Earned Value Management (EVM)

5 minutes 5 Questions

Earned Value Management (EVM) is a project management methodology used to measure project performance and progress in an objective manner. By integrating scope, schedule, and cost parameters, EVM provides a comprehensive view of project performance against the baseline plan. It quantifies the value…

Earned Value Management (EVM): A Comprehensive Guide

Introduction
Earned Value Management (EVM) is a project management methodology that integrates scope, time, and cost data to objectively measure project performance and progress.

Why EVM is Important
EVM provides a clear picture of project health by comparing planned work with actual work and costs. It helps in identifying variances early, allowing for timely corrective actions to keep projects on track and within budget.

What is EVM?
EVM combines three key metrics:
• Planned Value (PV): The budget allocated for the scheduled work.
• Earned Value (EV): The value of work actually completed.
• Actual Cost (AC): The real cost incurred for the completed work.

How EVM Works
EVM works by comparing the planned performance with actual performance. Key calculations include:
• Schedule Variance (SV) = EV - PV
• Cost Variance (CV) = EV - AC
• Schedule Performance Index (SPI) = EV / PV
• Cost Performance Index (CPI) = EV / AC
These metrics help in assessing whether a project is ahead or behind schedule and whether it is over or under budget.

Answering EVM Questions in an Exam
To effectively answer EVM questions in an exam:
• **Understand Key Concepts**: Familiarize yourself with all EVM terms and formulas.
• **Practice Calculations**: Practice computing PV, EV, AC, SV, CV, SPI, and CPI.
• **Interpret Results**: Be able to explain what each metric indicates about project performance.
• **Structured Responses**: Present your answers in a clear and logical manner.

Exam Tips: Answering Questions on Earned Value Management (EVM)
• Review Core Formulas: Ensure you know all EVM formulas by heart.
• Practice Sample Problems: Solve various EVM scenarios to build confidence.
• Manage Your Time: Allocate appropriate time to EVM questions, as they may involve multiple steps.
• Show All Work: Clearly display each step of your calculations to earn partial credit if needed.
• Double-Check Answers: Verify your calculations and ensure your interpretations make sense within the project context.

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Question 1

A construction project was to finish in 18 months with a budget of $2,000,000. After 9 months, only 45% of project is completed with $1,050,000 spent already. At this point, what is the Variance at Completion (VAC)?

$150,000 - $ 333,000 0 -$150,000

Correct Answer: - $ 333,000

To calculate the Variance at Completion (VAC), we need to determine the Estimate at Completion (EAC) and then subtract it from the original Budget at Completion (BAC). Given: - Original Budget at Completion (BAC) = $2,000,000 - Earned Value (EV) = 45% of $2,000,000 (since 45% of the project is completed) - Actual Cost (AC) = $1,050,000 - Earned Value (EV) = 45% * $2,000,000 = $900,000 First, calculate the Estimate at Completion (EAC). Assuming the project will continue at the current cost performance: - Cost Performance Index (CPI) = EV / AC = $900,000 / $1,050,000 = 0.857 - EAC = BAC / CPI = $2,000,000 / 0.857 = $2,333,491 (approximately) Now calculate VAC: - VAC = BAC - EAC = $2,000,000 - $2,333,491 = -$333,491 Therefore, the closest answer from the provided options is -$333,000

Question 2

You are overseeing a software development project with a budget of $500,000 expected to last 10 months. After 5 months, you have spent $300,000 but only completed 40% of the work. What is the Schedule Variance (SV)?

$200,000 $50,000 $300,000 -$50,000

Correct Answer: -$50,000

Schedule Variance (SV) is a measure of schedule performance on a project. It's the difference between the earned value (work actually performed) and the planned value (work supposed to be performed). In this scenario, by 5 months you should have completed 50% of the work, since the project is expected to last 10 months, which equates to $250,000 (50% of $500,000). However, only 40% of the work has been completed so far, which equates to $200,000 (40% of $500,000). Hence, the Schedule Variance (SV) is the earned value minus the planned value, that is $200,000 - $250,000 = -$50,000. Thus, the project is behind schedule as the SV is negative. The remaining options: $50,000, $300,000, and $200,000 are incorrect calculations of the SV.

Question 3

You are overseeing a construction project with a budget of $850,000 over a span of 10 months. After 5 months, you've spent $500,000 and completed 50% of the project. What is your Cost Variance (CV)?

$25,000 $100,000 $50,000 $75,000

Correct Answer: $75,000

To calculate the Cost Variance (CV), we use the formula: CV = Earned Value (EV) - Actual Cost (AC). In this case, EV = 50% of $850,000 = $425,000 (as 50% of the project is complete). AC = $500,000 (amount spent). Therefore, CV = $425,000 - $500,000 = -$75,000. The negative value indicates that the project is over budget at this point. The actual cost exceeds the earned value by $75,000, showing that more money has been spent than the value of work completed.

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