No project management professional or small business owner wants to arrive at a deadline only to realize the project is off schedule or over budget. Keeping your project on budget requires meticulous planning throughout the duration of the project lifecycle. It’s common to have little mistakes along the way that amount to more serious impacts at the end.
Using earned value management will help you combat this problem.
Earned value (EV) is a project management technique used to ensure the project is going according to plan. The purpose of earned value is to obtain an estimate for the resources that will be used by the end of the project, giving you a project baseline to plan around.
The work finished so far is compared to the estimates made at the beginning of the project. By calculating the amount of work completed, the project manager can estimate how many resources will be used by the deadline.
Earned value calculations assign a percentage value to each task so that all of the project tasks equal one hundred percent. Let’s say there is a four-month home renovation project that requires the kitchen, bathroom, and bedroom to be renovated. You would assign each of these tasks a percentage value of how much work is required for each task:
If your team has only completed the bedroom and bathroom at the two-month mark, that means that 50% of the time has gone by and your EV is 35%. Applying the earned value methods, you can accurately assess the amount of completed work vs how much of the work is yet to be accomplished and how many more resources you need. Understanding these numbers will help you keep the project within the confines of the planned budget and schedule.
EVM is the best method for project planning and costing. If a company calculated the progress of a project based on elapsed time alone, it would not give an accurate measurement of project completion.
For example, if a project manager reported that a six-month-long project was 50% completed at the three-month mark, this may not be true. Although 50% of the time has gone by, this does not mean that 50% of the work has been completed. Earned value management ensures that the methods used to track a project accurately represent how well the project is progressing.
Calculating EVM will help you answer the questions: Did we get to where we wanted to be at any given point in the project timeline, and when will we finish? It is used to measure how successfully a project is being completed. EVM provides all levels of management with insights into time or cost-related problems so they can be detected and resolved as soon as possible.
Follow the below steps to calculate EVM :
SPI = EV/PV
SPI measures the progress achieved against the progress planned. An SPI value of less than 1.0 indicates less work was completed than was planned. SPI of more than 1.0 indicates more work was completed than planned.
CPI = EV/AC
CPI measures the value of work completed against the actual cost. A CPI value of less than 1.0 indicate costs were higher than originally budgeted. CPIs higher than 1 indicate less than budgeted.
EAC = (total project budget)/CPI
EAC is a forecast of how much a total project will cost.
Let’s take a look at an example to gauge project performance so far. Assume we’re halfway through a year-long project that has a total budget of $100,000. The amount budgeted through this six-month mark is $55,000. The actual cost at the six-month mark is $45,000.
Earned value analysis summary:
Since SV is negative and SPI is <1, the project is behind schedule. We’re 50% of the way through the project but have planned for 55% of the costs to be used. There will have to be some catch-up in the second half of the project.
Because CV is positive and CPI is >1, the project is considered to be under budget. We’re 50% of the way through the project, but our costs so far are only 45% of our budget. If the project continues at this pace, then the total cost of the project (EAC) will only be $90,000, as opposed to our original budget of $100,000.
Understanding the project cost and schedule throughout its lifecycle is an essential part of overseeing any project. By using the EVM calculations you can determine if the project is ahead of schedule or behind, as well as the actual cost of work performed and as it progresses.
A successful project will always follow the proper project management procedures . These tools make it easier for project managers or even small businesses to follow these procedures.
Some useful attributes these tools have is delegating assignments to team members, making checklists, explaining tasks, creating deadlines, prioritizing tasks, and more. Here are a few examples of some project management tools:
Having the right tools is important for a project to run successfully, but it’s not the only thing that needs to be considered. The foundation of an efficiently run project is possessing the right skills . A way to develop project management skills is through specialized training methods.
Once you have the basic skills of how to be a strong project manager, your next step is to focus on the actual project itself and ask “how will I know if this is cost-effective?” How do you make sure you are maximizing profits, controlling costs and gleaning insights when it comes to your projects? With QuickBooks Time ensure your next project stays on budget and projected scope.
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