How to Calculate the Earned Value

The Earned Value is the central key figure in Earned Value Management and serves as the basis for calculating the other EVM performance indicators.

The Earned Value is easiest to equate with the physical progress of the project. As the term already explains, something was earned through a certain effort. The Earned Value can be defined as follows:

The Earned value is the value of the performed work at a certain time, based on the planned (budgeted) value for this work.

The Earned Value is the measure of “earned budget.” Did we “earn” our planned budget? We only know the answer if we measure “Value” in units other than money. This is the physical progress of the solution or product with its effectiveness or performance and the other capabilities it should have at a specific reporting date.

Work Progress and Work Performance

To determine the Earned Value of the project or a work package, various methods are used. These methods are based either on objective criteria or on subjective estimates. The significance of the Earned Value is determined to a large extent by the Earned Value method used.

The Earned Value Methods described in this book are used by the DoD (U.S. Department of Defense), DOE (U.S Department of Energy) and by other well-known Anglo-Saxon companies in the defense industry and in large engineering companies for many years. In recent years, however, they are applied more and more in several industries worldwide.

The Evaluation of Work Performance

The percentage of completion indicates the extent to which work has been completed in percentage terms, while the Earned Value indicates it in absolute terms, e.g., in Dollars, based on the Planned Value of this work.

The percentage of completion is the most important measure for determining the Earned Value, and all calculations, key figures, and forecasts in Earned Value Management are based on it.

The main question is, after all, how a partial effort is to be quantitatively evaluated. Therefore, time expenditure, cost expenditure, work expenditure, amount of data, amount of material or even just the individual estimate are used as criteria. The latter often leads to the so-called 90% syndrome, which we will discuss later.

Since the degree of completion often cannot be determined exactly, or the effort for it is too large, estimation methods are used for it. Widely used methods for this are the three rough estimation methods 0/100-, 20/80- and the 50/50-Earned Value method. You will learn more about these methods on the following pages. If your project planning is sufficiently detailed, it does not matter which method you use to determine the percentage of completion.

The decisive factor for the meaningfulness is the technically correct division of the project into work packages that can be monitored, i.e. that do not take too long.

The determination of work package performance is a challenge for many project managers and work package managers:

• The remaining effort is often greatly underestimated.
• The already completed work is often overrated.
• Future difficulties are not recognized or suppressed.
• Already occurred deadline overruns are played down.
• Urging by the project manager affects the “realism” of the project team member.
• Not infrequently, for a remaining effort of 10% up to 40% of the development time is required.

Estimating the stage of completion is particularly difficult in the development of software products, since software is an intangible product.

Read more about the Earned Value Methods to Evaluate Work Performance

Find More Details About How to Calculate the Earned Value in This Book