Introduction

Earned Value Management (EVM) is a powerful and widely-used project management technique that enables organizations to monitor and control project performance effectively. It provides a comprehensive approach to measure a project's progress, cost efficiency, and schedule adherence, allowing project managers to make informed decisions and take corrective actions when needed. 

To be able to use the earned value methodology there are some prerequisites that must be met. First of all you need to break down the project into manage work packages, using the Work Breakdown Structure. The lowest level is called the work package, and here one integrates cost and schedule information. 
Identifying this level is central part of the establishing the WBS. 

Read more about setting up a WBS in this article: Defining a WBS fit for purpose

In this video, you will also get introduced to the WBS in Omega 365:

Preparation

1. Define the WBS
2. Set the reporting frequency. Is it monthly, weekly? Is it last Sunday of the month/last day of the month?
3. Determine the planned value: Time phase each work package. This could be experience based, using standard profiles available in Omega 365, based on scheduling information
4. Methods for progress calculation: How will the progress be calculated? 
   • Based on reports from contractor - do you have contractors responsible for one of more work packages. Then having them report the actual progress, either directly in the system, or by providing reports. If you do not find the figures provided by the contractors sufficiently trustworthy, you have the possibility to override.
   • Based on data available in Omega 365:
     • Activities: Are the activities detailing the scope of work for the work packages available in Omega 365? These can be imported from the scheduling tool used (e.g. Prima Vera, MS Project), or one can use Omega 365 Planning functionality. If you do have the activities, with duration, progress and weighting (e.g. hours), you have sufficient information to calculate both planned progress and actual progress for each work package.
     • Documents progress: If you have well developed document plan, with planned dates for delivery, actual progress tied to how developed the document is (e.g. 60% complete when issued for review, 100% when issued for construction), including weighting (e.g. hours per document), you can use this infromation to calculate actual progress 
5. Set baseline: Earned value calculations are based on the current baseline. Make sure that you have the process in place for how to deal with baselines. Is it a fixed schedule, e.g. as some of our clients - twice a year. Or is it more ad-hoc, e.g. when there are major changes.

Reporting

1. Report actual progress. The actual progress is reported per work package (of course based on more detailed information - typically per activity). 
2. Report actual cost. It is essential that the actual cost reported is all costs incurred so far, both direct and indirect, and regardless if it has been invoiced or not. If you depend on what has been invoiced, or worse, paid - you will be out of synch with the progress reporting, and your earned value will too high.

Evaluate and analysis

1. Evaluate cost performance. The Cost Performance Index (CPI) is calculated by Omega 365, using this formula: CPI = Earned Value / Actual Cost. CPI greater than 1 indicates under budget, while a value less than 1 indicates over budget. 
2. Evaluate schedule performance. The Schedule Performance Index (SPI) is calculated by Omega 365, using this formula: SPI = Earned Value / Planned Value. SPI greater than 1 indicates ahead of schedule, while a value less than 1 indicates behind schedule
3. Interpret the variance: The Cost Variance (CV) is calculated as the Earned Value - Actual Cost. Schedule Variance (SV) = Earned Value - Planned Value. By using these figures you get an the monetized the performance
4. Forecast project completion. Based on these values, combined with other information, such as the contract type (is it fixed price, reimbursable?), the potential and approved changes, risk analysis, you set what you believe is the most realistic forecast, per work package. 

The cost curve is available for all levels in the WBS. In this example we can see that the project is behind schedule (earned value is less than planned value), under budget (actual cost is less than earned value). However the project manager / cost controller forecast that the project will recover and complete as planned, and on budget. Since the project is still in an early phase, the more one needs to trust other sources of information, including experience and expert judgements.

Earned Value example

Current status:
A project has a budget of EUR 10M and schedule for 10 months. It is assumed that the total budget will be spent equally each month until the 10th month is reached. After 2 months the project manager finds that EUR 3 M is spent (not all has been invoiced yet, but based on a combination of invoices and timesheets this is the actual cost), and the project is 35% completed. 

Analysis of current status

• Estimate at Complete (EAC) = EUR 10 M
• Planned Duration (PD) = 10 Months
• Planned value (PV) = 2 months x EUR 1 M = EUR 2 M
• Actual Cost (AC) = EUR 3 M
• Earned Value (EV) = 35% * EUR 10 M = EUR 3,5 M
• CPI = EV/AC = EUR 3,5 M / EUR 3 M = 1,17  
• SPI = EV/PV = EUR 3,5 M / EUR 2 M = 1,75 
• Total Forecast at Complete = EAC/CPI = EUR 10 M / 1,17 = EUR 8,5 M

Combining this information with other information (risks, approved and potential changes), the forecast should be updated by the cost controller to be as realistic as possible (typically a 50/50 forecast, which means that it is 50% chance of estimating too high, and 50% of estimating too low).