Project Management guide · Cost and resources
Earned Value Management (EVM): Formulas and Worked Example
Earned value management (EVM) is a technique that measures project performance by comparing the value of work planned, the value of work actually completed and the actual cost of that work. It gives an objective view of cost and schedule performance and a basis for forecasting the final cost.
Key takeaways
- EVM compares PV, EV and AC to measure cost and schedule performance.
- CV and CPI measure cost; SV and SPI measure schedule.
- EAC, ETC, VAC and TCPI forecast where the project will finish.
- A sound baseline and objective progress rules make EVM reliable.
The three core measures
| Measure | Also called | Meaning |
|---|---|---|
| Planned value (PV) | BCWS | Budgeted cost of the work scheduled to be done by now |
| Earned value (EV) | BCWP | Budgeted cost of the work actually done by now |
| Actual cost (AC) | ACWP | What the completed work actually cost |
| Budget at completion (BAC) | Total budget for all the work; see BAC |
Earned value = percent complete x BAC (or the sum of budgets for completed work).
Key formulas
| Formula | Calculation | Reading |
|---|---|---|
| Cost variance (CV) | EV - AC | Negative = over budget |
| Schedule variance (SV) | EV - PV | Negative = behind schedule |
| Cost performance index (CPI) | EV / AC | Below 1 = over budget |
| Schedule performance index (SPI) | EV / PV | Below 1 = behind schedule |
| Estimate at completion (EAC) | BAC / CPI (typical) | Forecast final cost |
| EAC (atypical variance) | AC + (BAC - EV) | Past variance will not recur |
| EAC (cost and schedule) | AC + (BAC - EV) / (CPI x SPI) | Both indices affect remaining work |
| EAC (new estimate) | AC + bottom-up ETC | Original plan no longer valid |
| Estimate to complete (ETC) | EAC - AC | Money still needed |
| Variance at completion (VAC) | BAC - EAC | Negative = expected overrun |
| TCPI (to BAC) | (BAC - EV) / (BAC - AC) | Efficiency needed to finish on budget |
| TCPI (to EAC) | (BAC - EV) / (EAC - AC) | Efficiency needed to hit the EAC |
Worked example
A project has BAC = $200,000 over eight months. At the end of month four: PV = $80,000, EV = $70,000 (35% complete), AC = $85,000.
| Measure | Calculation | Result |
|---|---|---|
| CV | 70,000 - 85,000 | -$15,000 |
| SV | 70,000 - 80,000 | -$10,000 |
| CPI | 70,000 / 85,000 | 0.82 |
| SPI | 70,000 / 80,000 | 0.88 (0.875) |
| EAC (typical) | 200,000 / 0.8235 | $242,857 |
| EAC (atypical) | 85,000 + 130,000 | $215,000 |
| EAC (CPI x SPI) | 85,000 + 130,000 / 0.7206 | $265,408 |
| ETC (typical) | 242,857 - 85,000 | $157,857 |
| VAC | 200,000 - 242,857 | -$42,857 |
| TCPI (to BAC) | 130,000 / 115,000 | 1.13 |
Interpretation: the project is over budget and behind schedule. If current cost efficiency continues it will finish about $42,857 over budget. To finish on budget the remaining work would need a CPI of 1.13, far better than the 0.82 achieved so far.
How to set up EVM
- Define scope with a work breakdown structure.
- Schedule the work and assign budgets to create a time-phased baseline (the S-curve).
- Agree rules for crediting progress, such as 0/100, 50/50 or measured milestones.
- Collect actual costs by work package each period.
- Calculate PV, EV and AC, then the variances and indices.
- Forecast EAC, review causes and act.
- Report trends, not just single readings.
Benefits and limitations
| Benefits | Limitations |
|---|---|
| Objective, integrated view of scope, time and cost | Needs a good baseline and accurate actual costs |
| Early warning: CPI tends to stabilise early | SV says nothing about the critical path |
| Standard formulas understood widely | SV returns to zero at the end even if the project is late |
| Supports forecasting | Progress credit can be gamed or subjective |
Tips
- Use simple progress rules for short tasks to avoid subjective percent-complete figures.
- Track CPI and SPI trends over several periods.
- Pair SPI with critical path analysis or earned schedule.
- Explain results in plain words in reports; most stakeholders do not know the acronyms.
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Frequently asked questions
What is earned value management?
A method of measuring project performance by comparing planned value, earned value and actual cost to assess cost and schedule performance.
What is the difference between PV, EV and AC in earned value management?
PV is the budgeted value of work planned to date, EV is the budgeted value of work actually done, and AC is what that work actually cost.
How do you calculate earned value?
Multiply the percent of work complete by the budget at completion, or add up the budgets of completed work packages.
What is the earned value formula for cost variance?
CV = EV - AC. A negative value means the project is over budget.
What is the earned value formula for schedule variance?
SV = EV - PV. A negative value means less work has been done than planned.
What does a CPI of 0.8 mean in earned value management?
For every dollar spent, the project is getting 80 cents of planned work, so it is running over budget.
Which EAC formula should I use in earned value management?
Use BAC / CPI if current performance is expected to continue, AC + (BAC - EV) if the variance was a one-off, and AC + a new ETC if the plan is no longer valid.
What is TCPI in earned value management?
The to-complete performance index: the CPI needed on remaining work to finish at BAC or at a new EAC.
What do BCWS and BCWP mean in earned value management?
Older names for PV (budgeted cost of work scheduled) and EV (budgeted cost of work performed). ACWP is actual cost of work performed.
Is EVM used in Agile projects?
Yes, in adapted forms. Agile EVM often uses story points completed against planned points per release to calculate EV.
Is earned value on the PMP exam?
Yes, earned value calculations are a well-known part of PMP exam preparation; see PMP certification.
What is earned schedule in EVM?
An extension of EVM that measures schedule performance in time units rather than money, avoiding SV's drift back to zero at the end.