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# Earned Value Management Formulas

Earned value management (EVM) is a methodology that combines scope, schedule, and resource measurements to assess
project performance and progress. It is a commonly used method of performance measurement for projects. It integrates the
scope baseline with the cost baseline, along with the schedule baseline, to form the performance baseline, which helps the
project management team assess and measure project performance and progress. It is a project management technique
that requires the formation of an integrated 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 Formulas

Dimension
Meaning
Schedule Variance (SV) Schedule variance (SV) is a measure of

Formula
SV = EV PV

Interpretation
-ve: Behind schedule
0: On schedule

CV = EV - AC

0: On budget
+ve: over budget

SPI = EV / PV

0: On schedule

CPI = EV / AC

## < 1: under cost

0: on cost
>1: over cost

Schedule Performance
Index (SPI)

## Cost Peformance Index

(CPI)

Estimate At Completion
(EAC)

To Complete
Performance Index
(TCPI)

## schedule performance expressed as the

difference between the earned value and
the planned value
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.
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.
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.
If the CPI is expected to be the same for
the remainder of the project,
If future work will be accomplished at the
planned rate
If both the CPI and SPI influence the
remaining work
The efficiency that must be maintained in
order to complete on plan.
The efficiency that must be maintained in
order to complete the current EAC

EAC = BAC/CPI
EAC = AC + BAC EV
,EAC = AC + [(BAC
EV)/(CPI x SPI)]
TCPI = (BAC EV)/(BAC
AC)

## < 1: easier to complete

0: same to complete
>1: harder to complete

AC)

## Earned Value Management

How many dollars we are getting . . . for the dollars we are spending. This is what Earned Value Management is all about.
The earned value management concept requires that a baseline plan, called the planned value, be created. This baseline
plan you create during your Estimate Costs and 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 the Project Schedule diagram is shown below.

## Earned Value Management has the following important dimensions.

Planned value
Planned 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 Values

All this looks fine. What ever you have done till now is on the drawing board i.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 cost
Actual cost (AC) is the realized cost incurred for 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 consume less or equal or more money than actually planned and
activities may be completed in less or equal or more duration 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.

## 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 value
Earned 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 Work

You 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 about actual costs. The Actual Costs at the end of February are shown below.

## Earned Value Management displaying Actual Costs

Immediately 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.

The Schedule Variance and Cost Variance values can be converted to efficiency indicators to reflect the cost and
schedule performance of any project for comparison against all other projects or within a portfolio of projects. The variances
are useful for determining project status using Earned Value Management.

Schedule variance
Schedule 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 PV
Cost variance
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. 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?

## CV = EV AC = 4000 5900 = -1900

The 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 EV

Using 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 index
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. 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/PV
Cost performance index
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. 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/AC
At our data date of February end, can you calculate the indexes?

## CPI = EV / AC = 4000 / 5900 = 0.67

For 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?

## = 1000 + 1000 + 1500 + 2500 + 2000 = 8000

= Planned Earned = BAC EV = 12000 4000 = 8000
Forecasting using Earned Value Management
Forecasting is done by calculating Estimate At Complete and Estimate To Complete.
Estimate At Complete (EAC): The expected total cost of completing all 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 = 17910.44

2.

## If future work will be accomplished at the planned rate, using:

EAC = AC + BAC EV = 5900 + 12000 4000 = 13900

3.

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)] = 20825.37

Once 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 the remaining project work. Equation:EAC AC. It is shown
below with respect to each EAC calculated above.

1.

2.

3.

## And 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 to finish 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 = 1.311

2.

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 above

1.

2.

3.

## TCPI = 12000 4000 / 20825.37 5900 = 0.53

If 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 Management

One

SPI

Behind schedule

On schedule

CPI

On planned cost

## Under planned cost

TCPI

Easier to complete

Same to complete

Harder to complete

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