Earned Value (EV)
Earned Value (EV) is an element of earned value management. Earned Value is the value of the work actually completed to date. If the project is terminated today, Earned Value will show you the value that the project has produced.
As per the PMBOK Guide, “Earned Value (EV) is the value of work performed expressed in terms of the approved budget assigned to that work for an activity or WBS component.”
Although all three elements have their own significance, Earned Value is more useful because it shows you how much value you have earned from the money you have spent to date.
Earned Value is also known as the Budgeted Cost of Work Performed (BCWP).
There is a difference between Planned Value and Earned Value. Planned Value shows you how much value you have planned to earn in a given time, while Earned Value shows you how much value you have actually earned on the project.
The Formula for Earned Value (EV)
The formula to calculate Earned Value is also simple. Take the actual percentage of the completed work and multiply it by the project budget and you will get the Earned Value.
Earned Value = % of completed work X BAC (Budget at Completion).
Example of Earned Value (EV)
You have a project to be completed in 12 months. The budget of the project is 100,000 USD. Six months have passed and 60,000 USD has been spent. On closer review, you find that only 40% of the work has been completed so far.
What is the project’s Earned Value (EV)?
In the above question, you can clearly see that only 40% of the work is actually completed, and the definition of Earned Value states that it is the value of the project that has been earned.
Earned Value = 40% of the value of total work
= 40% of BAC
= 40% of 100,000
= 0.4 X 100,000
= 40,000 USD
Therefore, the project’s Earned Value (EV) is 40,000 USD.
Application of Earned Value (EV)
Earned Value is used to calculate Schedule Variance, Cost Variance, Schedule Performance Index, Cost Performance Index, Estimate at Completion, and To Complete Performance Index.