Earned Value Management (EVM)

Basically, EVM is a method used to measure how good (or bad) your project is performing against your forecast or baseline. EVM is a project management methodology in which we combine scope, cost & schedule to accurately measure all aspects of our project’s performance.

As you will see here there are a lot of separate measurements when used alone will not demonstrate the actual health of your project but when used in conjunction with one another will create a powerful measure of performance.

Today I want to take you through some of the calculations I use the most in project management which are Earned Value (EV), Schedule Performance Index (SPI) & Cost Performance Index (CPI).

When utilising the Earned Value Management method, you will need to understand the following calculations:

• Planned value (PV)
• Actual cost (AC)
• Earned value (EV)

Once we understand these 3 basics, we can use them to calculate:

• Schedule Variance (SV)
• Cost Variance (CV)
• Schedule Performance Index (SPI)
• Cost Performance Index (CPI)

We will now explore all formulas used when calculating a project’s performance with EVM using this simple project as our example:

Our example is a 4-month project with a total cost of $40,000.

As per the PMBOK Guide, “Planned Value (PV) is the authorised budget assigned to work to be accomplished for an activity or WBS component.”

The project’s total planned value.is known as your budget at completion or BAC and is calculated by summing up the PV for each activity, operation, or task, within your project.

Planned value formula

To calculate the planned value, multiply the percentage of completed work (planned) by the project’s budget (BAC).

Planned Value is calculated by multiplying the (planned) work % complete by our projects budget or BAC

PV = (planned) % complete x BAC

Using this example, let’s calculate our planned value.

1. After 1 month

If our project is four months long then after one month we should (should!) have completed 25% of the work.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 1 month
• (planned) % complete: 25%

PV = % complete (planned) x BAC

PV = 25% x $40,000

PV = $10,000

2. After 2 months

So, based on our four-month schedule, by the second month, we should have completed 50% of the work.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 2 months
• (planned) % complete: 50%

PV = (planned) % complete x BAC

PV = 50% x $40,000

PV = $20,000

Earned value represents the value of the actual work completed to date. So, if your client asks you to stop all work on the project today, EV tells you the value your project has generated.

Earned value formula

To calculate earned value, we multiply the percentage of completed work (actual) by the project’s budget (BAC).

EV = (actual) % complete x BAC

Now let’s run through some examples:

1. We spent $12,500 in our first month, but we only completed 20% of our project.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 1 month
• Planned value: $10,000
• Actual cost: $12,500
• (planned) % complete: 25%
• (actual) % complete: 20%

EV = % complete (actual) x BAC

EV = 20% x $40,000

EV = $8000

The value of the work done is $8,000 but we have spent $12,500.

2. So, we spent $27,500 in three months. All our activities scheduled up to our data date have been completed.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 3 months
• Planned value: $30,000
• Actual cost: $27,500
• (planned) % complete: 75%
• (actual) % complete: 75%

EV = (actual) % complete x BAC

EV = 75% x $40,000

EV = $30,000

*The value of our work complete is $30,000 despite only spending $27,500.

The actual cost is exactly that, the full sum of money spent to get our project to the reporting date.

Actual cost formula

When calculating actual cost, you need to get all the project expenses current to the reporting date. These expenses will include employee pays, tooling, mobile plant, equipment, contractor fees, travel and related expenses, indirect costs, etc.

Now let’s look at another example. Using the same sample project above, what’s the actual cost if you spent $12,500 after the first month even when you’ve only completed 20% of the project?

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 1 month
• (planned) % complete: 25%
• (actual) % complete: 20%
• Actual cost: $12,500

AC = $12,500

The schedule variance measures the difference between actual work completed and the planned work to date. It indicates whether the project is on schedule, in front, or behind.

Schedule variance formula

To find the project’s SV, simply subtract the planned value from the earned value.

SV = EV – PV

If the schedule variance is:

• Positive: Your project is ahead of schedule.
• Negative: Your project is behind schedule.
• Zero: Your project is on schedule.

Let’s use the same earned value examples used to find the schedule variances.

