Earned value management
Earned value management (EVM) answers two questions with one set of numbers: are we getting the work done that we planned, and is it costing what we planned? It compares the value of work planned, the value of work done and the cost of that work, period by period, and turns them into variances, the CPI and SPI indexes and a forecast at completion.
The three measures
| Measure | Also called | Meaning |
|---|---|---|
| Planned value (PV) | BCWS | The budget of the work scheduled to be done by a date, from the baseline. |
| Earned value (EV) | BCWP | The budget of the work actually done by that date: each activity's budget times its percent complete. |
| Actual cost (AC) | ACWP | What the work done actually cost, from timesheets, invoices and accruals. |
| Budget at completion (BAC) | The total budget: PV at the end of the baseline. |
The key idea is that EV is measured in budget dollars (or hours), not in time or spend. That puts schedule and cost performance on the same scale.
Variances, indexes and forecasts
| Name | Formula | Read it as |
|---|---|---|
| Cost variance | CV = EV − AC | Negative: the work done cost more than its budget. |
| Schedule variance | SV = EV − PV | Negative: less work done than planned by now. |
| Cost performance index | CPI = EV / AC | Value earned per dollar spent; below 1 is over cost. |
| Schedule performance index | SPI = EV / PV | Work done per unit of work planned; below 1 is behind. |
| Estimate at completion | EAC = BAC / CPI | The final cost if the cost efficiency so far continues. |
| Estimate to complete | ETC = EAC − AC | What is still to be spent. |
| Variance at completion | VAC = BAC − EAC | The expected overrun (negative) or underrun at the end. |
| To-complete performance index | TCPI = (BAC − EV) / (BAC − AC) | The cost efficiency the remaining work needs to finish on budget. |
BAC / CPI is the simplest forecast and the one most often cited; other EACs (for example, ones that also weigh the SPI, or a bottom-up re-estimate of the remaining work) are used where the past is a poor guide to the future. Whatever the method, say which one a report uses.
A worked example
A project has a budget of $1,000,000. At the end of month four the baseline says $400,000 of work should be done (PV). The work actually done is worth $360,000 of budget (EV), and it cost $400,000 (AC).
- CV = 360,000 − 400,000 = −$40,000; SV = 360,000 − 400,000 = −$40,000.
- CPI = 360,000 / 400,000 = 0.90: every dollar spent earned 90 cents of planned work. SPI = 360,000 / 400,000 = 0.90: 90% of the planned work is done.
- EAC = 1,000,000 / 0.90 = $1,111,111; ETC = 1,111,111 − 400,000 = $711,111; VAC = −$111,111.
- TCPI = (1,000,000 − 360,000) / (1,000,000 − 400,000) = 640,000 / 600,000 = 1.067: the rest of the job has to run about 7% more efficiently than planned to land on budget, while it has been running 10% less efficiently.
Making it work in practice
- A baseline worth measuring against. PV comes from the approved, resource- and cost-loaded schedule. Without it there is nothing to earn against.
- Objective progress. EV is only as good as percent complete. Rules of credit (weighted steps, units completed, milestones) beat estimates of "about 60%".
- Actuals in the same periods. AC from timesheets and invoices has to cover the same work and the same period as EV, or the CPI swings meaninglessly. Accruals bridge late invoices.
- Periods, not just totals. Cumulative indexes move slowly. Comparing this week or month with the last one shows a trend turning before the cumulative number does.
- Thresholds and action. Agree in advance what CV, SV, CPI or SPI value triggers a variance explanation and a recovery plan.
Earned value in DeltaSys
DeltaSys calculates PV, EV and AC from the schedule, its baseline, progress (including weighted steps and installed quantities) and actuals from timesheets, contractor invoices and accruals. It records each update, so CPI and SPI can be compared week on week or month on month as well as to date, with S-curves, thresholds and the forecast at completion, by project, WBS, cost account or across the portfolio.
Questions
Is earned value only for large government projects?
No. Any project with a budget, a schedule and a way to measure progress can use it; the calculation is the same at any size.
Can earned value be in hours instead of dollars?
Yes. Labour hours are often a better measure of field productivity than dollars, because they are not distorted by material prices or rates.
Next: reading CPI and SPI · schedule risk analysis.
Primavera and P6 are trademarks of Oracle Corporation; Microsoft Project is a trademark of Microsoft Corporation; PMBOK is a trademark of the Project Management Institute; AACE is a trademark of AACE International; Last Planner is a registered trademark of the Lean Construction Institute. DeltaSys is not affiliated with or endorsed by them. Standards are described in our own words; see the publications themselves for their text.