Earned Value Management (EVM): Key Metrics, Benefits, and How to Calculate It

Managing projects without the reliable performance data is like acting blindfold – you can’t be sure that the project remains on the right track. This is especially critical for complex multi-project environments, where projects have interdependencies.

But there’s a solution – earned value management (EVM) is a proven technique that can provide you with a clear picture of project performance from multiple perspectives. 

Read our quick guide to learn the core EVM metrics as well as how to calculate and interpret this data.

What Is Earned Value Management (EVM)?

Earned value management is a project management technique used to track project progress and performance from different perspectives. It includes three indicators: planned value, actual cost, and earned value. Project managers use these parameters to track cost and schedule performance, identify potential risks, and forecast project outcomes. 

In a nutshell, earned value management aims to answer the questions: 

• Is the project on schedule?
• Is it on budget?
• How much will it cost to finish the project? 

Except for getting insights into project performance, why is it important to analyze earned value in project management? Let’s figure it out in the next section.

Key Components of Earned Value Management

EVM analysis is a comprehensive process that requires several components. 

1. Planned value. 

PV refers to the approved amount of work that should be completed by a specific date. It’s calculated before starting a project and can serve as a project baseline. Its main purpose is to show how much budgeted work you planned to complete.   

For example, if the total project budget is $200,000, and by the 4th month you’ve completed 40% of the work (according to the schedule), the planned value by this time will $80,000. How did we calculate that? Use the formula:

PV = total project budget x %work completed 

200,000 x 40% = 80,000

2. Earned value. 

It’s one of the critical project management metrics that is also used for earned value management. It’s an indicator of the budgeted cost of project work that has been completed up to a given point in time. It also shows whether a project is on schedule and within budget, and the value of the completed work. 

So, how to calculate earned value in project management? You need to multiply the total project budget by the percentage of work completed. 

3. Actual cost.

Finally, as you can guess from the name of this parameter, it shows the actual amount of money spent on the work performed. 

Now, let’s consider how these parameters are used in earned value management.

Earned Value Management Formulas and Metrics: How to Analyze Performance 

Earned value management involves both calculation and analysis. Let’s start with calculations using EVM formulas. 

The above-mentioned components of EVM provide the raw data that can be further used for performance management. With their help, we can calculate a variety of indicators that will give insights into project performance. Here are earned value management formulas you can employ.

Analysis of EVM metrics

But making calculations is not enough if you don’t interpret the results you’ve got. Let’s now consider the details of these indicators’ interpretation and variance analysis.

All these situations require corrective actions to get the project back on the right track. This is how earned value management becomes the basis for decision-making.

Importance of Earned Value Management in Project Management

The main benefit of earned value management is that, in contrast to tracking progress, cost, or project schedule separately, earned value method allows you to get a comprehensive view of how a project is performing. Here are some more reasons to analyze EVM in project management. 

1. Getting early warnings: Project managers can identify cost and/or schedule variance early and timely act to prevent negative consequences. 
2. Reducing project management risks: Regular control of schedule and costs minimizes the risk of project delays and cost overruns. 
3. More accurate performance assessment: EVM is calculated using a formula with several parameters, which increases the accuracy of performance evaluation.  
4. Optimized decision-making: Analyzing performance rate provides managers with grounds for making decisions, e.g., adding resources, adjusting project scope, changing the due date, portfolio optimization using earned value management metrics’ analysis, etc. 

Why is EVM important for multi-project management?

Earned value management is especially important for multi-project management. When you manage multiple projects or a project portfolio, they usually have shared resources, complex dependencies, and overlapping due dates. What is more, issues in one project can negatively affect other projects due to dependencies between them. Here’s how earned value management can change the game:

• It provides performance tracking across projects. 
• Early issue detection prevents the negative consequences of issues on other projects.
• Multiple projects often share the same resources, while EVM helps set the right priorities and adjust resource allocations if necessary.  
• EVM is one of the forecasting instruments that helps forecast total costs across a portfolio. 
• It can give grounds for comparing projects in terms of cost and schedule efficiency and correct prioritization. 
• It provides project stakeholders with insights they require. 

