Anecdotal version: “You have a project with a budget of $1,000 that is 80% complete but you’ve only spent $600 of your budget on it so far. That’s one healthy project! We should do this more often!”
Earned Value Management (EVM) is a tool that can help the creative agency get a quick look at the overall health of a project. I want to review a couple of the key concepts of EVM and apply it to a health check that can be performed on a project over time to give the creative agency project manager a useful report to check on a project’s health.
The EVM system consists of a series of Key Performance Indicators (KPI) that produce objective analysis of projects throughout their life cycles. There is one indicator in particular that I will focus on for the project health check, the Cost Performance Index (CPI). The CPI is a ratio that looks at the cost efficiency of a project. To get this ratio we will need to track a few things on a project:
- We need to know the Planned Value (PV)
- This is essentially the budget of the project
- We will also need to know the Actual Cost (AC)
- This is all the project costs to date (including orders)
Formula for Earned ValueThese two things will get us to the Earned Value (EV) of a project. We get to earned value by multiplying the project budget by the Percent Complete (PC).
|EV = PV * PC|
|$1,000 * .8 = $800|
The percent complete is derived from users marking their tasks complete on a project. That can always be a little difficult with creatives. However without it, the whole KPI metric evaluation falls to pieces.
Formula for Cost Performance Index
The Earned Value gives the creative project manager the tools to measure the effort put into completing a project and it opens up the ratio of the project CPI. A project’s CPI is calculated by dividing the Earned Value (EV) by the Actual Cost (AC):
|CPI = EV / AC|
|$800 / $600 = 1.33|
The CPI is valuable because it tells you the efficiency of your work. We are looking for a value of over one. One would be on track, anything over is a measure of your agency’s efficiency. The creative project manager can use this tool to evaluate a portfolio of projects at a glance to see which are in need of attention, thus helping in resource allocation and budget planning.
Calculations used in the graphic above
|PV = $1,000|
|PC = 80%|
|EV = $800|
|AC = $600|
|CPI = 1.33|
So, is this news to you? Too nerdy? Too many acronyms (TMA)? Let me know by leaving a comment.