One of the most important elements of Project Portfolio Management (PPM) is the management of the project pipeline. In fact, Portfolio Managers execute performance reviews of all active projects that are in the pipeline, by using the Earned Value Management (EVM), to determine which projects to continue and which to stop.
Earned Value Management (EVM) is a technique for measuring project performance and progress at any given point in time. It is able to provide accurate forecasts of project performance, completion date and final cost. In addition EVM helps to analyze variances in the schedule and budget as the project proceeds.
The EVM covers some metrics which should be known by professionals who want to apply this method. The use of metrics is important in the EVM. In fact, EVM is based on the concepts of planned, accomplished and actual work. Basically, these concepts are combined measures of time and costs.
EVM consists of the following three basic elements:
- Planned Value
- Actual Costs
- Earned Value
Planned Value (PV) = The PV is the budgeted work that is scheduled to be performed, and it is the established baseline against which the actual progress of the project is measured. It represents how much value you expected to earn within a given time.
Actual Costs (AC) = The AC is the total expense incurred for the actual work completed to date. In other words, it represent the amount of money a company has spent so far on a project.
Earned Value (EV) = The EV is the work actually completed to date. It represents the value that the project has produced till today. In other words, it reveals how much value the project has actually earned. Here is the formula to calculate the Earned Value:
EV = % of completed work X BAC (Budget at Completion).
Moreover, EV is used to calculate other metrics such as Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI), Cost Performance Index (CPI) and so on.
Keep in mind
Even if all previous elements are imporant, Earned Value (EV) is the most useful. In fact, executives are always looking for this information, because it revelas the amount of value earned from the money spent on a project to date.