Earned Value

Earned Value provides a means of detecting the nature and extent of

project cost and schedule variance at an early stage so that corrective action
can be taken by the project team. Quite simply, three measures are
determined, and the relationship between them indicates whether the
project is:

 ahead of schedule, behind schedule or on schedule

 under budget, over budget or on budget.

Although initially it seems complicated, it is really quite logical if the ‘jargon’

is ignored. Full details of Earned Value are contained in the Australian
Standard, AS 4817, Project performance using Earned Value (Standards
Australia 2003).

The three measures required to measure project performance are:

Planned Value (PV) (previously referred to as Budgeted Cost of Works

Scheduled (BCWS)) – this is the baseline budget from the Project Plan, and
represents the approved budget to complete the project. When the costs of
the respective elements from the work breakdown structure are distributed
over the entire project on a timeline, it can be represented by a graph
showing the cumulative costs scheduled to take place. This is the classical
‘S-curve’ of project expenditure for conventional expenditure patterns as
indicated below
(Source: Burke 2003, Fig. 14.8, p. 206, colour enhanced by USQ.)

Actual Costs (AC) (previously referred to as Actual Cost of Works

Performed (ACWP)) – this is what it says. The actual expenditure is recorded
and plotted as an overlay on the PV graph. If the line of the AC is above the
line of the PV, common sense tells us that we are ‘over-spending’ or
exceeding our approved budget. If the line of the AC is below the line of the
PV, this tells us we are ‘under-spending’ or spending less than the approved
budget. Or are we? Unfortunately, it does not take into account the rate at
which we are completing the scheduled works, so we need one more
measure to provide us with all of the information we require.

Earned Value (EV) (previously referred to as Budgeted Cost of Works

Performed (BCWP)) – this represents the budget allocation for specific works
performed to date, or the value that we originally placed on the works that
we have now completed. This is the measure against which the other two
are compared. Note the following important concepts:

 ‘Value’ does not mean cost – it represents the worth to the client
sponsor, and
 the Earned Value (EV) of any item can never exceed the Planned Value
(PV).

If our Earned Value is not consistent with our actual expenditure to date
(AC), then we have a Cost Variance (CV). This could be positive (under
budget) or negative (over budget).

If our Earned Value is not consistent with the original allocated budget for
works scheduled to be completed by that date (PV), then we have a
schedule variance (SV). This could be positive (ahead of schedule) or
negative (behind schedule).

Figure below provides a simple illustration of the significance of the three

measures and how they can be used to detect schedule and cost variance.
(Source: Wysocki, Beck & Crane 2000, Fig. 13.10, p. 283, colour enhanced
by USQ.)

The simple calculations to determine these variances are:

 Cost Variance (CV) = Earned Value – Actual Costs (negative indicates

a cost overrun)
 Schedule Variance (SV) = Earned Value – Planned Value (negative
indicates a time overrun)

From this data, other calculations can also be carried out as suggested in the
glossary of terms in table3, including the budgeted cost at completion,
estimate at completion, forecasted cost at completion, as well as forecasted
date of completion. Different texts will use different terms, so don’t be
concerned with the detail. Focus on the principles of Earned Value analysis
and how it can be of assistance to you and your management of projects.

Table 3: Glossary of terms for Earned Value Analysis

Term Meaning
AC Actual Costs (of the works performed)
BAC Budget at Completion (total budgeted cost of baseline scope of
works)
Baseline Original approved plan plus or minus approved scope
Budget Cost target for a given scope of works
CPI Cost Performance Index (cost efficiency ratio of EV to AC –
CPI=EV/AC)
CV Cost Variance (EV-AC)
EAC Estimate at Completion (costs to date plus estimate to complete
activity)
ETC Estimate to Complete ( additional costs to complete an activity)
EV Earned Value
LOE Level of Effort (unmeasured effort of a general or supportive nature
with no deliverable end product e.g. supervision)
PV Planned Value
SPI Schedule Performance Index (schedule efficiency ratio of EV against
PV – SPI=EV/PV)
SV Schedule Variance (EV-BAC)
VAC Variance at Completion (BAC-EAC)

(Source: Standards Australia 2003)

Figure below provides a graphical view to illustrate the basic concept of

Earned Value to determine cost and schedule variances. More details of
Earned Value are provided in the text book and in the selected readings.
(Source: Standards Australia 2003, p. 14, colour enhanced by USQ.)