How to Determine a Task’s Earned Value
The key to a meaningful EVM (earned value management) analysis lies in the accuracy of your estimates of earned value (EV). To determine EV, you must estimate how much of a task you’ve completed to date and how much of the task’s total budget you planned to spend for the amount of work you’ve performed
If you assume that the amount of a task’s total budget that should be spent to complete a portion of the task is directly proportional to the amount of the task completed, you should spend 60 percent of the total task budget to complete 60 percent of the task.
For tasks with separate components, like printing brochures or conducting telephone surveys, determining how much of a task you’ve completed is straightforward. However, if your task entails an integrated work or thought process with no easily divisible parts (such as designing the brochure), the best you can do is make an educated guess.
To estimate the EV in your project, you can use one of the three following approaches:
Percent-complete method: EV is the product of the fraction representing the amount of an activity that has been completed and the total budget for the activity.
This method is potentially the most accurate if you correctly determine the fraction of the activity you have completed. However, because that estimate depends on your subjective judgment, this approach is also most vulnerable to errors or purposeful manipulation.
Milestone method: EV is zero until you complete the activity, and it’s 100 percent of the total activity budget after you complete it.
The milestone method is the most conservative and the least accurate. You expect to spend some money while you’re working on the task. However, this method doesn’t allow you to declare EV greater than $0 until you’ve completed the entire activity. Therefore, you’ll always appear over budget while you perform the activity.
50/50 method: EV is zero before you start the activity, 50 percent of the total activity budget after you start it, and 100 percent of the activity budget after you finish the activity.
The 50/50 method is a closer approximation to reality than the milestone method because you can declare an EV greater than $0 while you perform the task. However, this approximation can inadvertently mask overspending.
Choosing which of the three methods to use for your project requires that you weigh the potential for accuracy against the possibility of subjective data resulting in misleading conclusions.
This figure compares the accuracy of the three different methods for a simple example. Task 1.2 has three subtasks: 1.2.1, 1.2.2, and 1.2.3. For this illustration, assume the status of each subtask is as follows:
Subtask 1.2.1 is complete.
Subtask 1.2.2 is 75 percent complete.
Subtask 1.2.3 is 20 percent complete.
The EV of Task 1.2 is the sum of the EVs for each of the three subtasks that comprise Task 1.2. According to the percent-complete method, the actual EV should be $31,000. (Remember, you can use this method only if you can accurately estimate the percentage of the entire task that you’ve completed.) According to the milestone method, the actual EV is $10,000, and, according to the 50/50 method, it’s $35,000.
When you use either the 50/50 method or the milestone method, improve the accuracy of your EV estimates by defining your lowest-level activities to be relatively short, usually completed in two weeks or less. When you determine activity status for your progress assessments, most activities will not have started or will be finished, thereby increasing the accuracy of your EV estimates.