Therefore, earned value management is more than just tracking budgets or schedules, it can tell you whether the money invested is producing expected results. In multi-project management, earned value management is even more important than for single-project management, as it helps both track individual performance and see the big picture of the project portfolio.

When to Use Earned Value Analysis in Project Management?

Now, you may ask, when should I perform these calculations and analysis? At what stage of project execution are they most important and reliable? Let’s figure out the key points when EVM matters most.

1. During project monitoring and control: You can perform earned value analysis during the project execution, when some part of the project work has been completed.  
2. For managing multiple projects or project portfolios: As we’ve figured out, managing multiple projects requires EVM more than single project management.  
3. For projects with cost and/or schedule complexity: EVM is mostly relevant for large and complex projects with tight budgets, strict deadlines, or the ones where deviations from schedule and budget become costly (e.g., defense, manufacturing, engineering, IT, etc.). 
4. When forecasting is required: EVA makes it possible not only to analyze performance but also to make forecasts. 

Are there situations when you don’t need EVM? Yes, there are. Earned value analysis and management are less useful when you manage small short-term projects, where all these calculations and analysis will be too cumbersome and redundant. The other case is managing Agile projects – traditional EVM is more suitable for more or less linear project structure or waterfall projects.

What Are the Participants of the Earned Value Analysis Process?

Last but not least: who is responsible for earned value management? There are several roles in the organization that can deal with this process. 

1. Project managers.

If you work in a multi-project environment, there will be individual project managers. Project managers are the primary performers of earned value management. They can monitor its key indicators (PV, EV, AC), calculate and interpret other parameters. Also, they can take some corrective actions, e.g., scope adjustment.  

In a multi-project environment, project managers report performance metrics to the senior level – portfolio or program. They also collaborate with other project managers, e.g., when it comes to shared resources and their allocation to projects. 

2. Project team members. 

Team members also contribute to obtaining earned value management metrics: they collect the required data and provide updates (e.g., the percentage of work completed). In a multi-project environment, their contribution remains important and becomes a component of earned value analysis on the portfolio level.  

3. Portfolio manager. 

This role appears on multi-project levels. A portfolio or a program manager reviews earned value across all projects, analyzes their performance, and identifies those that drain resources or those that are likely to generate value. They also can make decisions regarding project prioritization, e.g., to postpone a less promising project to free up resources for the one that is expected to generate more value. 

4. Project management office. 

In organizations managing multiple complex projects or project portfolios, PMO is a critically important organizational unit. As a participant of earned value management, a PMO validates the accuracy of the data collected across projects. They also use this data to create dashboards and reports and provide executives with a single source of truth regarding portfolio performance.    

5. Finance department. 

First, the finance department can provide accurate cost tracking: they provide a single source of truth regarding actual costs. Also, this department ensures that financial resources are properly allocated across projects. They also track costs of human and material resources. Finally, in multi-project and project portfolio management, the finance department compares portfolio expenses with organizational budgets 

6. Senior executives.   

Senior management can analyze EVM reports, identify trends and challenges, and make decisions regarding the implementation of changes (e.g., adjusting priorities, changes in funding, etc.).

Final Words

Therefore, earned value management (EVM) is not just a set of formulas. It’s rather a decision making framework that provides multi-sided performance insights. It combines diverse metrics to provide you with an understanding of whether a project is on the right track and where it’s heading. Also, it allows you to detect red flags early on and take timely action before it’s too late. When done right, EVM can relieve project leaders of guesswork and provide them with a reliable technique for measuring project performance. 

Portfolio management software tools like Epicflow can serve as earned value management systems supporting the EVM process. For example, it shows real-time project progress with milestone feasibility, provides a comprehensive view of the budget planned a spent, offers risk management capabilities, and has Gantt chart and time-tracking features that have a direct relation to project costs. Also, its scenario planning capabilities can forecast project and portfolio performance and allow you to test various scenarios if the situation requires corrective action. Contact us to find out more insights into performance analysis with Epicflow and how to use it for game-changing earned value management.

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