Earned Value (EV)

5 minutes 5 Questions

Earned Value, also known as Budgeted Cost of Work Performed (BCWP), measures the actual performance of the project. Essentially, it is the value of the work that has actually been done expressed in terms of the approved budget allocated for that work. By comparing the EV to PV, we can determine whether we are ahead or behind our planned schedule. Conversely, by comparing EV to AC, we can judge whether we are under or over our planned budget.

Guide: Understanding and Answering Questions on Earned Value (EV)

Earned Value (EV) is a crucial concept to grasp in the field of project management. It reflects the actual value accomplished from the work executed.

Why It's Important:
Understanding EV is essential because it provides an objective evaluation of the current project status, enabling efficient cost and schedule management. It also serves as an excellent tool to forecast future project performance.

How It Works:
The calculation of EV relies on two particular components - the Baseline Plan (BP) and the Actual Work Accomplished. It is the budgeted cost of the work that has been truly completed during a specific period and is typically calculated as:
EV = % of completed work x Budget at Completion (BAC)

Exam Tips: Answering Questions on Earned Value (EV)
Step 1: Identify and understand the question related to EV deeply. It could either ask for the actual value calculation or using EV for estimating at completion.
Step 2: For EV calculations, ensure to have a sound understanding of the relationship between EV, BAC and percent completion of work.
Step 3: If the question asks for further calculations based on EV, like cost performance (CPI) or schedule performance (SPI), remember to use the respective formulas. The key is to understand the interdependence of these values.
Step 4: Practice numerical problems involving EV calculations regularly for a better understanding.
Step 5: In theoretical questions or case studies, remember to highlight the comprehensive insights rendered by EV about project's cost and schedule status.
In the end, it's all about understanding the underlying principles of EV and how it links the project's schedule, scope and cost management.

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Question 1

Scenario: You are handling a construction project with a budget at completion (BAC) of $500,000. At the end of month three, you calculate that you have completed 40% of the project. What is the Earned Value (EV)?

$300,000 $250,000 $200,000 $150,000

Correct Answer: $200,000

Earned Value (EV) is the cost of the work performed expressed in terms of the budget authorized for that work. It's the value of the work actually completed. In this case, it's the total project budget (BAC) of $500,000 multiplied by the completed work percentage, which is 40%. Therefore, the answer is $500,000 times 40%, which equals $200,000. The other answers are wrong because they do not correctly apply the formula for earned value. The answer $300,000 is based on 60% completion, which is not the case as per the question. The answer of $250,000 is based on 50% completion which is also incorrect as per the scenario given. Lastly, the answer $150,000 is based on 30% completion which again is not the case in the given project scenario.

Question 2

Your organisation has entrusted you with a research project worth $1,000,000. In the first two months, you manage to complete only 20% of the project with an expenditure of $300,000. What is the Earned Value (EV)?

$350,000 $250,000 $300,000 $200,000

Correct Answer: $200,000

The project is worth $1,000,000 and the question states that only 20% of the project has been completed. Therefore, the Earned Value (EV) is 20% of the total project value, which is ($1,000,000*20/100) = $200,000. As such, the correct answer is $200,000. The other answers are incorrect. $300,000 is the actual money spent, but the EV, which represents the value of work actually performed, is less than that. $250,000 and $350,000 do not correspond to the 20% completion rate of the project.

Question 3

Scenario: A project with a total cost of $2,000,000 is underway. You have spent $1,000,000 so far and have completed 60% of the work. What is the Earned Value (EV)?

$1,500,000 $1,000,000 $1,200,000 $800,000

Correct Answer: $1,200,000

Earned Value (EV) is a project management technique that determines the value of the work actually performed on a project, up to a particular point in time. In this case, the Earned Value (EV) would be the total project cost times the percentage of the work completed, which is $2,000,000 * 60% = $1,200,000. Therefore, the answer '$1,200,000' is correct. The answer '$800,000' is incorrect because this would be the value if only 40% of the work was done. The answer '$1,000,000' is incorrect because this is the amount of money spent so far and does not represent the value of the work completed. The answer '$1,500,000' is incorrect because this would be the Earned Value (EV) if 75% of the work was completed.

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