Earned value management system, for project performance measurement
In the earned value management system, the project performance is measured by taking into account the actual cost spent for the baseline plan. It is suitable for identifying the issues relating to spending and making conclusion regarding the productive efficiency of the project team members as well as providing insights into the problems that may be occurred in the work breakdown structure. “Earned value management is a project planning, and control approach. It provides cost and schedule performance measurements. It compares actual accomplishment of scheduled work and associated cost against an integrated schedule.” (Earned value management for project performance measurement).
There are different tools available in the earned value management system for project performance measurement. They are explained below:
Cost variance: Cost variance is the measurement of difference between earned value on the performed part of the project work and the actual cost incurred for the project. In the measurement of cost variance the actual cost incurred for the project is deducted from the earned value in order to identify the cost variance incurred on a specific project. The earned value of work performed is compared with each dollar worth of work scheduled for analyzing the actual cost variance of the project. CV= EV- AC. In case of positive results it is an indication of the under-run of project cost and negative results is the indication of over-run of project cost.
Schedule variance: Schedule variance is the difference between earned value related to the project performed and the project scheduled. In this tool, the planned value of the project is deducted from the earned value for finding out the variance incurred on the schedule of the specific project. It is the difference between value of work completed and the value of work listed. SV= EV –PV. In case of positive results, it indicates the project follows projected schedule or exceeding it. In case of negative results, the project is not following the projected time schedule. It helps to assess the dollar value of the project on schedule basis.
Performance indices: There are two types of performance indices tools used in earned value management. They are as follows:
- Cost performance indices: Cost performance indices measure the cost efficiency related to a project. The value of work performed is compared with the actual, in order to assess the cost performance of the project. It is found out by dividing the earned value with the actual cost of the project. CPI = EV/ AC. In case of results less than 1.0, it is an indication of over-run of actual cost than the budgeted cost. In case of results more than1.0, it is an indication of under-run of project cost than the budgeted cost.
- Schedule performance indices: SPI is used to assess the schedule status, for estimating the date of completion, and for forecasting the project completion estimates. In this method the earned value of the project is divided by the planned value. SPI = EV/PV
Comparison of the three different tools of earned value management
The cost variance analysis is an effective tool for analyzing the cost efficiency of the project. It facilitates the project manager to apply appropriate cost control measures in the project. Thus the cost efficiency of the project can be assured by them. The schedule variance measures the efficiency of the project in terms of its schedule follow up. In case of variance of the actual schedule from the projected schedule, the project managers can assess the time for completion of the project and thus corrective measures can be taken in time. “Performance measurement is a process to measure and assess a program, operation or organization’s progress towards achieving predetermined goals (i.e., desired outcomes). A performance measurement system will get the right information to the right decision-makers at the right time and at the right cost.” (Measuring performance and ensuring sustainability: About performance measurement, 2003).
Project Performance Measurement
Performance measurement is an important idiom used in project management. It is defined differently. Performance measurement means determination of success or failure of a project. The performance measurement is also referred to as performance appraisal. It is a method by which the performance of a project is evaluated. This calculation is done on the basis of quality, quantity, cost, and time. Performance measurement is the regular analysis of the project within the organization. Performance measurement can be used as tool for providing pay increase and promotions.
Importance of project performance measurement
Performance measurement system is used to increase the stages of competition in the organization. The main aim of performance measurement is to help the decision making processes, assess the success and failure of the past, and understand how performance can be improved in future. The successful performance measurement system provides correct and supportable data, clear cut idea about the objectives and how to improve organizational objectives. It maintains progress of an organization’s processes, policies, results through feedback. A performance measurement system is an information system and it includes the quantifying the competence and success of an action. In performance measurement there is a comparison between company level factors such as goals, strategies, resources, project levels such as risks and opportunities and market level factors such as competition, demand. These factors combined together identify their performance to determine the effects of these parameters on the performance. Another purpose is to improve the performance measurement device that is possible to be used in the project construction.
References
Earned value management for project performance measurement. American Society of Civil Engineers. 2009. Web.
Measuring performance and ensuring sustainability: About performance measurement. (2003). Smart Communities. 2009. Web.