Applications and Extensions of the
Earned Value Analysis Method
Frank T. Anbari, Ph.D., PMP,The George Washington University
Introduction
The Earned Value Analysis Management Method (often referred
to as EVM or EVA) integrates three critical elements of project
management: scope management, cost management and time
management. It requires the periodic monitoring of actual ex-
penditures and physical scope accomplishments. EVM supports
the periodic evaluation of project performance against the time
schedule and cost plan, and allows forecasting of project cost and
schedule at completion.
EVM provides early indications of expected project results
based on project performance and highlights the possible need
for corrective action. As such, EVM allows the project manager
and project team to adjust project strategy based on cost and
schedule requirements, actual project performance and trends,
as well as the environment within which the project is being
conducted.
This powerful tool uses cost as the common measure of proj-
ect cost and schedule performance. It allows the calculation of
cost and schedule variances, performance indices, and forecasts
of project cost and schedule at completion. It allows the mea-
surement of cost in dollars, hours, worker-days, or any other sim-
Exhibit 1. Planned Value
Cost
Planned
Value (PV)
Proceedings of the Project Management Institute Annual Seminars & Symposium
November 110, 2001 Nashville,Tenn., USA
ilar quantity that can be used as a common measurement of the
values associated with project work.
This paper presents the major aspects of EVM, and provides
logical extensions and practical applications of this important
method in project management.
Background
A basic form of EVM can be traced back to industrial engineers
on the factory floor in the late 1800s (Fleming & Koppelman,
2000; Kim, 2000). Around 1967, EVM was introduced by agen-
cies of the U.S. Federal Government as an integral part of the
Cost/Schedule Control System Criteria (C/SCSC) and used in
large acquisition programs. Use of EVM in industry and support
by popular project management software packages have been
limited but growing in recent years. To encourage wider use of
EVM in the private sector, the U.S. Federal Government de-
cided to discard C/SCSC by the end of 1996 and is turning to-
ward a more flexible Earned Value Project Management System
(EVPMS). Project Management Institutes PMBOK Guide (PMI,
1996) provided the basic terminology and formulas of EMV. The
Budget At
Completion
(BAC)
Time
Exhibit 2. Planned Value and Actual Cost

Cost
Planned
Value (PV) Budget At
Completion
(BAC)

Actual
Cost (AC)

Status date
Time

Exhibit 3. Planned Value, Actual Cost, and Earned Value

Cost
Planned
Budget At
Value (PV)
Completion
(BAC)

Actual
Cost (AC)

Earned
Value (EV)

Status date Time

terminology was simplified and more details on Earned Value
Management (EVM) were provided in the 2000 edition of the
PMBOK Guide (PMI, 2000). This paper uses the simplified ter-
minology and relates it to previously used terminology. The
paper provides extensions and applications of EVM using the
simplified terminology.
Key Components of EVM
The Earned Value Analysis method uses the following project pa-
rameters to evaluate project performance:
Planned Value (PV): This is the time-phased budget base-
line. It is the approved budget for accomplishing the activity,
work package, or project related to the schedule. It can be viewed
as the value to be earned as a function of accomplishments up
to a given point in time. A graph of cumulative PV is often re-
ferred to as the S-curve (because, with a little imagination, it
looks like an S). This was previously called the Budgeted Cost of
Work Scheduled (BCWS).
Budget at Completion (BAC): This is the total budget baseline
for the activity, work package, or project. It is the highest value
of PV, and the last point on the cumulative PV curve.

