There are two main control variables available to the Project Manager during the course of a project: hours and progress. These two variables enable us to apply Earned Value Management principles and thus gain insight into project performance at any time.
The “hours” variable is used to build a connection between project time and costs, both in terms of estimates and real values. Time and cost move together; “time is money”. Using “hours”, a Project Manager plans his or her entire project and calculates the time needed to complete it, as well as the resulting costs.
We should be clear that more work time does not equal more progress in a project, and a good Project Manager should be fully aware of certain concepts regarding types of hours:
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Budgeted hours: this represent the number of hours available for completing the project. This will lead to certain costs that the Project Manager can stipulate.
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Estimated hours: once the project is defined on a task level (with a schedule and time estimates, as well as a selection of resources involved), hours can then be assigned to users. An estimate will be made of the number of hours needed by each user to complete the task; in other words, the number of hours considered appropriate to complete the activity. Each user will have a cost per hour assigned to their professional category so that their assigned effort will be reflected in an estimated cost.
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Real hours: the number of hours effectively worked can be obtained at any point during the course of the project and reported by the project team members. Based on their individual cost, the real cost of the resources at any time can also be obtained.
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Accepted hours: the hours reported by users can be accepted or corrected manually by the Project Manager. It may therefore be the case that the real cost does not fully depend on the reported hours but also on whether they are accepted by the Project Manager.
The Earned Value Method (EVM) is used to measure progress on project completion in an objective fashion. This combines three vitally important aspects in the completion of a project: technical (compliance with the planned work); costs (whether more or less is spent than originally planned); and deadline (whether the project is ahead or behind schedule). The components of this are described below:
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Earned Value (EV): the progress on activities planned at the start of the project at any given time is determined. This gives rise to another series of data that is referred to as Earned Value (EV), indicating the progress made to date.
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Planned Value (PV): the detailed planning of the project indicates what is going to be done and on what dates, as well as how much it was thought it will cost (both in personal and material effort). These values are known as the Planned Value, which is nothing more than a budget spread. The total Planned Value is usually called the Budget at Completion (BAC).
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Actual Cost (AC): the cost incurred by the work carried out on a task during a period. This reflects the total cost to date in relation to the work completed. For a project to fall within estimated parameters, it would need to correspond to what was budgeted for the PV and measured by the EV.
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Analysis of Earned Value
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Cost Variance (CV): CV = EV-AC
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Schedule Variance (SV): SV = EV-PV
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Cost Performance Index (CPI): CPI = EV/AC
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Schedule Performance Index (SPI): SPI = EV/PV
As Project Manager, you should follow the advice of Benjamin Franklin in the 18th Century and “remember that time is money”. Do not forget to apply the best practices in Earned Value Management and thus monitor the status of your projects relatively easily and simply, being this the perfect time as well to get a good tool of project management, that aloud us to make our work more easy.