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Earned Value Management (EVM) is a project management technique used to track and measure the progress and performance of a project in terms of cost, schedule, and scope. It provides a way to assess the project's performance against its planned objectives, and it is commonly used in project management to gain insight into the project's health and make data-driven decisions.
Rather than directly comparing actuals to estimates to calculate variance, EVM counts quantities consumed to approximate actuals, long before accounting actuals are ready. This methodology allows contractors to see in real-time when a project’s earned value diverges from its planned value.
EVM uses three key elements to measure a project's performance:
Planned Value (PV): Also known as Budgeted Cost of Work Scheduled (BCWS), PV represents the value of the work that was planned to be completed at a given point in time, based on the project's budget and schedule.
Earned Value (EV): Also known as Budgeted Cost of Work Performed (BCWP), EV represents the value of the work that has actually been completed and verified as meeting the project's objectives at a given point in time. It is typically expressed in the same units as PV.
Actual Cost (AC): Also known as Actual Cost of Work Performed (ACWP), AC represents the actual cost incurred to complete the work that has been performed at a given point in time.
The distinction between EV and AC can be a bit hazy at first. EV represents the value of the work that has been accomplished, while AC represents the actual cost incurred to complete that work. EV provides a measure of the project's progress, while AC provides a measure of the actual cost expenditure. By comparing EV with AC, project managers can assess the cost efficiency of the project and determine if the project is on track in terms of cost performance. If EV is greater than AC, it indicates that the project is performing better than planned, while if EV is less than AC, it may indicate that the project is experiencing cost overruns.
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