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Earned Value Management (EVM)

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Earned Value Management (EVM) is a comprehensive project management technique that integrates scope, schedule, and cost parameters to assess project performance and progress objectively. It provides a quantitative method for measuring project health by comparing planned work against completed work and planned costs against actual expenditures. The core components of EVM include Planned Value (PV), Earned Value (EV), and Actual Cost (AC). Planned Value represents the approved budget for the work scheduled to be completed by a specified date. Earned Value is the approved budget for the work actually completed by that date. Actual Cost is the total cost incurred for the work performed. By analyzing these elements, project managers can calculate variances and performance indices such as Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI), and Cost Performance Index (CPI). These metrics indicate whether the project is ahead or behind schedule and under or over budget. EVM is essential for progress measurement and reporting because it provides early warning signs of performance issues, allowing for timely corrective actions. It enables project managers to forecast future performance trends, make informed decisions, and communicate project status effectively to stakeholders. EVM fosters transparency and accountability, contributing to better project control and governance. It is widely recognized by professional organizations like the Project Management Institute (PMI) and is considered a best practice in project management. Implementing EVM helps ensure that projects are delivered on time, within scope, and on budget, ultimately leading to successful project outcomes.

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PMI-SP - Progress Measurement and Reporting Example Questions

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Question 1

In Earned Value Management (EVM), if a project's Cost Performance Index (CPI) is 1.25 and Schedule Performance Index (SPI) is 0.85, what best describes the project's status?

Correct Answer: Under budget but behind schedule

Let's analyze the EVM metrics step by step: 1. CPI = 1.25 - When CPI > 1, it means we're spending less than planned - Specifically, we're getting $1.25 worth of work done for every $1 spent - This indicates the project is under budget 2. SPI = 0.85 - When SPI < 1, it means we're completing less work than planned - We're only completing 85% of the work we should have done by this point - This indicates the project is behind schedule 3. Combined Analysis: - The project is performing well in terms of cost efficiency (under budget) - However, it's not meeting schedule expectations (behind schedule) This matches exactly with 'Under budget but behind schedule' This scenario is common in projects where teams might be taking extra time to ensure quality and cost efficiency, but at the expense of schedule performance.

Question 2

In a project where the BAC (Budget at Completion) is $500,000, PV (Planned Value) is $200,000, AC (Actual Cost) is $180,000, and EV (Earned Value) is $160,000, what is the Schedule Performance Index (SPI)?

Correct Answer: 0.8

The Schedule Performance Index (SPI) is calculated using the formula: SPI = EV/PV Using the given values: EV = $160,000 PV = $200,000 SPI = 160,000/200,000 = 0.8 An SPI of 0.8 indicates that the project is behind schedule, as we are only achieving 80% of the planned work. The calculation is simple and straightforward - we need to divide the Earned Value by the Planned Value. The other answers involve incorrect formulas or values. Note that we use EV and PV for SPI calculation, while AC (Actual Cost) is used for cost performance calculations, not schedule performance.

Question 3

When performing Earned Value Management (EVM), which of the following estimates represents the most optimistic forecast of the project's final cost?

Correct Answer: EAC = AC + (BAC - EV) × CPIc

The formula EAC = AC + (BAC - EV) × CPIc represents the most optimistic forecast of the project's final cost. Here's why: This formula assumes that future performance will improve and all remaining work will be completed at the planned rate (CPIc = 1.0 by default). This makes it the most optimistic forecast among all EAC formulas. The other formulas are more conservative in their predictions: - EAC = BAC ÷ CPI assumes all future work will follow the same efficiency as past work - EAC = AC + [(BAC - EV) ÷ (CPIc × SPIc)] considers both cost and schedule variances, making it more pessimistic - EAC using new efficiency rate takes into account anticipated changes in performance, which typically leads to more conservative estimates The formula with CPIc provides the most optimistic outlook as it assumes ideal conditions for the remaining work.

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