Proceedings of the Project Management Institute Annual Seminars & Symposium

November 110, 2001 Nashville,Tenn., USA
Exhibit 4. Variances
Cost
Actual
Cost (AC)
Earned
Value (EV)
Actual Cost (AC): This is the actual cost spent to accomplish
an activity or project and to earn the related value up to a given
point in time. This was previously called the Actual Cost of
Work Performed (ACWP).
Earned Value (EV): This is the earned value for the work
completed to a point in time. It represents the amount budgeted
for performing the work which was accomplished by a given
point in time. This was previously called the Budgeted Cost of
Work Performed BCWP.
Performance Measurement
Cost performance is determined by comparing the Earned Value
(EV) to the Actual Cost (AC). Schedule performance is deter-
mined by comparing the Earned Value (EV) to the Planned
Value (PV). Calculating the variances and the performance in-
dices allows us to do this.
Variances
The following equations are used to calculate the variances, gen-
erally based on cumulative data:
The Cost Variance (CV) is a measure of the conformance of
actual cost of work performed to the budget:
CV = EV - AC
The Schedule Variance (SV) is a measure of the conformance
of actual progress to the schedule:
SV = EV - PV
In the above equations,0 indicates performance is on target.
A negative value indicates poor performance. A positive value in-
dicates good performance.
The average PV per time period is often referred to as the
Spend Rate. A better name may be the planned accomplish-
Proceedings of the Project Management Institute Annual Seminars & Symposium
November 110, 2001 Nashville,Tenn., USA
Planned
Budget At
Value (PV)
Completion
(BAC)
CV
SV
Status date
TV Time
ment rate or the PV Rate. SV can be translated to time units by
dividing SV over the average PV per time period. The result is the
SV in time units or the Time Variance (TV):
TV = SV / PV Rate (i.e., TV = SV / Spend Rate)
The above can also be performed and reported graphically as
shown in Exhibit 4.
Graphs of variances over time provide valuable indicators of
trends in project performance and impact of any corrective ac-
tions.
Performance Indices
The following equations are used to calculate the performance
indices, generally based on cumulative data:
The Cost Performance Index is a measure of the conformance
of actual cost of work performed to the budget:
CPI = EV / AC
The Schedule Performance Index is a measure of the confor-
mance of actual progress to the schedule:
SPI = EV / PV
In the above equations,1 indicates performance is on target.
More than 1 indicates good performance. Less than 1 indi-
cates poor performance. As such, the performance indices can be
thought of as efficiency ratios.
The inverse of the equations given above has also used to fa-
cilitate the use of the indices in forecasting.
Graphs of performance indices over time provide valuable in-
dicators of trends in project performance and impact of any cor-
rective actions. These graphs can be very effective in project
reviews.
The Critical Ratio
The Critical Ratio is the product of CPI and SPI. It can also be
called the Cost-Schedule Index (CSI), and has been used as an
indicator of the overall project health (Meredith & Mantel, 2000;
Lewis, 2001):
CR = CPI x SPI
A CR of 1 indicates that the overall project performance is
on target. This may result from both CPI and SPI being close to
target, or if one of those indices is indicating poor performance,
then the other must be indicating good performance. This allows
some tradeoffs to reach the desired goals.
A CR of more than 1 indicates that the overall project per-
formance is good. This may result from both CPI and SPI being
better than target, or if one of those indices is indicating poor
performance, then the other must be indicating outstanding
performance. This allows extensive tradeoffs to reach the desired
goals.
A CR of less than 1 indicates that the overall project perfor-
mance is poor. This may result from both CPI and SPI being
worse than target, or if one of those indices is indicating good
performance, then the other must be indicating extremely poor
performance. This limits the use of effective tradeoffs and high-
lights significant difficulty in attempting to reach the desired
goals.
A graph of the critical ratio over time provides a quick indi-
cator of trends in the overall project performance and impact of
any corrective actions. These graphs may be effective in project
reviews.
Forecasting
Project decisions are mainly concerned with the future.
Therefore, forecasting is an extremely important aspect of proj-
ect management. EVM is particularly useful in forecasting the
cost and time of the project at completion, based on actual per-
formance up to any given point in the project.
Forecasting of Cost at Completion
EVM has been widely used to estimate the total cost of the project
at completion and the cost to complete the remainder of the proj-
ect, based on actual performance up to any given point in the proj-
ect. The following equations are used to calculate these forecasts:
Several assumptions can be used to calculate the Cost Estimate
at Completion. The 2000 edition of the PMBOK Guide (PMI,
2000) gives the following formula for the Estimate at Completion
(EAC), based on cumulative data, and based on the assumption
that past performance and efficiency will continue into the fu-
ture:
EAC = AC + (BAC - EV) / CPI
The above equation can be appropriately simplified as follows:
EAC = AC + (BAC - EV) / CPI
= AC + BAC / CPI - EV / CPI
= AC + BAC / CPI - AC
= BAC / CPI
Thus:
EAC = BAC / CPI
Proceedings of the Project Management Institute Annual Seminars & Symposium
November 110, 2001 Nashville,Tenn., USA
The Variance at Completion (VAC) gives an indication of the
estimated cost underrun or overrun at the end of the completion
of the project:
