Calculating the Earned Value of work packages is relatively easy. But how is the Earned Value of the overall project calculated? This interesting question was recently asked by a reader of my blog. This article shows how you do this and what the basics are.
Recently I got an interesting question about the calculation of the Earned Value of the whole project:
“Specifically, I’m interested in the percent complete. I can easily determine the percent complete of work packages (WP) and then calculate the Earned Value (EV). But how do I calculate the EV for the overall project? The percent complete of all work packages is probably not the sum of the percent complete of the individual work packages. Do I calculate the EV for the overall project this way: EV=BAC x percent complete of all work packages)?”
Yeah, I had to think about how to do that for a second. First, an elementary rule: With Earned Value Management, we don’t calculate with the degree of completion! This has a very subordinate role here. A few sections below you will find schematically a simple example of the 50/50 EV method in which the percent complete is irrelevant.
Earned Value Methods Instead of Percent Complete
With Earned Value Management, you primarily calculate the Earned Value of a work package. This is relatively simple. There are various Earned Value methods for this, such as:
- Percent Start/Percent Finish EV Method (Fixed Formula Method) (50/50), (25/75), (80/20); (0/100)
- Percent Complete EV Method
- Weighted Milestones EV Method
The Earned Value methods do not calculate the percentage of completion of a work package but the Earned Value (the budgeted costs of the work performed).
Example of an Earned Value Calculation Using the 50/50 EV Method
How to determine the Planned Value (PV): At the planned start of the work package, the first 50% of the BAC are credited to the PV. The second 50% are credited at the planned completion to the PV. During the entire duration the Planned Value does not increase. The Planned Value automatically takes on the value 100% if the planned end date of the work package is in the past.
How to determine the Earned Value (EV): The procedure for EV is the same as for PV. However, the effective start and end of the work package are decisive for the credit. At the effective start of the work package, the first 50% of the BAC will be credited as EV. This value does not increase during the remaining duration of the work package. When the work package is completed, the remaining 50% of the budgeted costs will be credited to the EV. The “50/50 EV Method” is essentially a compromise between the 0/100 EV Method and the estimation of the degree of completion.
Only the “Percent Complete EV Method” uses the effective percent complete in %. This method is a subjective EV method. It is also called the “Relative Method” or “Supervisor’s Estimate”. This method is used for longer work packages, but is not the preferred method for determining the Earned Value. With this method, the percentage of completion can assume any value between 0 and 100. With the “Percent complete EV Method”, the Control Account Manager or the person responsible for the work package determines the Planned Value and estimates the degree of progress of the completed work.
The advantages and disadvantages of this method are obvious. The estimates are only as good as the estimators themselves. It is well known that risks are usually underestimated and that the project team members, but also the project manager, tend to be optimists when estimating the degree of completion. Experience shows that values for the percentage of completion are therefore often estimated too high.
The Earned Value of the Overall Project
Let’s return to the actual question: How do I determine the Earned Value of the overall project? The percent complete obviously has no place here! Actually, I would not have had to write so much because the questioner has already given the answer himself. Summarize the Earned Values of all work packages of the project and you get the EV of the overall project. Summarize the BAC (Budget at Completion) of all work packages of the project and you will get the BAC of the overall project. What is now the degree of completion of the project? Exactly, you probably guessed it: Divide the sum of the Earned Values by the BAC of the overall project and you will receive the percent complete of the project. Here the percent complete comes into play again, but only at the very end.
If we take the example above and look at this as a project with five work packages, then the degree of completion would be EV/BAC=360/680=0.53 which is 53%.
It is always good to study Earned Value Management basics. If you have any questions about EVM, please contact me. I also welcome comments on this article.
What is your experience with Earned Value Management? Do you agree with my statements or do you have a different opinion? Share your experience with the readers with a commentary so that we all get to know another view. Thank you!
Would you like to learn more about how to make your projects more successful with Earned Value Management? My book “Earned Value Management – Fast Start Guide” takes you an important step further!
Do you know somebody who might be interested in this article? Then simply forward it or share it. Thank you!