4.3

## The Open University

Skip to 0 minutes and 1 secondSPEAKER: This video will show how earned value management can be used to track the progress of a project. Because it combines the key variables of cost, time, and scope, earned value management helps us to understand whether we are slipping behind schedule or we are spending more than we planned.

Skip to 0 minutes and 23 secondsThis line is known as the planned value. This is what you expected to spend on all the tasks that were due to be completed by this date. This is also called the budget cost of work scheduled.

Skip to 0 minutes and 39 secondsAs a project progresses, the costs are paid out gradually. This is called the actual cost of work planned. These costs could be higher or lower than what we had planned on spending. Looking at the project, it would seem that we are spending less than we planned. It could be that we have been very efficient or it could be that the project is running late. We need to compare the actual costs with budgeted costs. Because we know what work has been performed, we can use our budget plan to work out how much we had expected to spend on the work that has been completed. This is also known as the budget cost of work performed or the earned value curve.

Skip to 1 minute and 24 secondsWe can use this data to tell us if we are sticking to our schedule or are not sticking to our budget. To find out if we are on schedule, we need to look at the difference between the planned value and the earned value. This difference is known as the schedule variance. The schedule variance tells us if we have done all the activities planned by that date and have spent the appropriate budget. If we have, then there is no variance and we are on schedule while if the schedule variance is negative, then we are running behind schedule. Earned value management can also show if we are going under or over budget.

Skip to 2 minutes and 5 secondsThe difference between the earned value curve and the actual spending curve is called the cost variance. This tells us how much we have stuck to our budget so far. If the cost variance is zero, then we have spent exactly what we had planned while if the cost variance is negative, we are spending more than we planned.

# What is the earned value of a project?

This video introduces you to the concept of earned value, showing a graph that combines the budget costs, the actual costs and the earned value.

Earned value is the budget cost of the activities that have actually been performed in a project at a certain date.

The difference between the earned value and the budget costs of the work planned is called the schedule variance. The difference between the earned value and the actual costs at a certain date is called the cost variance.

In the next step, you’ll look at how you can perform an earned value analysis.