hi guys in today's video we will take a look at the earned value management if
you are new to the project management or if you are preparing for your PMP exam
you may be intimidated by the different formulas and the terms associated with
the earned value management or the calculations well today I'm going to
attempt to simplify the earned value management for you by the end of this
video you will have a good basic understanding of what earned value
management is how to apply the formulas if you are preparing for the PMP exam in
simple terms earned value management or the metrics used in the earned value
management calculations are indicators to the p.m. to understand if the project
is on track or off track
hey welcome back so if you don't know me I'm Nikhil a PMP and CSM certified
project management professional on this channel we go through different examples
of Emma's project JIRA agile and all project management related stuff so if
that is something that interests you then consider subscribing I'm gonna walk
you through the EVM process the earned value management process
through a simple example so we will take a project of painting a room with four
walls and let's say each wall take one day to complete that means exactly 25
percentage of work for one wall so all four walls will make it 100 percent
and on day one we will keep the cost and the schedule as planned
that means we plan for 25% completion of the overall work which is one wall and
one day and we will keep it at that so that you can see how the formulas look
on day 2 we will make adjustment in a way that the planned work is not
complete instead of 25 percent so the planned work is only completed at 15
percent so at that point we are behind schedule and you can notice what happens
with the own value formulas on day three we will make up for the day two lack of
completion and we will spend some time additional and that will impact the cost
and also we will add some cash advancement from day four into day three
so that you can see the overspending amount in the budget and how that
reflects in the earned value management formula and on day four we will bring
all the scheduled work as planned and it will all match and the cost will have a
variance because we overspend on day three so that's the example that I'm
gonna walk you through just wanted to give a high-level overview of what I am
planning through and I'm gonna take you to the tablet and walk you through the
example I just explained bear with me as I walk
you through the example because it's time-consuming but I think it will all
make sense in the end all right so let's jump into that all right so now let's
take a quick example of painting a wall I have a project it is to paint a room
roughly $100 per wall so that's a very project and let's say the budget is 400
or the scheduled plan is four days the project need to be done in four days all
right so let's draw the wall each wall is gonna cost us $100 so
that's our land value so total we have 400 at the bottom I have put in the
cable I think the only thing that we can fill in now is the planned value because
we already planned all the project cost for day one is gonna be $100 we have to
pay that and then cause for the day too and so if you look at cumulative on day
end of day two we would a additional hundred so that will add up to as 200
and on day three additional $100 so that will add up to $300 and on day four
additional $100 so that adds up to four hunt
so from a schedule perspective on day one we have one and then on day two the
schedule is gonna be two because two days three and four so that's the
planned value now time being earned value and actual cost we are not gonna
be able to fill it because it's gonna happen as we complete each day's worth
of work so let's say be a painting red color wall so we started painting on day
one the painter was very efficient and he completed painting the first wall as
planned on day one so how do we calculate earned value is
you know this one day is 25% of the total effort right because we have four
days so the Earned value is he completed the work as planned so the 25% into four
days which is our total duration so earned value from a scheduled
perspective it's one day and earned value from a cost
perspective based Beauty reporting out 25% completion so 25% of the total
budget $400 so that is again $100 it remains a dual
and cost perspective that's where we are this just means that we completed the
task as planned so you can we apply the formula you'll notice what this each of
this indicator tells you so earned value on day one for cost is $100 so we're
gonna put that and for my schedule it's one actual cost how much it will be paid
we paid him $100 so it's gonna be hundred actual cause it's not applicable
for scheduled so na now let's look at each of the formulas here cost variance
is EB minus AC so EB is here and this is AC and this is DB so CV is EB minus AC
for cause so EB or cost is 100 so 100 minus actual cost we paid him hundreds
100 minus 100 is 0 and from a scheduled perspective its EB minus PV so EB for my
scheduled perspective is one day to be in this column one minus one is equal to
zero so that's from a scheduled perspective so as you can clearly see
from here itself the CV and s be the cost variance and the schedule variance
is at zero that means it's telling us zero means we are on target CV or SV is
equal to zero then we are on track negative then we are behind track and if
it is positive then we are ahead so it's easy to understand this simple example
but in real-world complex project you will not be able to tell just by looking
at the plan you have to apply this formula to understand if you are ahead
or behind even we kept it simple now let's move on to day 2 where we add in
some flavor real time where things are not getting done
planned so let's say on day two paint started painting and the end of day two
we were only able to finish additional 15 percentage of work 25 percentage on
day 1 plus 15 percentage on day 2 is 40 percentage does that make sense because
we only painted 15 percentage of the wall on day 2 so 25 percent in day 1 and
15 percent in day 2 that adds up to 40 percent completion apply that to cost
then we are applying 40 percentage to the total budget that is 160 dollar so
that's our earned value for day 2 and from a scheduled perspective we are
applying the same 40 percentage into 4 days that is one point six days from
earned value from this is for cause and the bottom s was video it's that simple
we have to know the earned value like how much we kind of completed right
based on the percentage of completion and that gives us the Earned value so
now we apply the same numbers on to our table below so on day two the cost is
$200 and that's what we planned for but the earned value from here we can
say it's 160 so now you will notice a difference that's gonna show up in CV
