This is one part of the Control phase that is unique to projects. It is also questioned on the examination, so it is a good idea to know it well. Having taught this concept for many classes, I find that if you can get the general concept, it is fairly easy to understand and use the various formulas for earned value. Understand that this concept is project-oriented and that if you discuss it with the accounting department at your firm, they will often look at you with glazed eyes, or even worse, with a slightly demeaning smile. Earned value is not taught in standard accounting, and the concepts, although simple, are not a part of the vocabulary of an accountant. Let us go gently into the good night that is earned value.
When you do standard corporate accounting, for the most part you look at one year at a time. This becomes the grade card against which the company is measured and the standard by which the managers are analyzed and compensated. When you do a project that takes a six-month period or a fourteen-month period, the way you analyze and control the information about the project changes.
Earned value analysis is simply the analysis of what has actually been done so far on the project. Think of a six-month project. You are now at the end of the third month. By looking at the plan, you will see how far along you should be at this point. You will also see how much money you were supposed to have spent by the end of the third month.
All you do is measure what was in the plan against what you actually have done at the end of the third month. If you were scheduled to be 50% done with all your tasks by the end of the third month and you find that you are only 45% done, then you are behind the original schedule. If you were to have spent 55% of the funds for the project by the end of the third month and you have only spent 50% of the funds, you are under the budget at this time. There are formulas to explain these calculations.
Two sets of acronyms are used on the exam. The old ones were used through the 1996 edition of the PMBOK, and the new ones came out with the 2000 edition of the same book and are used in the 3rd edition. Most people, myself included, think that the new acronyms are much easier to use. (On the exam, both sets are shown at the same time.) They are easy to comprehend. Here are the acronyms.
EV=Earned Value. This is the value of the work on the project that is actually completed. The old acronym was BCWP, or Budgeted Cost of Work Performed. EV and BCWP mean the same thing.