Earned Value

Term Definition
Earned value is a project management technique for estimating how a project is doing in terms of its budget and schedule. The purpose of earned value is to obtain an estimate for the resources that will have been used at completion. The work finished so far is compared to the estimates made in the beginning of the project. By extrapolating from the amount of work completed, the project manager can get an estimate on how much resources will be used at completion.

If an organization were to report progress on a project by elapsed time, it would not give a true measure of project completion. For example, if a project manager reported that a 12-month project was 50% complete at the six-month point, it may not be the truth. Although 50% of the time has elapses, 50% of the work may not have been completed. Elapsed time alone does not tell you if you are ahead of schedule or behind schedule.

Earned value (EV) offers better measure of progress. When earned value is used, you only get credit for work done when a task is complete. Each task is assigned a percent value, so that all of the project tasks total one hundred percent. For example, if a project required electrical, plumbing and structural you would assign values such as:

Electrical – 15%
Plumbing – 10%
Structural – 75%

As each task completes, you would add its value to your earned value. So if you completed electrical and plumbing at the six month point, you would report that you have used up 50% of the time and you have 25% EV.

All work is planned, budgeted and scheduled in time-phased, planned value increments. This is what constitutes a Performance Measurement Baseline. Earned value provides an objective measurement of how much work has been accomplished on a project. Using the earned value process, the management team can readily compare how much work has actually been completed against the amount of work planned to be accomplished. As work is performed, it is earned on the same basis as it was planned in time (or labor hours), dollars or other quantifiable units. Any difference between earned and planned is called a schedule variance.

Area of Application
Project Plan

Related Terms
Critical Path
ETC
Task Dependency

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