VAC = BAC EAC
In the above equation,0 indicates that the project is forecasted
to be completed on budget. A positive value indicates a forecasted
underrun. A negative value indicates a forecasted overrun.
Heinze (1996) provides the following additional formula for
calculating EAC:
EAC = BAC / CPI x SPI
Based on the above definition of the critical ratio (CR), and
further defining EACs as the EAC adjusted for schedule perfor-
mance, the above equation can be restated as follows:
EACs = BAC / CR
The above formula may be mathematically questionable.
However, it acknowledges that cost performance and schedule
performance are inseparable. As examples (1) project schedule
can be crashed at an additional cost, or (2) less experienced re-
sources may be used on the project, reducing the cost and pos-
sibly extending the duration. As such, this formula may provide
a better indication of forecasted project cost at completion.
Forecasting of Completion Time
Using the same logic, EVM can be used to calculate the projects
total Time Estimate At Completion (TEAC) and the Time
Variance At Completion (TVAC), based on the baseline Schedule
At Completion (SAC) and actual performance up to any given
point in the project (Anbari, 1997). The following equations can
be used to calculate these forecasts. These terms and equations
have been used implicitly, but have not been documented as such
in popular textbooks on the subject:
Time Estimate at Completion:
TEAC = SAC / SPI
Time Variance at Completion:
TVAC = SAC TEAC
Project Forecasting
Forecasting in project management may well be a self-defeating
prophecy. Large deviations usually attract managements atten-
tion and result in corrective action. Small deviations are usually
left alone. By quantifying such deviations, EVM helps focus
managements attention on projects or work packages that need
most attention. As a result, EVM supports effective manage-
ment of projects and work packages collectively, and enhances
the management of the enterprises project portfolio.
Further Extensions and Applications
Using the above definitions, the following is derived:
% Complete = EV / BAC
% Spent = AC / BAC
Taking the ratio of the above two equations:
% Complete / % Spent = (EV / BAC) / (AC / BAC)
= EV / AC
 Thus:
CPI = % Complete / % Spent
Similarly:
CPI = Planned Unit Cost / Actual Unit Cost
The above formulas provide a more intuitive understanding
of CPI based on information readily available in many organi-
zations.
EVA can be applied to projects of various sizes. It can be ap-
plied at various levels of a projects Work Breakdown Structure
(WBS) and to various cost components, such as labor, material,
subcontractors, and other cost components.
Comprehensive Example
A project has a baseline budget of $100,000, and a baseline
schedule of 40 weeks. The baseline indicates that by the end of
week 20 the project is planned to be 50% complete. As of the end
of week 20, it is reported that 40% of the project work has been
completed at a cost of $60,000. Using the EVM method:
BAC = $100,000
SAC = 40 weeks
% Complete = 40%
% Spent = AC / BAC = $60,000 / $100,000 = 60%
PV = 50% x $100,00 = $50,000
AC = $60,000
EV = 40% x $100,00 = $40,000
CV = EV - AC = $40,000 - $60,000 = - $20,000
SV = EV - PV = $40,000 - $50,000 = - $10,000
CPI = EV / AC = $40,000 / $60,000 = 0.67
CPI = % Complete / % Spent = 40% / 60% = 0.67
SPI = EV / PV = $40,000 / $50,000 = 0.80
CR = CPI x SPI = 0.67 x 0.80 = 0.53
EAC = BAC / CPI = $100,000 / 0.67 = $150,000
VAC = BAC EAC = $100,000 - $150,000 = - $50,000
EACs = BAC / CR = $100,000 / 0.53 = $187,500
TEAC = SAC / SPI = 40 weeks / 0.80 = 50 weeks
TVAC = SAC TEAC = 40 weeks - 50 weeks = - 10 weeks
Fleming, Q.W., and Koppelman, J.M. 2000. Earned Value Project
Management, Second Edition. Newtown Square, PA: Project
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Harrison, F.L. 1992. Advanced Project Management: A Structured
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Heinze, Kurt. 1996. Cost Management of Capital Projects. New York:
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Kerzner, H. 2001. Project Management: A Systems Approach to
Planning, Scheduling, and Controlling, Seventh Edition. New York: John
Wiley & Sons.
Kerzner, H., Anbari, F.T., Cleland, D.I., and Zeitoun, A. 2001. Project
Management IQ, Release 3.2. New York: International Institute for
Learning.
Kim, E.H. 2000. A Study on the Effective Implementation of Earned
Value Management Methodology, Ph.D. Dissertation. Washington, DC:
The George Washington University.
Lewis, J.P. 2001. Project Planning, Scheduling, & Control: A Hands-On
Guide to Bringing Projects In On Time and On Budget. Third Edition.
New York: McGraw-Hill.
Meredith, J.R., and Mantel, S.J. 2000. Project Management: A
Managerial Approach. New York: John Wiley & Sons.
Project Management Institute. 1996. A Guide to the Project
Management Body of Knowledge (PMBOK Guide). Upper Darby, PA:
Project Management Institute.
Project Management Institute. 2000. A Guide to the Project
Management Body of Knowledge (PMBOK Guide). Newtown Square, PA:
Project Management Institute.

Conclusion

EVM helps focus managements attention on projects that need

most attention and enhances the enterprises project portfolio
management. EVM provides important information for project
or work packages decision-making. Its effectiveness and accep-
tance may depend on better understanding of its capabilities and
limitations. Simplification of EVM calculations and its success-
ful application in industry are important to the growth of its ef-
fective use.

References
Anbari, F.T. 1997. Quantitative Methods for Project Management.
New York: International Institute for Learning.

Proceedings of the Project Management Institute Annual Seminars & Symposium

November 110, 2001 Nashville,Tenn., USA

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