Understand earned value analysis

- [Voiceover] Earned value analysis evaluates how much a project has earned based on work that's been completed. In other words, a project earns value by completing work. Government projects typically require earned value analysis. Even if it isn't required, earned value analysis is helpful because basic project measures can be deceiving. Suppose 50% of your project's duration has come and gone, and 50% of the budget has been spent.

Sounds like things are right on track. However, if only 25% of the work is complete, you have a problem. You have to finish 75% of the work, but with only 50% of the duration and 50% of the money left. I don't know about you, but I wouldn't count on that happening. Earn value analysis can uncover problems like that because of the way it looks at work and cost over time. It presents your schedule and budget in monetary terms.

That means you see all aspects of your project's performance in the same unit. Of course, costs are already in monetary terms, but you also measure work in terms of money by calculating how much it costs for people to perform the work, Earned value analysis is based on three measures. First, you measure planned value. That's how much you plan to spend to complete the work scheduled through the status date.

You might hear it called budgeted cost of work scheduled. Let's say you estimated you would spend $5000 to work on a task up to January 12th. The planned value is $5000. Second, earned value is the amount of money you've earned by completing work. You may hear earned value called budgeted cost of work performed. If the planned labor cost for the hours your team has worked through January 12th is $3000, the earned value is $3000.

The third key measure is the actual cost for the completed work. For example, suppose you had to bring in a more expensive resource, so the labor cost is actually $3500. That's your actual cost. Looking at these values in a graph makes it easy to see whether your project is on schedule and within budget. Here's how you read an earned value graph. First, time is along the horizontal axis and cost is on the vertical axis.

Second, you want to see earned value above planned value. That means you've completed more work than you planned. In other words, the task or project is ahead of schedule. In this example, earned value is below planned value, so this project is behind schedule. Third, you want to see actual cost below earned value. That means you've actually spent less for the work you've completed than you estimated.

In this project, actual cost is above earned value so the project is also over budget. Earned value analysis includes more measures that are helpful for evaluating your project's performance. If you're interested in using earned value measures on your projects, you can research this tool in more detail.