Earned Value Management (EVM)

5 minutes 5 Questions

EVM is a technique that helps to measure project performance by combining scope, cost, and schedule measurements. It helps in predicting future project performance based on trends established early in the project. It can be used to track the cost performance index (CPI) and calculate the estimate at completion (EAC). EVM provides a realistic view of the project's health and serves as an early warning tool.

Guide to Earned Value Management (EVM)

Earned Value Management (EVM) is a crucial component in Project Cost Management, particularly in the area of tracking and monitoring project performance. This technique offers a multi-dimensional view of project performance, integrating scope, cost, and time aspects.

Why is EVM Important?
EVM is important for offering a factual and predictive view of project performance:
  • Detecting issues early in a project.
  • Enabling better decision making and risk management.

Understanding EVM.
Three key elements form the basis of EVM:
  • Planned Value (PV)
  • Earned Value (EV)
  • Actual Cost (AC)
By comparing Planned Value against Earned Value, and comparing Earned Value against Actual Cost, managers can assess project performance and efficiency.

How to Answer Questions on EVM in an Exam?
Primarily you need to understand the formulae related to EVM:
  • Schedule Variance (SV) = EV - PV
  • Cost Variance (CV) = EV - AC
  • Schedule Performance Index (SPI) = EV/PV
  • Cost Performance Index (CPI) = EV/AC.
For instance, if a question asks about the cost efficiency, and gives you values for EV and AC, you need to use the CPI formula. SPI and CPI less than 1 indicate a negative variance, and vice versa. Additionally, include assumptions and interpretations along with calculated values to ensure comprehensive answers.

Exam Tips:
Follow these tips to increase your chances of success:
  • Understand EVM formulae and their application.
  • Always show your work in calculation-based questions.
  • Provide explanations for your answers.
  • Use the Exam’s case study to provide context to your answers.
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CAPM - Earned Value Management (EVM) Example Questions

Test your knowledge of Earned Value Management (EVM)

Question 1

You are overseeing a construction project with a total budget of $2,000,000 projected to last 20 months. After 4 months, you have spent $800,000 and have completed 40% of the project. What is the Schedule Performance Index (SPI)?

Correct Answer: 2

To calculate the Schedule Performance Index (SPI) for the construction project:

Earned Value (EV) is the value of the work actually completed. With 40 percent of the project completed and a total budget of 2 million dollars, EV equals 40 percent of 2 million dollars.

Planned Value (PV) is the value of the work that was expected to be completed by now. After 4 months into a 20-month project, you would have planned to complete 20 percent of the project. So, PV equals 20 percent of 2 million dollars.

The SPI is calculated as EV divided by PV.

EV is 0.40 times 2 million dollars.
PV is 0.20 times 2 million dollars.
SPI equals EV divided by PV.

Performing these calculations, the SPI for the project is 2. This indicates that the project is progressing at twice the rate that was planned, as an SPI greater than 1 suggests that more work has been completed than was originally scheduled by this point in time.

So, among the provided options, the correct answer is:

2

Question 2

A construction project has a budget of $2,000,000 and is expected to last 18 months. After 9 months, $1,000,000 has been spent and 40% of the work has been completed. Calculate the Estimate to Complete (ETC) for the project.

Correct Answer: $1,500,000

To calculate the Estimate to Complete (ETC), we first determine the Earned Value (EV) and the Cost Performance Index (CPI).

  1. Earned Value (EV):

EV = Percentage Completed × Budget at Completion (BAC)

EV = 40% × $2,000,000 = $800,000

  1. Actual Cost (AC):

AC is given as $1,000,000.

  1. Cost Performance Index (CPI):

CPI = EV ÷ AC

CPI = $800,000 ÷ $1,000,000 = 0.8

  1. Estimate to Complete (ETC):

ETC = (BAC − EV) ÷ CPI

ETC = ($2,000,000 − $800,000) ÷ 0.8 = $1,500,000

Therefore, the Estimate to Complete for the project is $1,500,000.

Question 3

You are managing a bridge construction project with a budget of $3,000,000, expected to be completed in 24 months. The planned value (PV) for the first 12 months is $1,500,000. After 12 months, $2,000,000 has been spent, and the earned value (EV) is $1,800,000. What is the Estimate at Completion (EAC) based on the present cost trends?

Correct Answer: $3,333,333

  • Total budget: $3,000,000
  • Expected project duration: 24 months
  • Planned Value (PV) for the first 12 months: $1,500,000
  • Actual Cost (AC) after 12 months: $2,000,000
  • Earned Value (EV) after 12 months: $1,800,000

To calculate the Estimate at Completion (EAC) based on the present cost trends, we need to:
1. Calculate the Cost Performance Index (CPI)
2. Calculate the EAC using the formula: EAC = Budget at Completion (BAC) / CPI

Step 1: Calculate the Cost Performance Index (CPI)
* CPI = EV / AC
* CPI = $1,800,000 / $2,000,000
* CPI = 0.9

Step 2: Calculate the Estimate at Completion (EAC)
* EAC = BAC / CPI
* EAC = $3,000,000 / 0.9
* EAC = $3,333,333.33

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