Earned value management (EVM) is a methodology that considers the scope, costs, and schedules of a given project for easy management and execution. Through this methodology, project managers can predict the future and adjust accordingly to make any changes (Mataji et al., 2019). Every project has a baseline plan and work process schedule, easily accessible to managers using EVM (Nizam et al., 2020). Earned value management has a subset called Earned Value Analysis (Muqeet et al., 2019). EVA is used by EVM as a component tool although in a small scope since it goes up to only the computation of project related data (Nurannisa et al., 2021). EVM is concerned with the use of data to come up with project trends, and analysis is said to be a project management tool that is concerned with data used and the solutions from the data.
For managers in any project, earned value management methodology is advantageous when used to manage projects compared to unplanned projects. First, it helps map the project costs and reduce the unknowns into measurable factors (Miguel et al., 2019). Secondly, earned value management helps compare and benchmark a project’s current progress with its baseline hence identifying critical paths for the project (Liu and Jiang, 2021). Furthermore, earned value management has clear metrics and documentation that makes accountability to stakeholders achievable by project managers (Zohoori et al., 2019). The final importance of earned value management is that it shows a project’s bigger picture at project and portfolio levels.
There are several calculations used to evaluate as well as control the projects also know as the earned value analysis in projects (Zhan et al., 2019). The first concept calculated to tell the progress and control of a given project is the Total Planned Budget. Project budget refers to the estimated costs needed to complete a given task in a given period. It estimates which costs will be used at which phase and includes operating, procurement, material, and labor costs (Tereso et al., 2019). All projects undertaken have underlaying risks; hence one of the purposes of a budget in projects is to mitigate an organization’s financial risk; otherwise, the results may be way worse than expected (Ladeeda and Jeevan, 2019). Project managers should make sure that they follow the given budget to stay the course of the project and spend the planned amount of money.
Planned value is the approved budget that the project manager assigns to activities, also known as the work breakdown structure (WBS). Management reserve is not included in this budget (Vaibhava et al., 2020). The manager allocates planned value in several given phases during the project’s lifetime. This term refers to the physical accomplished work of the project at the given time (Khamooshi and Kwak, 2021). In the beginning, planned value in projects is called performance measured baseline, but at the end, it is known as the budget at completion. Another important term used to evaluate and control projects is the project’s actual cost (Vaibhava and Rao, 2019). It is the total amount of money a project uses from the time it started to where it is at a given time. It helps determine the project performance by comparing the amount of money to the expected amount projected in the budget (Koke and Moehler, 2019). The actual cost is also to calculate the cost variance and cost performance index.
Earned value refers to the value of work done to date in the project. If the project ends at the given moment, the project’s earned value will be the value of the work produced by the project up to that given moment (Widiningrum et al., 2020). This is the most important of all the calculations done for earned value since it shows how much value is earned from the amount spent on the project.
Total Planned Budget
Total planned budget (TB) = 100 portraits * $ 500 = $ 50,000
Daily planned production is another term that is used in project budgeting. It refers to the amount of work the project manager schedules and expects to be done on a single day in the project (Anwarsyah and Ahyudanari, 2019). The daily planned production is gotten by dividing the number of portraits by the number of days that the whole project is expected to run hence getting the number of portraits produced in a single day (Santoso and Sulistio, 2020).
Daily planned production = 100 portraits /200 days = 0.5 portraits/ day
Daily planned budget in earned value management refers to the amount of money planned to be done on a single day of the project (Sudiarsa et al., 2018). In the given case study, it will be calculated by dividing the total budget of the project by the number of days that the project is supposed to last (Mahmoudi et al., 2019).
Daily planned production = $50,000/200 = $250 = 0.5 portrait/day *$500 = $250
Planned Value
In our case study, Tony’s plan calls for 0.5portraits/day * 50 days = 25 portraits already finished. The total cost for those portraits is 25*$500 = $12,500. This is the planned value of the given case study (Netto et al., 2020). This means that if Tony’s plan works as scheduled, in the 50 days, he would have completed 25 portraits and, in return, earned $12,500.
Earned Value
In this case study, the given contract price was $500 per portrait where Tony managed to complete 21 portraits in 50 days. 21 * $500 = $10500. This amount is the budget cost for the work performed, otherwise called the earned value (EV).
Actual Cost
Tony’s given amount of money on the 21 completed portraits was $11,400. The amount is known as the actual cost of the already done work.
Actual cost = $542.86 * 21 portraits = $11400
Variance in the Project
Cost variance (CV) = Earned Value – Actual Cost = $10,500 – $11,400 = -$900
Schedule Variance (SV) = Earned value – Planned Value = $10,500 – $12,500 = -$2,000
Schedule variance in days (SV, days) = SV ($) /Daily planned Budget = $2, 000 / $250 = 8days
Cost performance index (CPI) = Earned Value / Actual Cost = $10,500 / 12,500 = 0.84
Forecasted Cost Variance (FCV) = Cost variance / % complete = 900 / 0.21 = $4,286
Forecasted Schedule Variance (FSV) = Schedule variance (days) / % complete = 8/ 0.21 = 38.1 days.
Summary
Several conclusions can be drawn from the above data. The first one is that the artist is 8 days behind the planned performance schedule. The project is also 21% complete, having exceeded the planned cost by $900. If Tony continues the work at the current work rate, it will be 38 days late from the planned completion time. Finally, With the given variation between the initial plan and the actual work rate, the corrective measure should be put in place to speed up the pace of work.
Reference List
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