Earned Value Management Formulas

Earned value management (EVM) is a methodology that combines scope, schedule, and resourcemeasurements to assess project performance and progress. It is a commonly used method of performancemeasurement for projects. It integrates the scope baseline with the cost baseline, along with the schedulebaseline, to form the performance baseline, which helps the project management team assess and measureproject performance and progress. It is a project management technique that requires the formation of anintegrated baseline against which performance can be measured for the duration of the project. The principles of EVM can be applied to all projects in any industry.

Earned Value Management FormulasDimensionMeaningFormulaInterpretation

Schedule Variance (SV)Schedule variance (SV) is a measure of schedule performance expressed as the difference between the earned value and the planned valueSV = EV PV-ve: Behind schedule0: On schedule+ve: Ahead of schedule

Cost Vairance (CV)Cost variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost.CV = EV - AC-ve: under budget0: On budget+ve: over budget

Schedule Performance Index (SPI)The schedule performance index (SPI) is a measure of schedule efficiency expressed as the ratio of earned value to planned value. It measures how efficiently the project team is using its time.SPI = EV / PV1: Ahead of Schedule

Cost Peformance Index (CPI)The cost performance index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost. It is considered the most critical EVM metric and measures the cost efficiency for the work completed.CPI = EV / AC< 1: under cost0: on cost>1: over cost

Estimate At Completion (EAC)If the CPI is expected to be the same for the remainder of the project,EAC = BAC/CPI

If future work will be accomplished at the planned rateEAC = AC + BAC EV

If both the CPI and SPI influence the remaining work,EAC = AC + [(BAC EV)/(CPI x SPI)]

To Complete Performance Index (TCPI)The efficiency that must be maintained in order to complete on plan.TCPI = (BAC EV)/(BAC AC)< 1: easier to complete0: same to complete>1: harder to complete

The efficiency that must be maintained in order to complete the current EACTCPI = (BAC EV)/(EAC AC)

Earned Value ManagementHow many dollars we are getting . . . for the dollars we are spending. This is whatEarned Value Managementis all about.Theearnedvalue managementconcept requires that a baseline plan, called the planned value, be created. This baseline plan you create during yourEstimate Costsand Develop Schedule processes.Then performance is measured against the planned value, on any given date by checking the Project Schedule. The physical earned value performed is then related to the actual costs spent to accomplish the physical work, providing a measure of the projects true cost performance.Let us understand Earned Value Management with the following walkthrough:You have planned a project that has Activities A, B, C, D, E and F. Each activity takes one month duration (for the sake of simplicity in representation). The cost of each activity and theProject Schedulediagram is shown below.

Earned Value Management Base dataEarned Value Management has the following important dimensions.Planned valuePlanned value (PV) is the authorized budget assigned to scheduled work. It is the authorized budget planned for the work to be accomplished for an activity. Can you calculate the Planned Value of each month and towards the end of project? Its very easy. For each month, you add the estimated costs of activities. The sum total of all these planned activities cost is your total budget, also known as Budget at Completion (BAC). The following graph shows the Planned Values and BAC for our project.

Earned Value Management showing Planned ValuesAll this looks fine. What ever you have done till now is on thedrawing boardi.e. Planned. Now the project starts. During the course of the project execution, you will note that money is being spent to carry out the activities as planned. Lets look at this money spent to get the work done which is also know as Actual cost.Actual costActual cost (AC) is the realizedcost incurredfor the work performed on an activity during a specific time period. To carry out the activity, the actual money that is being spent is the Actual Cost.The real challenge comes here: the activities may consumelessorequalormoremoney than actually planned and activities may be completed inlessorequalormoreduration than actually planned isnt it?If everything goes exactly according to the plan, then Actual Cost should be equal to the planned estimate costs does this makes sense? Which means that AC = PV.From the schedule diagram and activity costs given above, lets ask few questions to ourselves: What is the planned value for A? 3000 i.e. the estimated cost. Let us assume that the actual money spent to complete A is:. 2500. What it means? A cost saving of 500. Correct?. 3000. What it means? spent exactly as planned.Life is beautiful.. 3200. What it means? 200 more is spent. More money than planned worrying factor.What are the implications when costs exceeds the planned cost?1. You might need more money to complete other activities as this activity has taken more money that it should.2. Your original planned budget i..e BAC is no longer valid. You might have to re-estimate it for the rest of the project with actuals.If you had known well in advance that USD 200 is spent more on Activity A, you might take some corrective actions. This exactly where the Earned Value management kicks in.Earned valueEarned value (EV) is a measure of work performed expressed in terms of the budget authorized for that work. It is the budget associated with the authorized work that has been completed. The EV is often used to calculate the percent complete of a project.To understand the Earned Value, lets ask few questions to ourselves. If Activity A is fully complete, how much do we earn of its planned value? 100%. If Activity A is only 30% complete, how much do we earn of its planned value? 30% Can you convert these percentages into costs? Yes. Use estimated planned cost i..e PV for this calculation. 100% completed A means you earned 3000. 30% completed A means you earned 900. If the Activity A is 100% complete and the Activity B is 50% complete, how much did we earn? 100% of A + 50% of B = 100% of 3000 + 50% of 2000 = 3000 + 1000 = 4000.Putting Earned Value Management to WorkYou are at the end of February. Your team notified that Activity A is fully complete and there is 50% work on Activity B pending. You have gathered the data aboutactual costs. The Actual Costs at the end of February are shown below.

