Earned Value Management

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ITSU 2006 [ Lesson 9 ] Copyright © 2018 VIT, All Rights Reserved 1

 Planned Value
• Planned Value (PV) is the authorized budget assigned to work to be accomplished for an
activity or WBS component
• Total Planned Value for the project is known as Budget at Completion (BAC).
• Planned Value is also referred to as Budgeted Cost of Work Scheduled (BCWS).
• Formula for Planned Value (PV)
– The formula to calculate Planned Value is simple. Take the planned percentage of the
completed work and multiply it by the project budget and you will get Planned Value.
– Planned Value = (Planned % Complete) X (BAC)
• Example of Planned Value (PV)
– You have a project to be completed in 12 months and the total cost of the project is
100,000 USD. Six months have passed and the schedule says that 50% of the work
should be completed.

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 Example for Planned Value

• Example of Planned Value (PV)

– You have a project to be completed in 12 months and the total cost
of the project is 100,000 USD. Six months have passed and the
schedule says that 50% of the work should be completed.
• What is the project’s Planned Value (PV)?
– Project duration: 12 months
– Project cost (BAC): 100,000 USD
– Time elapsed: 6 months
– Percent complete: 50% (as per the schedule)
– Planned Value is the value of the work that should have been completed so far (as per the schedule).
– In this case, we should have completed 50% of the total work.
– Planned Value = 50% of the value of the total work
– = 50% of BAC
– = 50% of 100,000
– = (50/100) X 100,000
– = 50,000
– Therefore, the project’s Planned Value (PV) is 50,000 USD.
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 Actual Cost
• Actual Cost is the total cost incurred for the actual work completed to date. Simply put, it is the amount
of money you have spent to date.
• As per the PMBOK Guide, “Actual Cost (AC) is the total cost actually incurred in accomplishing work
performed for an activity or WBS component.”
• Actual Cost is also known as Actual Cost of Work Performed (ACWP).
• Formula for Actual Cost (AC)
– Finding Actual Cost is simplest of all.
– There is no special formula to calculate Actual Cost. It is an amount that has been spent and you
can find it very easily in the question.
• Example of Actual Cost (AC)
• You have a project to be completed in 12 months and the total cost of the project is 100,000 USD. Six
months have passed and 60,000 USD has been spent, but on closer review you find that only 40% of
the work has been completed so far.
• What is the project’s Actual Cost (AC)?
• Actual Cost is the amount of money that you have spent so far.
• In the question, you have spent 60,000 USD on the project so far.
• Hence,
• The project’s Actual Cost is 60,000 USD.

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 Example for Actual Cost

• Example of Actual Cost (AC)

– You have a project to be completed in 12 months and the total cost
of the project is 100,000 USD. Six months have passed and 60,000
USD has been spent, but on closer review you find that only 40% of
the work has been completed so far.
• What is the project’s Actual Cost (AC)?
– Actual Cost is the amount of money that you have spent so far.
– In the question, you have spent 60,000 USD on the project so far.
– Hence, the project’s Actual Cost is 60,000 USD.

ITSU 2006 [ Lesson 9 ] Copyright © 2018 VIT, All Rights Reserved 5

 Earned Value

• Earned Value is the value of the work actually completed to

date. If the project is terminated today, Earned Value will
show you the value that the project has produced.
• As per the PMBOK Guide, “Earned Value (EV) is the value
of work performed expressed in terms of the approved
budget assigned to that work for an activity or WBS
component.”
• Although all three elements have their own significance,
Earned Value is more useful because it shows you how
much value you have earned from the money you have
spent to date.
• Earned Value is also known as Budgeted Cost of Work
Performed (BCWP).

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 Earned Value

There is a difference between Planned Value and Earned

Value. Planned Value shows you how much value you have
planned to earn in a given time, while Earned Value shows you
how much value you have actually earned on the project.
• Formula for Earned Value (EV)
– The formula to calculate Earned Value is also simple. Take the
actual percentage of the completed work and multiply it by the
project budget and you will get the Earned Value.
– Earned Value = % of completed work X BAC

ITSU 2006 [ Lesson 9 ] Copyright © 2018 VIT, All Rights Reserved 7

 Example for Earned Value

• You have a project to be completed in 12 months and the

total cost of the project is 100,000 USD. Six months have
passed and 60,000 USD has been spent, but on closer
review you find that only 40% of the work has been
completed so far.
• What is the project’s Earned Value (EV)?
– In the above question, you can clearly see that only 40% of the work is actually
completed, and the definition of Earned Value states that it is the value of the project
that has been earned.
– Earned Value = 40% of the value of total work
– = 40% of BAC
– = 40% of 100,000
– = 0.4 X 100,000
– = 40,000
– Therefore, the project’s Earned Value (EV) is 40,000 USD.

