Here is an excerpt from Chapter 7 of my book “Software project management: A process driven approach”
Let us see an example to observe how EVM works.
Suppose we have project where schedule of the project is planned as 100 days. The budget for the project is allocated at $100,000. After elapse of 60 days, project measurements are taken. It was found that budget of $50,000 was consumed up to this point in the project. Suppose at this stage, 40 days worth of project is actually complete. But from the planned schedule, it should have been 50 days worth of project completed. So how the project is progressing?
In the identify deviations section, we have seen that in a simple scenario where project schedule and project budget are allocated linearly (project budget and schedule are consumed linearly in proportion to total budget and schedule). That means the project progress should be linear. Alas! It does not happen that way. There is no linear progression of the project in real life. It is because any project has many tasks and each of these tasks has its own volume of work to be performed at different rates over period of times. For instance, a software design task may be completed over a period of say 20 days. If the work was performed linearly then each day, percentage of work is to be completed 5% so that in 20 days 100% of the work will be completed. In reality however on some days the planned work may be 3%, 5%, 6% or could be just any other value. It all depends on availability of resources on particular days and dependency of a task on any other task. Similarly, the budget consumption is not linear. Some tasks are cheaper to be performed than some other tasks. So in a unit of time, some tasks can be performed with more volume than some other task for the same consumption of budget. So far we have discussed the non-linear behavior for planned budget and schedule. Likewise, the actual budget and schedule consumption will also be non-linear. Once we understand the non-linear relation between % completion of any task vis-à-vis completion of total task for both planned and actual progress then it will be easy to understand the concept of EVM.
Coming back to our example, we have actual cost (AC) as $50,000 and planned value (PV) as $55,000 (corresponding to the planned days of work performed up to this point). The project manager has also been tracking the earned value for the project on a weekly basis. On this basis, he has been plotting the earned value for the project as it progresses. From this figure, he has an earned value (EV) of $45,000.
Now let us do some mathematics with the figures we have.
Schedule Variance (SV) = 45000 – 55000 = – $10000
Cost Variance (CV) = 45000 -50000 = – $5000
Cost Performance Indicator (CPI) = 45000/50000 = 0.9
Schedule Performance Indicator (SPI) = 45000/55000 = 0.82
For both CPI and SPI the ideal values are 1. In the case when CPI is 1 then it means that the project budget is being consumed as per project plan. Similarly if SPI is 1 then the project schedule is progressing as per project plan. In our example, we can see that at the point of measurement, the project is lagging behind both in schedule and in budget consumption (as both are less than 1). The project manager can do well to find out why the project is lagging behind and how the project can be taken back on the right track.