PMP EVM Concepts Explained With Examples

Earned value management (EVM) is used to assess the schedule and cost
performance of a project with EVM, the project manager will know exactly
whether the project is:

ahead of / on / behind schedule

under / on / over budget
Earned value management (EVM) bases on the concept that i) work completed will
deliver value and ii) the value delivered equals the budget put into the work. The
value gained can be assessed along the progression of the project. In reality, earned
value management is very complicated as value usually cannot simply be assessed
based on the percentage of completion.

Good news here: PMI has simplified PMP EVM calculation to very ideal
situations! You will just need to know the following to get your PMP EVM questions
correct.

Basic EVM Formulas

To speak more clearly how the value is to be managed, a number of terms are
defined in EVM (explained with the example of building 10 houses each has a value
of US$1000 expected to be completed in 10 weeks in proportion):

Planned Value (PV) The budgeted value of the work completed so far at a specific
date
example: at end of week 4, altogether 4 houses should be completed, the PV is
US$4000
Earned Value (EV) The actual value of the work completed so far at a specific
date (refer to the Notes on Earned Value Measurement section below)
example: by end of week 4, only 3 houses are completed, the EV is US$3000
Actual Cost (AC) The total expenditure for the work so far at a specific date
example: by end of week 4, US$4000 was spend, the AC is US$4000
EVM is based on monitoring these three aspects along the project in order to reveal
the health of the project with the following indices:

Schedule Variance (SV) difference between PV and EV, to tell whether the project
work is ahead of / on / behind schedule
SV = EV PV
If the project is behind schedule the SV will be negative (i.e. achieved less than
what planned)
If the project is on schedule the SV = 0
If the project is ahead of schedule the SV will be positive (i.e. achieved more than
what planned)
example: by end of week 4, the SV = EV PV = US$3000 US$4000 = -US$1000
(behind schedule)
Schedule Performance Index (SPI) ratio between EV and PV, to reflect whether the
project work is ahead of / on / behind schedule in relative terms
SPI = EV/PV
If the project is behind schedule the SPI < 1 (i.e. achieved less than what planned)
If the project is on schedule the SPI = 1
If the project is ahead of schedule the SPI > 1 (i.e. achieved more than what
planned)
example: by end of week 4, the SPI = EV/PV = US$3000/US$4000 = 0.75 (behind
schedule)
Cost Variance (CV) difference between PV and AC, to tell whether the project
work is under / on / over budget
CV = EV AC
If the project is over budget the CV will be negative (i.e. achieved less than spent)
If the project is on budget the CV = 0
If the project is under budget the CV will be positive (i.e. achieved more than spent)
example: by end of week 4, the CV = EV AC = US$3000 US$4000 = -US$1000
(over budget)
Cost Performance Index (CPI) ratio between EV and AC, to reflect whether the
project work is under / on / over budget in relative terms
CPI = EV/AC
If the project is over budget the CPI < 1 (i.e. achieved less than spent)
If the project is on budget the CPI = 1
If the project is under budget the CPI > 1 (i.e. achieved more than spent)

example: by end of week 4, the CPI = EV/AC = US$3000/US$4000 = 0.75 (over

budget)
Note both SV and SPI / CV and CPI give similar information on schedule / budget but
the indices will give more insights into the actual performance with a meaning
comparison.

From my experience, the most difficult process of solving EVM problems for PMP
Exams is to identify the PV, EV and AC from the wordy calculation questions. Then
you will just have to recall the correct formula to substitute the values into to get
the answer the question will usually ask you directly about the actual indices to
get.