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 Schedule Variance

• Schedule Variance (SV)

– It is very important for you to keep your project on schedule. Not only
does it help you complete your project on time, but it also helps you
avoid unnecessary cost overruns due to slippage of schedule,
because as you go over the stipulated time, your costs start rising
exponentially.
– For example: you have rented some equipment for a specified
duration of time. However, if you need this equipment for some
additional time, and you may end up paying more because the
equipment may not be available at the previously negotiated price, or
you may need to rent this equipment from other suppliers on an
urgent, short term contract at a higher price.
– Schedule Variance is a very important analytical tool for you. This
tool gives you information needed to determine if you are ahead of
schedule or behind the schedule in terms of dollars.

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 Formula for Schedule Variance

• Formula for Schedule Variance (SV)

– Schedule Variance can be calculated by subtracting planned value
from earned value.
– Schedule Variance = Earned Value – Planned Value
– SV = EV – PV
– From the above formula, we can conclude that:
– If Schedule Variance is positive, this means you are ahead of
schedule.
– If Schedule Variance is negative, this means you are behind
schedule.
– If Schedule Variance is zero, this means you are on schedule.
– When the project is completed Schedule Variance becomes zero,
because at the end of the project all Planned Value has been
earned.
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 Example for Schedule Variance

• You have a project to be completed in 12 months and the

cost of the project is 100,000 USD. Six months have passed
and 60,000 USD has been spent, but on closer review you
find that only 40% of the work has been completed so far.
• Find the project’s Schedule Variance (SV), and determine if
you are ahead of schedule or behind schedule.
– Given in the question:
– Actual Cost (AC) = 60,000 USD
– Planned Value (PV) = 50% of 100,000 = 50,000 USD
– Earned Value (EV) = 40% of 100,000 = 40,000 USD
– Now, Schedule Variance = Earned Value – Planned Value
– = 40,000 – 50,000 = – 10,000 USD
– The project’s Schedule Variance is -10,000 USD, and since it is
negative, you are behind schedule.
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 Cost Variance

• Cost Variance is as important as Schedule Variance. You

must complete your project within the approved budget.
Exceeding planned budget is bad for you and your
stakeholders.
• It is all about the money, and clients are very cautious about
what they are spending. Organizations are sensitive towards
it because any deviation from the cost baseline can affect
their profit, and, worst case, they may have to put more
money into the project to complete it. This is especially
detrimental if the contract is fixed price.
• Cost Variance deals with the cost baseline of the project. It
provides you with information about whether you are over
budget or under budget, in terms of dollars. Cost Variance is
a measure of cost performance of a project.
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 Formula for Cost Variance

• Cost Variance can be calculated by subtracting actual cost

from earned value.
• Cost Variance = Earned Value – Actual Cost
• CV = EV – AC
• From the above formula, we can conclude that,
– If Cost Variance is positive, this means you are under budget.
– If Cost Variance is negative, this means you are over budget.
– If Cost Variance is zero, this means you are on budget.

ITSU 2006 [ Lesson 9 ] Copyright © 2018 VIT, All Rights Reserved 13

 Example for Cost Variance

• You have a project to be completed in 12 months and the

cost of the project is 100,000 USD. Six months have passed
and 60,000 USD has been spent, but on closer review you
find that only 40% of the work has been completed so far.
• Find the project’s Cost Variance (CV), and determine if you
are under budget or over budget.
– Given in the question:
– Actual Cost (AC) = 60,000 USD
– Earned Value (EV) = 40% of $100,000 = 40,000 USD
– Now, Cost Variance = Earned Value – Actual Cost
– CV = EV – AC
– = 40,000 – 60,000
– = –20,000 USD
– Hence, the project’s Cost Variance is -20,000 USD, and since it is negative, you are
over budget.
ITSU 2006 [ Lesson 9 ] Copyright © 2018 VIT, All Rights Reserved 14
 Schedule Performance Index

• The Schedule Performance Index indicates how efficiently

you are actually progressing compared to the planned
project schedule.
• As per the PMBOK Guide, “The Schedule Performance
Index (SPI) is a measure of schedule efficiency, expressed
as the ratio of earned value to planned value.”
• The Schedule Performance Index gives you information
about the schedule performance of the project. It is the
efficiency of the time utilized on the project.

ITSU 2006 [ Lesson 9 ] Copyright © 2018 VIT, All Rights Reserved 15

 Formula for Schedule Performance Index

• Formula for the Schedule Performance Index (SPI)

– The Schedule Performance Index can be determined by dividing
earned value by planned value.
• Schedule Performance Index = (Earned Value)/(Planned Value)
• SPI = EV/PV

• With the above formula you can conclude that:

– If the SPI is greater than one, this means more work has been completed than the
planned work. In other words, you are ahead of schedule.
– If the SPI is less than one, this means less work has been completed than the
planned work. In other words, you are behind schedule.
– If the SPI is equal to one, this means work is being completed at about the same rate
as planned, you are on time.
– While calculating the Schedule Performance Index, make sure that you consider all
tasks. Sometimes you may only consider the tasks on the critical path while ignoring
the rest, this will cause an erroneous result. Therefore, ensure that non-critical
activities are included.

