Abstract
As a risk control tool, earned value analysis is crucial for identifying risky trends in the budget or schedule of a project. This tool relies on earned value management, a method for calculating cost and schedule variances. However, this method does not take into account the time value of money. This in itself is a threat that could lead to misleading data and eventually wrong decisions. This paper explores the risk management process, the earned value management method, and proposes a methodology that compliments the earned value management method with net present value calculations. This will allow project managers to take sound decisions based on more accurate information.
Highlights
The Project Management Institute (PMI) divides project management into ten knowledge areas, one of which is project risk management
One of the tools used in controlling risk is the earned value analysis, which analyses the variances in the budget and schedule of a project and identifies future trends based on the current performance
Looking back at figure 2, do the Planned Value (PV), the Earned Value (EV) and the Actual Cost (AC) belong to the same period? The answer is no because the PV was estimated during time 0, while EV and AC were obtained during time period 12
Summary
The Project Management Institute (PMI) divides project management into ten knowledge areas, one of which is project risk management. - Risk identification - Risk assessment: qualitative and/or quantitative assessment - Risk response planning - Risk control. Another important aspect of project management involves tracking, monitoring and controlling project progress through the schedule and budget. This is done through earned value analysis. In addition to its importance as a progress control tool, the earned value analysis may be considered as a risk control tool. This paper will briefly cover the risk management process and introduce an evolved earned value analysis that would contribute to the mitigation of project risks
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