Advanced EVM Formulas

Budget at Completion (BAC) also known as the project/work budget, that is the
total amount of money originally planned to spend on the project/work
example: the BAC for the housing project = US$1000 x 10 = US$10000
Estimate at completion (EAC) as the project goes on, there may be variations into
the actual final cost from the planned final cost, EAC is a way to project/estimate
the planned cost at project finish based on the currently available data
The following formulas can be used to calculate EAC based on which information
and conditions given in the question:
EAC = BAC/CPI
If we believe the project will continue to spend at the same rate up to now
The delay is caused by reasons which is likely to continue (e.g. labour with less
skilled than expected)
example: the EAC for the housing project = US$10000 / 0.75 = US$13333
EAC = AC + (BAC-EV)
If we believe that future expenditures will occur at the original forecasted amount
(no more delays of the same kind in future)
The delay might be caused by some unforeseen reasons (e.g. typhoon) which is not
likely to happen again
example: the EAC for the housing project = US$4000 + (US$10000 $3000) =
US$11000
EAC = AC + [(BAC-EV)/(SPI*CPI)]

If we believe that both current cost and current schedule performance will impact
future cost performance
The performance of the project will continue with sub-prime standards (over budget
and behind schedule)
This formula is less likely to be used for the PMP Exam
example: the EAC for the housing project = US$4000 + [(US$10000 $3000)/
(0.75*0.75)] = US$16444
EAC = AC + New Estimate
If we believe the original conditions and assumptions are wrong
Will not be tested as there is nothing to calculate
Variance at Completion (VAC) the variance at completion, i.e. the difference
between the new estimate at completion and original planned value
VAC = BAC EAC
If we forecast the project will be over budget, VAC will be negative
If we forecast the project will be under budget, VAC will be positive
example: the VAC for the housing project = US$10000 US$13333 (just take the 1st
EAC as an example only) = -US$3333
To Complete Performance Index (TCPI) the efficiency needed to finish the project
on budget, it is the ratio between budgeted cost of work remaining and money
remaining
TCPI = (BAC-EV)/(BAC-AC)
Use this equation if the project is required to finish within BAC
example: the TCPI for the housing project at end of week 4 = (US$10000
US$3000) / (US$10000 US$4000) = 1.67
TCPI = (BAC-EV)/(EAC-AC)
Use this equation if the project is required to finish within new EAC
example: the TCPI for the housing project at end of week 4 with new EAC US$13333
= (US$10000 US$3000) / (US$13333 US$4000) = 0.75
Notes on Earned Value Measurement

The following will discuss how earned value is measured for project and work, from
simple physical measurements, percentage complete to weighted milestones. Since
the PMP EVM questions cannot describe a lot of information, the part on earned

value measurements will normally be based on simplified situations like physical

measurements or percentage complete.

It is likely that you will not be tested on the more difficult ways of measuring earned
values. These are included here for your reference only.

Physical Measurement directly transform the physical measurement of the

amount of work completed into EV
example: building 10 houses each has a value of US$1000 expected to be
completed in 10 weeks in proportion, earned value of 3 house built is US$3000
Percentage Complete directly transform the percentage of the amount of work
completed into EV
example: building 10 houses each has a value of US$1000 expected to be
completed in 10 weeks in proportion, earned value of 30% complete is US$3000
Weighted Milestone a EV is assigned to the 100% completion of each milestone of
the work packages with prior agreement with stakeholders
Fixed Formula a specific percentage of the overall PV is assigned to the start of a
work package and the remaining assigned upon completion; these must be agreed
upon in the project management plan
0/100 rule: 0% EV at the activity begins; 100% EV upon completion
20/80 rule: 20% EV at the activity begins; 80% EV upon completion.
50/50 rule: 50% EV at the activity begins; 50% EV upon completion
EVM Charts
In common practices, EVM will also involve plotting the values on a graph in order to
help stakeholders concerned to visualize the progress and the health of the project.
More often than not you will find the EV, AC and PV plotted on a graph and you will
be asked on the interpretation of the graph.

Insights to be gained from the chart:

If EV line is below PV, the project is behind schedule; if EV is above PV, the project is
ahead of schedule.
If AC line is below EV, the project is within budget; if AC is above EV, the project is
over budget.

Below is an example of the EVM charts you would be likely to encounter in your PMP
Exam solid lines represent actual figures while dotted lines represent forecasted
figures:

EVM Chart