10.5. Earned Value Analysis Earned value analysis (EVA] is a monitoring and controlling process that compares project progress to the project baseline (original plan). EVA measures the performance of a project in terms of cost and schedule. It can tell the project team if a project is: Behind Schedule Ahead of Schedule Under Budget Over Budget EVA provides hard numbers for making these judgements and can be used to forecast where a project will end up in terms of time and cost. As a result, EVA helps the project manager clearly communicate project progress to all stakeholders, and can focus the attention of the project team on any changes needed for the project to be completed on time and on budget. Most project management information systems (PMIS), can calculate earned value metrics if a baseline is properly set and the earned value inputs are provided. Project managers who do not conduct an earned value analysis run the risk of misinterpreting or miscommunicating the meaning of the project information that is collected during the execution phase. For example, assume that the direct costs of a project are budgeted at $100,000, and the project is scheduled to take 12 months. If it is three months into the project and $25,000 has been spent, a naive project manager might assume that the project is 25% done and is on track to finish within the project timeline and budget. In this example, the project is certainly 25%% done as far as the time allowed for the project, and 25% done with the budget, but what is not known is which activities have been worked on and if those activities are complete or still in progress. If only 10% of the scheduled work has actually been completed, then the project may be in trouble. Alternatively, if 50% of the scheduled work has been completed, then the project may end up being done much earlier and with much less expense than planned. Either situation requires action: If a project is going to be over-budget and/or take more time, the project manager needs to figure out if what can be done to correct the situation. Should they try to get more resources and time, or should they re-evaluate the project entirely (see section on Sunk Costs]. If a project is going to be done in significantly less time and/ or with significantly less cost, then the project manager should see if some of the resources allocated for the project can be released to other projects and priorities in the organization, and the impact of an earlier completion date should be evaluated. Before attempting the calculations involved in an earned value analysis of a project, it is important to understand the three basic inputs for EVA calculations. The three basic inputs are Planned Value (PV), Actual Costs (AC), and Earned Value (EV]- Planned value (PV) Planned Value Refers to the expected cost that will be spent on the project over its life time. For each activity there is a total Planned Value (cost). More importantly, the amount that was going to be spent on each activity over time is also know. Consider the information presented on Project Breakdown in Table 10-1. The amount that the project team thinks an activity will cost is called the planned value for that activity. 192 | 105. Earned Value Analysis