Importance Of Earned Value Management & Forecasting
Earned Value Management is a technique which helps us to measure and assess the project's progress and performance
. It provides valuable information to the management and the clients about the current status, progress and performance on regular basis.
Earned Value Management has great importance because it provides health of the project to higher stakeholders and allows them to take preventive or corrective action in early stage to complete the project successfully.
In the same way forecasting helps project management team to find approximate estimated value of money required to complete the project, and approximate estimated value of money needed to complete the remaining work.
These analyses give answers to following questions:
What is the current status of the project?
How much is the progress?
How much money we have spent?
How much money we have earned?
How much will it cost to complete the project?
How much will it cost to complete the remaining work?
Are we ahead or behind the schedule?
Are we under budget or over budget?
Now, you may have understand that why Earned Value Analysis is so important.
OK, let us go into more details...
Earned Value Management: Earned Value Management has three basic elements (Earned Value, Planned Value and Actual Cost), two variances (Schedule Variance and Cost Variance) and two indexes (Schedule Performance Index and Cost Performance Index).
Three Basic Elements-
Earned Value is the value of money that you have earned till date.
Planned Value is Scheduled value of money that you should have earned till date.
Actual Cost is the amount of money that has been already spent on the project.
Two Variances-
Schedule Variance tells us in dollar terms if we are ahead of or behind the schedule.
Cost Variance gives information in terms of dollar about whether we under budget or over budget.
Two Indexes-
Schedule Performance Index tells if we are ahead or behind the schedule.
Cost Performance Index tells us if we are under budget or over budget.
Point here is to be noted that, although we get same kind of information from the variance and indexes; however, they serve the different purpose.
Variances give us the value in dollar term and indexes in ratios. If you're running only one project then variance analysis may be enough but if you're having different projects with different size then these indexes help a lot to compare the health of a project among others.
Project Forecasting: Project Forecasting has two elements; i.e. Estimate At Completion and Estimate To Complete.
Estimate At Completion refers to approximate value of money that will be spent to complete the project.
Estimate To Complete to amount of money to spend to complete the remaining work.
For example, you have a project and 30% of it has been completed. In this case, Estimate At Completion will be the amount of money to complete the 100% of project and Estimate To Complete is the amount of money to be used to complete 70% of remaining work.
This is all about Earned Value Analysis and Project Forecasting. I hope that now you've a better idea them.
by: Fahad Usmani
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