If you run a project-centric business, chances are that you have come across the terms EVA or EVM. EVA stands for Earned Value Analysis while EVM is an acronym for Earned Value Management.
But what do these terms mean? And why should you, or your project manager, even care about them?
That is the question we plan to answer with today’s article – What is Earned Value Analysis, and why is it so important for projects?
Truth be told, cost overruns are very common in the world of projects. Sometimes it can’t be avoided – the cost of materials changed due to inflation, or the cost of labour wasn’t accurately calculated, or maybe perhaps, the project overran its estimated delivery time…. a lot can happen.
But many a time, overshooting costs happen as an oversight – simply because your project wasn’t planned (and tracked!) as well as it could be. And this is where EVA can come to your rescue.
What Is Earned Value Analysis?
EVA or Earned Value Analysis is a method that helps you measure, monitor, and track your project to both budget and time, depending on what stage of the project you’re currently at.
In simpler words, EV or Earned Value shows you a clearer picture of actual work completed against the baseline work planned at any given point of the project – telling you if you are behind schedule or shooting over budget at any given time in the project.
Why do you need it? No project manager in the world wants to be helming a disastrous project that is straying off course to both budget and timeline! EVM is a tried-and-true method that can help you bring your project back on track. A project management methodology that seamlessly integrates cost, schedule, and scope of work. EVM allows you to predict future troubles and make necessary adjustments to bring your project back on track.
EVA is a time-tested quantitative method to assess project performance by calculating any potential variances in cost and schedule from the original plan.
A point to remember: While EVA and EVM are often used interchangeably, they differ slightly. EVM uses EVA as a tool but has a larger scope. EVA essentially computes cost and time variances, while EVM goes a step further to become a project management tool that uses EVA data for both trend analysis and forecasting as well.
But we don’t want to confuse you further today!
So, for the scope of THIS article, we will talk about EVA (Earned Value Analysis) and why you need it for your project-driven business.
There will be a separate blog coming up next week, where we will discuss EVM in detail.
Why EVA Is So Important For Projects?
Let’s say you’re working on a big 5-year project with multiple deliverables. And you have a meeting with the top management today to discuss – How is the project doing?
You can’t just say, “The project is going great, but we are lagging in some areas”, or “The project might be running behind time a bit”. You need more concrete data with REAL numbers to confidently answer the question of whether the project is doing well or not.
So how do you use EVA to answer this question better?
By calculating EVA, these vague statements become a clearer picture of what is happening in the project, and what are the reasons behind the cost and time variances, should they exist.
Your latest status report might give you a mixed picture. Yes, the project is over budget, but a task planned for later has already been completed. So, does that mean you’re ahead of schedule?
If you are below budget, it could mean:
- The work completed so far has costed less than what you initially estimated
- Some of the tasks that should have already happened by this point in the project have been delayed, so their costs haven’t been factored in yet. And this can mean project delays in the future – something you need to prepare and adjust for in time.
If you are above budget already, it could mean:
- Some tasks costed more than what you estimated for them at the beginning of the project.
- Or, some tasks were completed before time, and the cost has already been factored into the budget before the scheduled time.
So, to know which one of these statements is true, EVA calculations come to the rescue.
Understanding Earned Value Analysis
So how does EVA answer the above question?
EVA helps you assess where you currently stand in terms of budget and time as compared to what was originally planned. It computes the work completed so far in the project, factors in the costs incurred for these tasks, and puts these numbers into perspective against the original budget and schedule (which is known as baseline).
You enter project metrics into a formula to get key figures that tell you more details about your actual project status – and that’s what Earned Value Analysis is all about.
We will get into these project metrics in our next article, but until then, the important thing to understand is that the two key figures EVA tells you are:
Expected Cost Difference – Also known as Variance at Completion or VAC, which tells you how much higher or lesser the project will cost in the end.
Estimated Schedule Variance – This tells you how far behind or ahead your project is compared to the original timeline.
The Two Key Benefits of Earned Value Analysis
As you can probably guess by now, computing EVA gives you two key advantages:
1. It gives you a more realistic picture of the actual status of the project
2. It helps you assess costs to foresee any budget issues or schedule problems
For this, you will use Earned Value metrics that shed more light on specific problems that may/can arise in the project to throw it off track, and that is what we will be discussing in our next article.
So, that was your introduction to Earned Value Analysis or EVA, and how it can be helpful for any project-centric business. After all, managing Costs and Time are two of the most important aspects of keeping projects on track!
Join us next week, where we will discuss Earned Value Metrics in more detail and see how they make a huge impact on project management and planning. Until then, have a good week!
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About Projects Expert
Projects Expert is the first-of-its-kind Oracle partner that specialises in Project Centric Enterprise Solutions. We aim to deliver sustainable, robust, and business-friendly Oracle solutions for Projects driven organisations.
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