Ohio State University Earned Value Management Article Journal Review Write a 2-3 page review on the attached journal article. The review should contain the journal article title, author’s name and year of publication.
Your paper should contain the following headings:
Introduction
Summary of the article
Relevant points made by the author
Critique of the article
Application of the concepts in the article
Note:You are going to review a single journal article, therefore your reference page should only contain the information from the article you reviewed. There is no need to introduce other journals into this paper. Use the APA format and intext citation is must ACTA UNIVERSITATIS DANUBIUS
Vol 13, no 2, 2017
Mathematical and Quantative Methods
The Earned Value Management – A Measurement Technique of the
Performance of the Costs and Labor in the Project
Carmen Gasparotti1, Alina Raileanu2, Eugen Rusu3
Abstract: Most of the planned projects have problems due to the cost and time overruns from different
reasons. Earned value management (EVM) is a project performance evaluation technique that has been
used in many projects from several fields, but which has been adapted to be used in project management
to objectively track the physical accomplishment of certain work. The earned value analysis offers the
possibility to manage the project performances in early stages of the project to point out the need of the
eventual corrective action. This paper aims to present the main parameters involved in the calculation
of the Earned Value Analysis (EVA) for a ballast plant on shipboard.
Keywords: Earned Value Management; Earned Value Analysis; Cost Variance; Schedule Variance;
Planned Value
JEL Classification:
1. Introduction
An important tool required to deliver the project on time is Earned Value
Management (EVM).
Earned Value Management is a project management methodology for control the
project that is based on measuring work performance. It is a system that predicts the
final cost and duration of the project by comparing the work done with that planned.
In the same time, EVM is a warning tool, based on which the project manager
identifies and controls any problem before it becomes critical, being able to exploit
the project opportunities (Eun Hong et all, 2003, p. 375).
The concept of earned value management has been first introduced as a fundamental
approach in 1966 when the United States Air Force mandated earned value in
Associate Professor, PhD, “Dunarea de Jos” University, Romania, Address: 47 Domnească Str., Galati
800008, Romania, Corresponding author: carmen.gasparotti@ugal.ro.
2 PhD, Danubius University of Galati, Romania, Address: 3 Galati Blvd., Galati 800654, Romania, Tel.:
+40372361102, E-mail: alinaraileanu@univ-danubius.ro.
3 Assistant Professor, “Dunarea de Jos” University, Romania, Address: 47 Domnească Str., Galati
800008, Romania, E-mail: erusu@ugal.ro.
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AUDŒ, Vol. 13, no. 2, pp. 234-247
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relationship with the other planning and controlling requirements on Air Force
programs (Abba, 1997, p. 58).
Regardless the field where this concept is applied, either in research and
development projects, or engineering, construction and contract administration
companies as well as large design-manufacturers such as aerospace companies, it
provides all levels of management with early visibility on cost and schedule
problems.
Nowadays EVM is used in programs from world-wide. It becames a requirement of
many U.S. Government agencies, including the Department of Defense, the National
Aeronautics and Space Administration, the Department of Energy, the Intelligence
Community, the Department of Homeland Security, the Federal Aviation
Administration and Department of Transportation, Health and Human Services, and
others (Abba, 2000).
This concept and its requirements have remained basically unchanged, although
some updates have been done regarding its title. These updates have been the
following:Cost/Schedule Control System Criteria, Earned Value Management
Systems Criteria and so on, the only purpose being to provide a formal version of
the „Earned Value” concept (Wesselius & Ververs, 1990, p. 319).
Even if there are still discussions and ongoing debates regarding its practical utility,
Earned Value is recommended for monitoring and controlling project execution. It
is a concept that must be appreciated because it shows how this performance
measurement technique can be a valuable management tool for the project.
Due to the fact that the projects do not generally achieve the required scope and they
are often late, the project performance must be managed using a logical technique
like earned value, with the expectation that the project results will soon improve
(Archibald, 2003).
EVM is regarded as a relationship between three variables that reflect the
performance of the project: budget- to see how the project fits in estimates; time- to
accomplish scope of the project and the work- to see how it was done physically and
the way by which it can measure progress (Anbari, 2003, p. 12).
In the planning phase of the project each work package within the Work Breakdown
Structure is assessed in terms of the cost estimates and the scheduling in a time
sequence. In this way it can be obtained the project cost baseline represented as a
graph of planned costs over time that represents in fact the planned value (PV). PV
is a numerical reflection of the budgeted value of the work that is scheduled to be
executed.
The project cost baseline or performance measurement baseline can be changed only
to reflect the cost changes or programming produced by changes in the project
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Vol 13, no 2, 2017
content. This guideline describes how it is supposed to evolve the project throughout
the execution period, in each programmed point. It helps the project manager to
predict when the money must be spent and in what period.
The performance measurement performed in raport with the guideline (baseline) is
shown in Figure 1.
Figure 1. Comparison between the Baseline and the Earned Value
From this perspective, this paper aims to provide an overview of the way in which
the earned value (EV) and the actual costs (AC) are calculated and compared with
the planned value (PV) in a project that refers to a ballast plant on shipboard in order
to establish conclusions on the performance of the project.