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 Example for Schedule Performance Index

• You have a project to be completed in 12 months and the

cost of the project is 100,000 USD. Six months have passed
and 60,000 USD has been spent, but on closer review, you
find that only 40% of the work has been completed so far.
• Find the Schedule Performance Index and deduce whether
the project is behind or ahead of schedule.
– Actual Cost (AC) = 60,000 USD
– Planned Value (PV) = 50% of 100,000 USD = 50,000 USD
– Earned Value (EV) = 40% of 100,000 USD = 40,000 USD
– Now, Schedule Performance Index (SPI) = EV / PV
– = 40,000 / 50,000 = 0.8
– Hence, the Schedule Performance Index is 0.8
– Since the Schedule Performance Index is less than one, you are
behind schedule.
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 Cost Performance Index

• The Cost Performance Index helps you analyze the

efficiency of the cost utilized by the project. It measures the
value of the work completed compared to the actual cost
spent on the project.
• As per the PMBOK Guide, “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.”
• The Cost Performance Index specifies how much you are
earning for each dollar spent on the project. The Cost
Performance Index is an indication of how well the project is
remaining on budget.

ITSU 2006 [ Lesson 9 ] Copyright © 2018 VIT, All Rights Reserved 18

 Formula for Cost Performance Index

• The Cost Performance Index can be determined by dividing

earned value by actual cost.
– Cost Performance Index = (Earned Value)/(Actual Cost)
– CPI = EV/AC
• With the above formula you can conclude that:
– If the CPI is less than one, you are earning less than the amount
spent. In other words, you’re over budget.
– If the CPI is greater than one, you are earning more than the amount
spent. In other words, you are under budget.
– If the CPI is equal to one, this means earning and spending are
equal. You can say that you are proceeding exactly as per the
planned budget spending, although this rarely happens.

ITSU 2006 [ Lesson 9 ] Copyright © 2018 VIT, All Rights Reserved 19

 Example of Cost Performance Index

• You have a project to be completed in 12 months and the

cost of the project is 100,000 USD. Six months have passed
and 60,000 USD has been spent, but on closer review, you
find that only 40% of the work has been completed so far.
• Find the Cost Performance Index for this project and deduce
whether you are under budget or over budget.
– Actual Cost (AC) = 60,000 USD
– Planned Value (PV) = 50% of 100,000 USD = 50,000 USD
– Earned Value (EV) = 40% of 100,000 USD= 40,000 USD
– Now, Cost Performance Index (CPI) = EV / AC
– = 40,000 / 60,000 = 0.67
– Hence, the Cost Performance Index is 0.67
– Since the Cost Performance Index is less than one, this means you are
earning 0.67 USD for every 1 USD spent. In other words, you are over
budget.
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 Summary

• A consistently high or low value of SPI or CPI is an

indication that something is wrong with your planning and/or
cost estimates. If this is the case, check all assumptions and
estimates for accuracy and take corrective action as
needed.
• What is the difference between Cost Variance, Schedule
Variance and Cost Performance Index, and Schedule
Performance Index?
– After studying the variances and indexes, you might be thinking that
if both sets of equations (i.e. variances and indexes) provide the
same information, why not discard one set of equations? Why not
take only variances into account, or just performance indexes?

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 Summary

– In fact, both are required, because there is a difference between

variances and indexes. With variances you find the difference
between the two values. With indexes, you get the ratio between the
two values.
– In cost or schedule variance, the result comes in dollar form. If this
number is negative, you say that the project is in bad shape.
However, if this number is positive, you say that the project is in
good shape. The problem with variance is that you cannot compare
the health of the project with another project if your organization has
many projects.
– Therefore, you use the Performance Indexes to compare the health
of the project among many projects. The Performance Index is the
ratio between the parameters, and only a glimpse of these ratios will
be sufficient to determine health of the project. This makes it easier
for you to compare the relative health of all projects.
– Moreover, to get the efficiency, you need indexes.

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 Figure 10.4 Overview of controlling a project.

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 Figure 11.1 Change control management.

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 Figure 11.2 Overview of managing project changes.

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 Figure 12.3 Overview of managing project deliverables.

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 Figure 13.1 Overview of managing project issues.

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 Figure 14.1 Overview of managing project risks.

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 Figure 15.2 Overview of managing project quality.

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 Figure 17.2 Overview of managing project communications.

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