The Earned Value Management (EVM) method combines cost, schedule, technical scope, and risk aspects within Earned Value Analysis (EVA) to gauge the actual progress of work accomplished in a project.
Earned value also defined as the budgeted cost of worked performed (BCWP) helps to compute Performance indices.
Earned value analysis (EVA) helps project managers measure how well a project is progressing in terms of cost and schedule compared to the original plans. By using these measurements for future tasks, project managers can make predictions about the project's future performance, assuming that the rates at which resources are used (burn rates) remain constant.
The concept of earned value mirrors the principles of debits and credits. When you invest in resources and activities, you earn value back into your project through task outcomes. Consequently, all project tasks, from requirement gathering to Feedback and Improvement, contribute value back to the project, resulting in a product that fulfills a market need, generates revenue, or achieves other goals defined by project stakeholders.
Budget at Completion (BAC) -
It shows what the initial budget set for the project was.
Planned Value (PV) -
It signifies the amount of work (value associated with work) that was scheduled to be completed at a specific point in time, as per the original plan.
Earned Value (EV) -
It indicates how much work was completed (value associated with work) completed during a given period.
Actual Cost (AC) -
The actual cost represents the expenses accrued for work carried out on an activity within a defined timeframe. It reflects the expenditure made during that particular period.
In case of #Scrum we can calculate Planned Value (PV) and Earned Value based on planned average cost per story point.
Planned average cost per story point = Budget at Completion (BAC) / (Total Story Points as per the original plan)
Planned Value (PV) = (Planned average cost per story point) x (Planned number of story points to be completed at a specific point in time, as per the original plan)
Earned Value (EV) = (Planned average cost per story point) x (Actual story points completed during a given period)
Variances and Performance Indexes-
It is difference between earned value and actual costs.
CV = EV –AC
if CV=0 - The project is on budget.
If CV<0 (-ve) - The project is over budget
if CV>0 (+ve) - The project is under budget.
It is difference between earned value and Planned Value.
SV = EV –PV
if CV=0 - The project is on schedule.
If CV<0 (-ve) - The project is behind schedule
if CV>0 (+ve) - The project is ahead of schedule.
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It is the ratio of earned value (EV) to actual costs (AC).
CPI = EV/AC
If CPI >=1 - Favorable condition
If CPI <1 - Unfavorable condition
It is the ratio of earned value (EV) to planned value (PV).
SPI = EV/PV
If SPI >=1 - Favorable condition
If SPI <1 - Unfavorable condition
Estimate at completion is the anticipated overall cost required to finish all the work. It forecasts the total projected cost of completion based on the project's performance up to a specific point in time.
Estimate at completion (EAC) = BAC/CPI
The estimate to complete represents the anticipated cost needed to complete all remaining work. It forecasts the additional expenditure required for the project, considering past performance up to a specific point in time.
Estimate to Complete (ETC) = EAC – AC
Variance at completion is a projection of the budget surplus or deficit, calculated as the difference between the budget at completion and the estimate at completion.
Variance at completion (VAC) = BAC - EAC