Earned Value Management displaying Actual CostsImmediately you see that there is a concern about costs. Costs are going higher and if this trend continues, you will overrun costs. Using Earned Value Management, lets find out for the dollars we invested, how many dollars we got back.Earned Value Management provides the following Variances.TheSchedule Variance and Cost Variance values can be converted to efficiency indicators to reflect the cost and scheduleperformance of any project for comparison against all other projects or within a portfolio of projects. Thevariances are useful for determining project status using Earned Value Management.Schedule varianceSchedule variance (SV) is a measure of schedule performance expressed as the difference between the earned value and the planned value. It is the amount by which the project is ahead or behind the planned delivery date, at a given point in time. It is a measure of schedule performance on a project. It is equal to the earned value (EV) minus the planned value (PV). The EVM schedule variance is a useful metric in that it can indicate when a project is falling behind or is ahead of its baseline schedule. The EVM schedule variance will ultimately equal zero when the project is completed because all of the planned values will have been earned. Schedule variance is best used in conjunction with critical path methodology (CPM) scheduling and risk management. Equation:SV = EV PVCost varianceCost variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost. It is a measure of cost performance on a project. It is equal to the earned value (EV) minus the actual cost (AC). The cost variance at the end of the project will be the difference between the budget at completion (BAC) and the actual amount spent. The CV is particularly critical because it indicates the relationship of physical performance to the costs spent. Negative CV is often difficult for the project to recover.Equation:CV= EV AC.At our data date of February end, can you calculate EV, SV and CV? EV = % of work complete * planned cost = 100% of A + 50% of B = 100%*3000+50%*2000 = 4000 SV = EV PV = 4000 5000 = -1000 CV = EV AC = 4000 5900 = -1900The following picture has these three values. Using Earned Value Management, you are able to arrive at this conclusion:We spent $5900 to get $4000. Sounds bad, isnt it?

Earned Value Management display of PV AC and EVUsing the above information, can you predict how the future performance would be? You cant with just SV and CV. Earned Value Management provides two more indices for this:Schedule performance indexThe schedule performance index (SPI) is a measure of schedule efficiency expressed as the ratio of earned value to planned value. It measures how efficiently the project team is using its time. It is sometimes used in conjunction with the cost performance index (CPI) to forecast the final project completion estimates. An SPI value less than 1.0 indicates less work was completed than was planned. An SPI greater than 1.0 indicates that more work was completed than was planned. Since the SPI measures all project work, the performance on the critical path also needs to be analyzed to determine whether the project will finish ahead of or behind its planned finish date. The SPI is equal to the ratio of the EV to the PV. Equation:SPI = EV/PVCost performance indexThe cost performance index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost. It is considered the most critical EVM metric and measures the cost efficiency for the work completed. A CPI value of less than 1.0 indicates a cost overrun for work completed. A CPI value greater than 1.0 indicates a cost underrun of performance to date. The CPI is equal to the ratio of the EV to the AC. The indices are useful for determining project status and providing a basis for estimating project cost and schedule outcome.Equation: CPI =EV/ACAt our data date of February end, can you calculate the indexes? SPI = EV / PV = 4000 / 5000 = 0.8 CPI = EV / AC = 4000 / 5900 = 0.67For the rest of the months, lets see how much MORE or LESS we need to get this project complete.At this point of time, can you calculate how much is remaining work? i.e how much more we have to earn? Work remaining = 50% of B + 100% of C + 100% of D + 100% of E + 100% of F= 1000 + 1000 + 1500 + 2500 + 2000 = 8000= Planned Earned = BAC EV = 12000 4000 = 8000Forecasting using Earned Value ManagementForecasting is done by calculating Estimate At Complete and Estimate To Complete.Estimate At Complete (EAC):The expected total cost of completingall work expressed as the sum of the actual cost to date and the estimate to complete.1. If the CPI is expected to be the same for the remainder of the project, EAC can be calculated using:EAC = BAC/CPI= 12000 / 0.67 = 17910.442. If future work will be accomplished at the planned rate, using:EAC = AC + BAC EV =5900 + 12000 4000 = 139003. If both the CPI and SPI influence the remaining work, using:EAC = AC + [(BAC EV)/(CPI x SPI)]= 5900 + [(1200-4000)/(0.67*0.8)] = 20825.37Once you have arrived at EAC, it replaces the BAC as BAC is no longer valid.Estimate To Complete (ETC):The expected cost to finish all theremaining project work. Equation:EAC AC.It is shown below with respect to each EAC calculated above.1. EAC AC = 17910.44 5900 = 12010.442. EAC AC = 13900 5900 = 80003. EAC AC = 20825.37 5900 = 14925.37And the last forecasting index:To Complete Performance Index (TCPI): A measure of the cost performance that must be achieved with the remaining resources in order to meet a specified management goal, expressed as the ratio of the cost tofinish the outstanding work to the budget available.1. The efficiency that must be maintained in order to complete on plan.TCPI = (BAC EV)/(BAC AC) =12000-4000/12000-5900 = 1.3112. The efficiency that must be maintained in order to complete the current EAC.TCPI = (BAC EV)/(EAC AC)shown below with respect to EACs calculated above1. TCPI = 12000 4000 / 17910.44 5900 = 0.662. TCPI = 12000 4000 / 13900 5900 = 13. TCPI = 12000 4000 / 20825.37 5900 = 0.53If BAC is replaced with the EAC as BAC is no longer vaid, then you need to use the EAC for these calculations.Various Indexes and their interpretation in Earned Value ManagementLess than oneOneMore than one

SPIBehind scheduleOn scheduleAhead of schedule

CPIOver planned costOn planned costUnder planned cost

TCPIEasier to completeSame to completeHarder to complete

Please note: TCPI has opposite interpretation to SPI and CPI. Earned Value Management is an important topic for thePMPExam. If you remember the formulas used in Earned Value Management, you can easily score some questions correct.