Earned value analysis is a project evaluation tool that allows an organization to evaluate the money spent on a project, the amount of work put into the project and the value of the completed work. On the other hand, burn rate analysis evaluates the pace at which a company uses investors’ funds.
Earned Value Analysis
The earned value analysis provides an assessment of a completed project. When conducting this type of analysis, the organization will examine the efficiency of the project and the possible problem areas that arose during the completion of the project. To compute a valid analysis, the organization has to complete three performance metrics -- the cost performance index, the cost schedule index and the schedule performance index. Although this type of analysis is applicable to finance and accounting, earned value analysis originally comes from the field of project management, a field that attempts to measure performance and goal implementation in an objective and realistic way.
Depending on the company, burn rates can vary significantly. Many factors, including the cost of raw materials and the operating strategy of the organization, will influence the organization’s burn rate. The speed at which the organization starts to generate revenue from its production efforts is another factor that can influence an organization’s burn rate. Ideally, a burn rate will allow the organization to use the money invested to finance the operation until the organization can post a profit.
Burn rate analysis utilizes cross-referenced formulas. On the other hand, earned value analysis uses more traditional formulas. These traditional formulas used by earned value analysis allow organizations to obtain more time-specific and focused information than organizations that use burn rate analysis. However, if the organization does not have all the necessary cost data and information to generate this data, the organization can still use the cross-referenced burn rate formulas to evaluate projects. Both types of analysis, therefore, offer a viable mechanism to review a project’s productivity and schedule performance.
If the organization does not have all the earned value analysis components and information, the organization should use the burn rate to analyze a project’s productivity ratios. Even though the burn rate analysis is not as comprehensive as the earned value analysis, burn rate analysis can allow the project manager to proactively manage projects by examining productivity variances. This allows the organization to address resource management issues before they reach the crisis stage.
- "Performance-Based Earned Value"; Paul Solomon and Ralph Young; 2006
- "Earned Value Project Management"; Quentin W. Fleming and Joel M. Koppelman; 2006
- "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.