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Earned Value Management

Measurement of project performance

Earned Value Management (EVM) is a technique used for measuring project performance and progress in an objective manner. It combines scope, cost, and schedule measurements to assess project performance and progress.
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Earned Value Management (EVM) is a methodology used in project management to measure project performance and progress in an objective manner. It integrates scope, schedule, and cost measurements to provide accurate forecasts of project performance issues.<br><br>EVM uses three key metrics: Planned …

Concepts covered: Estimate at Completion (EAC), Actual Cost (AC), Cost Performance Index (CPI), Cost Variance (CV), Planned Value (PV), Schedule Variance (SV), Estimate to Complete (ETC), Earned Value (EV), Schedule Performance Index (SPI), To-Complete Performance Index (TCPI)

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CAPM - Earned Value Management Example Questions

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Question 1

In a project that you are supervising, after 5 months you have spent $30,000 out of an allocated $50,000. What does the $30,000 represent?

Correct Answer: Actual Cost (AC)

The $30,000 spent in five months represents the Actual Cost (AC) of the project to date. This refers to the total cost that has been spent on the project. The other options are incorrect for the following reasons: Earned Value (EV) refers to the value of the work actually performed regardless of the cost spent, it does not necessarily match with the amount spent. Planned Value (PV) would represent the estimated cost of the project work scheduled, not the actual amount spent. Budget At Completion (BAC) is the total budget allocated for the project at the start, not the amount already spent.

Question 2

You are managing a project that was assigned a budget of $500,000. After 5 months into the project, you calculate that you have already spent $320,000. What is this amount referred to?

Correct Answer: Actual Cost (AC)

The amount referred to is the actual cost (AC). This is the best answer because it directly refers to the amount of money that has been spent on the project. The other answers are wrong because the Planned Value (PV) refers to the budgeted cost of work that has been scheduled to be done in a given time, not what has actually been spent. The Earned Value (EV) is the budgeted cost of work that has actually been completed, not accounting for how much has been spent. Lastly, the Budget at Completion (BAC) is the total budget that was allocated for the project, not how much has been spent.

Question 3

You are in charge of the construction of a new building. You had planned for $750,000 for the first phase, but you have spent $950,000 at the end of the phase. What do we refer to this $950,000 as?

Correct Answer: Actual Cost (AC)

The $950,000 refers to the 'Actual Cost' (AC) which is the total cost actually incurred for a project or a component of a project. In this case, it was the cost incurred in the first phase of building construction. 'Estimated Cost' (EC) would be the estimated amount to be spent for the project, which was $750,000 in this case, not $950,000. 'Cost Variance' (CV) refers to the difference between the actual cost and the budgeted cost of a project, or in this case, the difference between $950,000 and $750,000. It is not a suitable answer as it is not the term for the spent cost. Lastly, 'Cost Performance Index' (CPI) is a measure of the cost effectiveness of budgeted resources, expressed as a ratio of earned value to actual cost. But in this context, it is not a term that represents the spent amount, $950,000.

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