics example,

$5000)/CPI
https://blog.crowdbotics.com/earned-value-management-explained/ 6/14

ETC = OD (Original Duration – in the Crowdbotics example, 60
days)/SPI
In the example above, EAC is $5,814, which means the current

project is on pace to cost $5,814. This is how EVM methodology
helps you track the progress of the ongoing project during its
lifecycle and forecast the eventual cost and time it will take to
complete.
What Types of Projects Are Best for EVM?
EVM methodology is best suited for projects that come with a

deadline and a well-de ned project requirement guide. The project
manager will then be in a better position to allocate resources (time
and money) to the project. These projects can be in the real estate
sector, IT sector, government projects, manufacturing sector, etc.
What Types of Projects Are Not a Good Fit for EVM?
However, the EVM method is not a good t in projects like a new

product launch, drug development in the pharmaceutical industry,
R&D project in space sciences, and various others which lack a
de ned scope and timeline. This is largely due to the fact that R&D
can take a week, a month, a year, or even longer.
Merits & Drawbacks of Using EVM
Some of the bene ts of using EVM to manage projects are:
It gives a realistic picture of where you are at any

particular stage of the project, enabling you to decide
whether you need to increase your pace or not.
EVM helps in estimating the future costs and time

required in nishing the project at hand.
A id
https://blog.crowdbotics.com/earned-value-management-explained/ tif th l h l i 7/14
As a manager, you can identify the loopholes or pain
points in the project which are outside the scope, time,
and cost estimates.
However, not everything is hunky-dory with EVM, as there are

certain limitations involved in using it:
Though EVM methodology calculates variances for you,

it does not tell you how to correct these variances.
It can produce bizarre results if the data used has been

manipulated or is inaccurate.
EVM fails to ensure the quality of work in the project

and customer satisfaction subsequently.
You cannot use this method in projects involving

extensive research.
Can EVM Be Used By Agile Teams? If So, How?
Image courtesy of CodeTiburon
You might think that EVM methodology is only for waterfall projects,
but EVM works equally well with agile-based projects as well. This
approach is referred to as Agile EVM and o ers EVM bene ts for
4/19/2021
pp gEarned Value Management Explained
Crowdbotics
ScrumBlog
using the three main EVM characteristics of cost,Share
time,this
and
scope.
There are several stages in an agile EVM implementation. It starts

with the planning stage, which has a project manager triangle
consisting of scope, time, and cost. There are four metrics used
here which include story points, planned value, length, and starting
date.
After every sprint, project managers collect the actual data. Then,
the methodology described earlier in this blog is repeated where
PV, SPI, and CPI are calculated to get the estimated number of
iterations needed, total cost, and duration. One problem of
employing EVM in agile is that it requires scope quanti cation,
which makes agile teams apprehensive.
Assessing Project Performance via EVM

Methodology
The above calculations are enough to help you analyze a project's

performance and your employees’ productivity. The cost variance
and schedule variance calculation show how the project has been
progressing so far. Are your employees following the schedule and
working within the boundaries of initial cost assessments? Or do
some changes need to be made to put the project back on track?
Conclusion
Now you have a better understanding of Earned Value

Management, what it is, when and how it came into existence, how
it works, what its advantages and disadvantages are, and how it is
used. We hope you are in a better position now to understand and
implement it in your software company to e ectively manage
projects.
As experts in managed app development we utilize a range of

As experts in managed app development, we utilize a range of
strategies to ensure that client builds come in on time and under
budget. If you're looking for vetted PMs and developers, get in
touch with Crowdbotics today.
Nakul Shah
Nakul Shah is a Senior Product Manager with experience working
Read More
for startups and enterprises across 10+ countries. He is also an
SME and author on topics like Blockchain, Fintech and Emerging
Tech.
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nakul.shah Crowdbotics Expert Sep '20
Are there any other methodologies that you think are helpful in determining cost overruns
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4/19/2021 Earned Value Management Explained

Crowdbotics Blog Share this

30 SEPTEMBER 2020 / PROJECT MANAGEMENT

Earned Value Management

Despite recent market turbulence, we are currently witnessing

This need to constantly monitor several factors isn't a new problem.

Earned Value Management (EVM) is an analysis technique used in

What is the History of EVM and Where Has It Been

EVM eventually rose to prominence in the 1960s, when the Defense

How Does EVM Work?

Like many project management methodologies, EVM begins with

The calculation aims to nd variances in project execution by

Planned Value, Actual Cost, and Earned Value

Let’s understand these terms with an example: Suppose a software

2. Where are we going?

3. How long will it take to nish it?

Image courtesy of PMI.org

After computing the above, a Crowdbotics project manager will

If the resulting cost variance is a positive number, then the project

It is calculated by subtracting planned value (PV) from the earned

If the resulting schedule variance is positive, then you are ahead of

In the software development example provided above,

Image courtesy of Praxis

EAC = BAC (Budgeted At Completion – in the Crowdbotics example,

Crowdbotics Blog Share this

In the example above, EAC is $5,814, which means the current

What Types of Projects Are Best for EVM?

EVM methodology is best suited for projects that come with a

What Types of Projects Are Not a Good Fit for EVM?

However, the EVM method is not a good t in projects like a new

Merits & Drawbacks of Using EVM

Some of the bene ts of using EVM to manage projects are:

It gives a realistic picture of where you are at any

EVM helps in estimating the future costs and time

However, not everything is hunky-dory with EVM, as there are

Though EVM methodology calculates variances for you,

It can produce bizarre results if the data used has been

EVM fails to ensure the quality of work in the project

You cannot use this method in projects involving

Can EVM Be Used By Agile Teams? If So, How?

Image courtesy of CodeTiburon

There are several stages in an agile EVM implementation. It starts

Assessing Project Performance via EVM

The above calculations are enough to help you analyze a project's

Now you have a better understanding of Earned Value

As experts in managed app development we utilize a range of

Crowdbotics Blog Share this

Choose File No le chosen

Desired Start Date*

What kind of project is this?*

Target Project Budget*

How did you rst hear about Crowdbotics?*

nakul.shah Crowdbotics Expert Sep '20

Why Developers Use React

React Native and Django are well-

Cheap, Fast, Good: Shifting Your

See all 30 posts → 12 MIN READ