Principle of Earned Value Management
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1:28 – PV, EV, and AC on the graph
2:30 – Evaluate PV, EV, and AC
3:55 – Determine expected end time
5:45 – Determine the Estimate at Completion
Earned Value Management is a method to predict the end of the project and its final cost. It is based on the S-curve or cumulative cost overview and baseline of the project.
The S-curve provides the cumulative budget over time and shows how we plan to create the deliverables and what it will cost to create it.
Based on the project follow-up, we can identify the number of deliverables that have been created at a specific moment in time and calculate their cost which is the value earned at that time during the project execution which we call the earned value and it is basically an indication of the schedule progress of the project. An EV smaller than the PV means that the project is in delay.
Another parameter is the actual amount that has been spent to create the deliverables which are the Actual Cost or AC. An AC larger than the EV means that we are spending more money than estimated to create the deliverables and that we are over budget.
Based on the EV, we can estimate when the project is expected to end by extrapolating the EV till we reach the BAC, basically, we continue the trend until all the deliverables have been completed, hence all the value earned. The intersection with the BAC gives us the expected end time.
The next assumption is that we continue spending money at the same rate until the project is completed and we find here at the intersection of the end time of the project the expected final cost of the project, hence the Estimate at Completion or EAC.
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