2. The Earned Value Terminology
Earned Value Management offers a set of guidelines that guide the project managers
to perform a program for cost reduction when the cost is exceeded. This can be done
either by decreasing the scope in some areas of the project or providing an additional
budget to cover the overrun cost (Mohammad, 2010).
When the time is exceeded, it may plan another program for fast tracking to reduce
the time.
This technique uses the cost, that allows the measurement in currency, hours,
worker-days, or any other similar quantity, of the values associated with project work
(EunHong, 2003, p. 375).
To evaluate the project performance Earned Value technique uses the following
project parameters such as: Planned Value (PV) or budgeted cost of work scheduled,
Earned value (EV) or budgeted cost of work performed and Actual Cost (AC) or
actual cost for work performed.
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The Earned Value method indicates the performed labor costs till a point in a project,
as well as the amount of the work already accomplished of the activity in question
(Gasparotti, 2014, p. 574).
EV of a project activity is the cost associated with that activity when the project
budget has been defined. It is determined by summing the individual value of each
activity in the project, considering fractional completion of each activity (Suketu,
2002).
To determine the actual cost AC it is required a registration system of the costs that
enables the data collection that refers to the recorded costs for labor and materials
used in the project.
The value of this cost is compared with the earned value (EV) from which resulting
the cost variance (CV).
The cost of work scheduled (PV) is used to compare the achievements with the plan.
Both PV and EV are expressed in money and measures the amount of work or the
achievements. To calculate PV it is need the following items: the estimated costs of
all activities from the tables with estimates; the date that the activities are scheduled
to begin, from the work schedule; the expenditure profile of each activity during its
performance (Kuehn, 2007).
The graph PV reported in time is drawn immediately after the costs of all activities
are estimated and it is developed a work schedule indicating when each task should
be executed.
The schedule variance (SV) results from the comparison of the works planned with
those performed, thus obtaining the difference between the outputs and the expected
values. The term used in the earned value system that measures the work done
compared to the plan expressed in financial terms. In other words, SV measures, in
money how much have progressed the works compared with the plan (Fleming,
2000, p. 212).
At the end of the project, PV reaches the agreed value for the estimated cost for the
end of the project, namely the project budget (PB), and the AC value summing the
total costs recorded in the project (Czarnigowska, 2008, p. 15).
Among the terms used for the costs control the following are important: total
estimated cost at completion (ECAC); the cost performance index (CPI), the
schedule performance index (SPI), the estimated completion date (EDC) and the cost
to complete (CTC).
The total estimated cost at completion (ECAC) can be interpreted by the project
manager, either considering that remaining works to be achieved will fit within the
values provided in the budget or remaining works will be carried out with the same
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costs recorded as in the case of the completed works by that time. Depending on the
interpretation of ECAC, this is calculated differently (Kim et all, 2003, p. 375).
The cost performance index (CPI) is not a very safe clue in the early stages of the
project, when the percentage of the completed works is small, because it is based on
insufficient data. After the execution of more than 30% of the works and later, as the
works progress and the project draws near of 100% completion, it is appropriate to
use the CPI index within the calculations (Kerzner, 1984).
The schedule performance indicator (SPI) shows if the project is carried out faster
than plan or it is lagging behind.
When the project is nearing completion, the EV approaching the PV and the SPI
value tends to 1, regardless of the project duration.
The estimated completion date ECD is determined considering two alternative
interpretations (Kwak & Anbari, 2012, p. 77).
The first interpretation is the situation when it is assumed that all the remaining
works will be carried out in the rhythm indicated by the work schedule, in which the
estimated completion date ECD is obtained by adding or subtracting of the time lag
to/from the initial date of completion, as appropriate.
The second interpretation refers to the situation when it is assumed that the work
schedule for the remaining works not fall into the same delay as the works done so
far, when the estimated completion date ECD is obtained by multiplying the initial
date with the overcome factor (Vandevoorde & Vanhoucke, 2006, p. 289).
The cost to complete (CTC) is the estimated cost of the remaining works to be
executed by the end of the project, which is the most relevant cost in the decision to
continue or not a project. When the CTC value is higher than the likely benefits that
would be achieved if the project will be continued, there is need to take the decision
to cancel the project to avoid further losses (Pajares & Lopez-Parades, 2010).
Table 1. Terms use for the cost control in Earned Value Analysis (from Suketu, 2002)
Symbol
AC
EV
PV
CPI
Name
Actual
cost
of
work
performed until a certain
moment
Budgeted cost of work
performed until a certain
moment
Budgeted cost of work
scheduled
Cost-Performance Indicator
Significance and formula
It is calculated by collecting the recorded
data as the project progresses
It is calculated by summing the value of
each work from the project taking into
account the completion percent of each
element
It is calculated by summing the value of
all scheduled works
CPI= BCWP/ACWP
CPI>1 project is under budget (saving);
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CTC
Cost to complete
CV
Cost variance
SV
ECAC
ECD
CPI=1, which is estimated =current;
CPI 1 project is ahead of programming;
SPI = 1 which is estimated = current;
SPI 0 &
>1
CV & CPI
=0 &
=1
1
In advance of the
programming and
the budget savings
=0 & =1
According to the
programming and
the budget savings
In advance of the
programming and
according to the
budget
In advance of the
programming and
over the budget
According to the
programming and
the budget
According to the
programming and
over the budget
< 0 &
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