What Is Earned Value In Project Management?

In this blog, we’ll dive into what Earned Value Management (EVM) is, its effects on construction projects, and the key things you need to watch out for.

What is Earned Value Management?

Earned Value Management (EVM) is a project management concept used to measure a project’s performance. It compares how much work has been completed to how much work was planned for a given time. Essentially, it helps track the progress and performance of your project.

Key Metrics in Earned Value Management

Here’s a quick breakdown of the main metrics used in EVM:

• Planned Value (PV): This is the budgeted value of work that should have been completed by a certain point.
• Earned Value (EV): This is the actual value of the work completed up to that same point.
• Actual Cost (AC): The actual cost of the work that has been completed up to that point.

How to Calculate EVM Metrics

Using the above metrics, you can now calculate several important performance indicators:

• Cost Performance Index (CPI): Earned Value ÷ Actual Cost. A CPI of less than 1 means the project is over budget.
• Schedule Performance Index (SPI): Earned Value ÷ Planned Value. An SPI of less than 1 indicates the project is behind schedule.
• Cost Variance (CV): Earned Value – Actual Cost. A positive CV means the project is under budget, while a negative CV means it is over budget.
• Schedule Variance (SV): Earned Value – Planned Value. A positive SV means the project is ahead of schedule, while a negative SV means it’s behind.

Why EVM Has Its Flaws

On paper, EVM seems like an effective way to measure project success, but there’s a significant flaw. EVM focuses on the amount of work completed and the costs associated with it, but it doesn’t account for the project’s actual capacity to handle that work. This can push projects into what’s called a “productivity spiral.”

The Freeway Analogy

Imagine a freeway. If you add more cars than the road can handle, everything slows down. Similarly, in a construction project, if you push more work than your resources can manage (crews, equipment, trade partners, etc.), everything grinds to a halt. The project duration extends and creates a vicious cycle of delays and inefficiency.

Disadvantages of Using EVM in Construction

EVM often incentivizes two harmful behaviors:

1. Ordering materials and paying for them sooner than needed, breaking just-in-time delivery principles.
2. Pushing more work earlier, crowding schedules, and encouraging rushed starts to meet EVM metrics. This rush doesn’t speed up the project but extends it due to resource overload.

Important Notes on EVM

You can’t overutilize resources without consequences. EVM encourages rushing and panicking, which increases work-in-progress and drains the capacity of your teams. This can lead to crashing projects, making delays inevitable.

Takt Planning vs. EVM

Here’s a real-world example: A project once improved its on-time completion rate from 62% to 88% by using Takt planning, which prioritizes stable production environments and pre-planning. However, after switching to a CPM and EVM-focused system, their success rate began to decline until the system was abandoned.

The Bottom Line

EVM is a flawed way to measure success in construction. It encourages rushing and resource overload, leading to delays. Instead, focus on managing a production system that prioritizes flow and stability to achieve better outcomes.

I hope this blog has helped you understand EVM, its potential pitfalls, and why prioritizing flow is crucial to a successful project.