Earned value analysis

Comparing budget and actual costs of a project may not be always clear. Consider the following example.

At a certain date, you notice that only 50% of what you had planned to spend has actually been spent. This may appear to be good news, but is it still good news if only 30% of the work has actually been completed? In that case, it seems that you have spent more than expected. How can progress and cost evaluations be combined?

Earned value analysis helps project managers to measure project progress and cost performance. It is used to find variances between the work performed and work planned, budget costs and actual expenditures and provides quantitative data for project decision making, to help cost and schedule management.

Earned value concepts were developed by the US Government’s Department of Defense to track its programmes during the 1960s (NASA, 1997). Since 2005, it has been a part of general US federal project risk management, and is now a mandatory requirement of the US government. The US Government’s Office of Management and Budget (OMB, 2006) promotes its use as a preferred performance-based management system to manage software projects. It is also used in the private sector by companies in a variety of industries, consulting firms and educational establishments.

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Business Fundamentals: Project Management

The Open University