and SV all right now from a scheduled perspective the Earned value is 1.6 ok
now look at the actual cost how much are we gonna pay to the painter for day 2 we
already paid $100 on day 1 now on day 2 we are looking at the completed job and
said since you completed only 15 percentage today and overall 40
percentage of total $400 that comes to 160 so we paid hundred yesterday we are
gonna pay you $60 so add the actual cost as dollar 60 and because it's cumulative
then yesterday's hundred dollar then that becomes one hundred and sixty
I'm gonna add this as 160 because it's hundred from mr. day and 60 from day two
now look at the cost variance there is no cost variance because if you apply
the formula here it says earned value which is 160 minus actual cost is also
160 so look at this and this point we are saying well we don't have any cost
variance which is true because we if we paid him be a more an hundred dollar
like a fixed budget or fixed cost project then we will have a cost
variance in this case we don't have a cost variance because we are only paying
for the work completed so as of now there is no cost variance because we
didn't pay for the incomplete work so cost variance is zero a dual variance is
EB minus EB earned value for schedule is one point six so we're gonna say evey is
one point six - planned value and the planned value is 2 because this is end
of 2nd day so that is minus 0.4 now clearly a negative indication in
schedule variance tells you that the project is behind schedule so that's how
these indicators are helpful in this scenario there is no cost variance
because we are only paying him for the completion of work in day three so he
started from the pending work here so he started pending that and he completed
the third wall also he completed the remainder from the second day and he
finished the third for day three earned value yesterday we completed 40% age and
today we completed the reminder ten percentage from yesterday and 25% here
so we finished 35 percentage of additional work so we are reporting out
the status as we completed 75 percentage this is other report on the progress so
so we apply 75 percentage into the total budget of 400
is $300 and from a dual perspective we are applying 75 percentage of all days
that is three days we are supposed to pay him yesterday's remaining work ten
percentage of $400 $40 and today is hundreds the 140 we had to be on day
three and we already paid cumulative up to yesterday 160 so that adds up to
dollar 300 so ideally it would be paying $300 on my end of day three but let's
say he asked for or any cash advance and said you know you know what I know I'll
complete on day four so can you give me 50 percent of pay for amount right now
and let's say be agreed for whatever reason so that would be you know we
should have idly paid 160 plus 140 but we also paid additional 50 as advance so
that will be three hundred and fifty let's say on day three we paid him three
hundred and fifty actual payment from a scheduled perspective the earned value
is 3 because we completed so actual cost is not relevant for schedule so now
let's apply the formula the cost variance is Evie - AC so in this case
Evie is 300 and the actual cost is minus 350 so we are minus 50 minus 50 from a
scheduled perspective earned value is 3 minus 3 it's zero so we are back on
schedule but we have now an issue with the cost because we paid $50 in advance
so now if you look at the formulas for cost variance here negative is we have
behind or over budget and ahead is under budget alright so I think that's a
simple example the whole point is you have to apply the Earned value
percentage based on the completion so if you have completed 50 percent of the
task and you apply that 50 percent to overall budget and over
time and you get the earned value and the planned value is you already know
that because you planned for it so you take the difference between the earned
and the planned value and that's how you arrive at okay now let's move to day
four and let's say here we completed additional ending for one more wall and
I'm gonna scroll down to two page so on day four what happens is we have earned
value it calculating the earned value we are at 100% completion so that is $400
and for me that's from a cost perspective and also hundred percent
complete that is four days from a scheduled perspective so if you apply
that here on day four the cost it's gonna be earned value is four hundred
from here so that's that and then the ado was its or actual cost so far we
paid him 350 in a three we paid 350 so we're gonna pay additional one hundred
you know just for the example reason so now the cost is now at 450 and schedule
variance is nothing cost variance is Evie - ACS its 400 - 450 so we are it -
50 I'm gonna reduce that so we are it - 50 again and add cost variance of - 50
tells us that we are over budget because we paid on day one a one we paid him
hundred on day two we paid him 60 on day three we paid him hundred and forty
because a forty dollar from day two and hundred dollar for his work and here we
also paid him a cash advance of 50 so we paid him hundred and ninety in total on
day four $400 so if we add up all this we paid him
four hundred and fifty our budget was four hundred so here we are over budget
so that's a simple example and how these indicators help you understand whether
your project is on track or tract and the cost performance index and
the schedule performance index is just dividing the same numbers instead of
subtracting it if it is one if your result is one then we are on track and
if it is less than 1 then we are behind track or behind schedule and over budget
and if it is greater than 1 then we are ahead of schedule and we are under
budget so that's the only difference so these indicators help you tell the
story of the project in a simple example like this even without applying the
formula you would be able to tell that you're ahead or behind schedule or if
you're under or over budget but when the projects are large hailed and without
this indicators it won't help you to understand if you are on track or not so
that's where these own value formulas help you I hope that kind of helps you
to understand what this formulas and what each means in value and value and
what what need to be made sense of applying this formula and all that so I
think it will jump back to the desk
all right so hope that all made sense if you like this video consider subscribing
to this channel and share with your friends and families who are interested
in this kind of topics and I hope in some way or form this video helped you
to understand the earned value management and the calculations in the
future videos we'll take a look at how to apply this into the project
management tools like MS Project angira and how it all correlates to the same
example alright that's all for me for today signing off and see you in the
next one take care bye