1. You spent $12,500 after the first month and you only completed 20% of our project.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 1 month
• Planned value: $10,000
• Actual cost: $12,500
• (planned) % complete: 25%
• (actual) % complete: 20%
• Earned value = $8000

SV = EV – PV

SV = $8,000 – $10,000

SV = $2000 (in front)

2. We spent $27,500 in three months. All our activities scheduled up to our data date have been completed.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 3 months
• Planned value: $30,000
• Actual cost: $27,500
• (planned) % complete: 75%
• (actual) % complete: 75%
• Earned value: $30,000

SV = EV – PV

SV = $30,000 – $30,000

SV = $0 (on schedule)

The cost variance measures the difference between the budgeted amount for work that should have been completed to date and the actual amount spent for the completed work. This shows whether our project is on budget or not.

Cost variance formula

Calculate the cost variance by subtracting the actual cost from the earned value.

CV = EV – AC

If the cost variance is:

• Positive: Our project is under budget.
• Negative: Our project is over budget.
• Zero: Our project is on budget.

We’ll use the same examples we used to find the schedule variance.

1. We spent $12,500 in the first month and we only completed 20% of our project.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 1 month
• Planned value: $10,000
• Actual cost: $12,500
• (planned) % complete: 25%
• (actual) % complete: 20%
• Earned value = $8000

CV = EV – AC

CV = $8,000 – $12,500

CV = -$4,500 (over budget)

2. We spent $27,500 in three months. All our activities scheduled up to our data date have been completed.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 3 months
• Planned value: $30,000
• Actual cost: $27,500
• (planned) % complete: 75%
• (actual) % complete: 75%
• Earned value: $30,000

CV = EV – AC

SV = $30,000 – $27,500

SV = $2,500 (under budget)

The SPI or schedule performance index measures your project’s progress against planned. This one is mentioned in most schedule update meetings you will attend & also quite often in reference to contractor performance.

Schedule performance index formula

To calculate SPI, we divide our earned value by our planned value.

SPI = EV/PV

If the schedule performance index is:

• Greater than 1: We’ve done more work than planned. Our project is ahead of schedule.
• Less than 1: We’ve completed less work than planned. Our project is behind schedule.
• Equal to 1: We’ve completed the same amount of work as planned. Our project is on schedule.

Let’s use the same examples we used to calculate the schedule and cost variances.

1. We spent $12,500 in the first month and we only completed 20% of our project.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 1 month
• Planned value: $10,000
• Actual cost: $12,500
• (planned) % complete: 25%
• (actual) % complete: 20%
• Earned value = $8,000

SPI = EV/PV

SPI = $8,000/$10,000

SPI = 0.8 (behind schedule)

This means that for every estimated hour of work the project team is only achieving 0.8h of work which is 48min (60min x 0.8 = 48min) So because our SPI is less than 1, our project is behind schedule.

This same calculation can be applied to work hours planned vs work hours executed to produce a performance value to forecast project completion dates.

2. We spent $27,500 after three months. All our activities scheduled up to our data date have been completed.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 3 months
• Planned value: $30,000
• Actual cost: $27,500
• (planned) % complete: 75%
• (actual) % complete: 75%
• Earned value: $30,000

SPI = EV/PV

SV = $30,000 – $30,000

SV = 1 (on schedule)

The cost performance index indicates the cost efficiency of our project and measures the value of the completed work against the actual cost.

Cost performance index formula

To get the CPI, divide the earned value by the actual cost.

CPI = EV/AC

If the cost performance index is:

• Greater than 1: The value of the completed work is more than the amount spent. Your project is under budget.
• Less than 1: The value of the completed work is less than the amount spent. Your project is over budget.
• Equal to 1: The value of the completed work is equal to the amount spent. Your project is on budget.

Examples:

1. We spent $12,500 in the first month, but we only completed 20% of our project.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 1 month
• Planned value: $10,000
• Actual cost: $12,500
• (planned) % complete: 25%
• (actual) % complete: 20%
• Earned value = $8,000

CPI = EV/AC

CPI = $8,000/$12,500

CPI = 0.064 (over budget)

2. We spent $27,500 in three months. All our activities scheduled up to our data date have been completed.

E.g.

• Project duration: 4 months
• BAC: $40,000
• Elapsed time: 3 months
• Planned value: $30,000
• Actual cost: $27,500
• (planned) % complete: 75%
• (actual) % complete: 75%
• Earned value: $30,000

CPI = EV/AC

CPI = $30,000 – $27,500

CPI = 1.1 (under budget)