EV Calculation for Project Management.  Scroll down for more detail.

 

 

Earned Value is a calculation describing the monetary value you get from working on tasks.  For each hour employees enter into timesheet tasks, value is slowly earned toward them.  The calculation is based on the estimated duration and percentage complete.  It uses a client billing rate or internal dollar rate multiplied by timesheet hours.

Regardless of whether you bill clients for service time, or you are developing a product, or manufacturing something, you are earning value in each task your employees enter timesheet hours for.  Each task has an estimated duration.  As you clock time to them, you are contributing to the "actual work" field in each task.  Duration minus actual work equals remaining work.  Actual work divided by duration is also the percent complete.  Actual work times client rate equals earned value, which we label "Cost client actual."  These values are all displayed in the product, and available for administrators and privileged users to view.

Why is this valuable?  For consultants, the answer is obvious.  They can bill those costs directly to clients who have agreed to pay.  Even if the invoices are not yet written or paid, the monies will eventually arrive.  There is a direct link from hours worked to Accounts Receivables.

Manufacturing and project development is a less direct, but equivalent story.  Hours spent on engineering will eventually yield revenue.  Problem is, companies must go through marketing and sales channels before revenue arrives.  Nevertheless, engineering departments are paid from a budget derived from revenue, and they earn their budgets one task at a time.  So calculating the earned value on every project and every task is a nice way to show the source of budget monies.

In any case, earned value is directly derived from timesheet hours.  Every employee contributes hours, and that monetary value is available for review and scrutiny.

Also see: Video: Budgeting, Video: Future Billing Rates

 

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