Earned Value Management in Projects

Earned Value Management (EVM)

Earned value analysis can seem intimidating because of the various acronyms such as AC, EV, BAC, PV, etc.; however, it is a simple methodology that can be used to track your project’s budget and schedule. We will look at the basic terminology and then work through an example.

What is EVM?

Earned value management, commonly just referred to as earned value analysis, is a powerful methodology used to objectively measure the performance and progress of a project. Furthermore, it is used to forecast the final project outcome. The cost and schedule set during the planning phase establish a baseline. This baseline is then used to compare the actual performance of the project in terms of cost and schedule at a particular point in time.

Some Important Questions that EVM can answer

 

1. 1. Is the project currently over or under budget?

1. 1. How much is the project over or under budget?

1. 1. When will the project be completed?

1. 1. What will the project cost?

1. 1. What is causing the cost and schedule variances?

EVM uses for Project Managers include:

 

1. 1. Forecasting the cost to complete

1. 1. A standardized reporting method for cost and schedule performance

1. 1. Control changes to the scope

1. 1. Provide insights into variances

EVM Acronyms and Terminology  

Actual Cost (AC) – This is the cost for worked performance and can be either the cumulative cost to date or for a specific time period. Also known as actual cost of work performed (ACWP)

Budget at Completion (BAC) – This is the sum of all the budgets allocated for work to be performed throughout the project.

Earned Value (EV) – A measure of the authorized work performed, either cumulative to date or for a specific period. Also known as budgeted cost for work performed (BCWP)

Estimate of Completion (EAC) – The forecast total cost to complete all the work using the actual costs to date and the estimate to complete (ETC).

Estimate to Complete (ETC) – The forecast cost to complete all the remaining work. This can be accurately estimated by analyzing the remaining work or calculated using a statistical approach.

Planned Value (PV) – The budget for scheduled work at a given time. This is the work that should have been accomplished at a certain date.

Variance at Completion – This is the forecast the budget deficit or surplus at the end of the project.

Schedule variance (SV) – Determines whether a project is behind or ahead of schedule in terms of physically completed work. A positive value indicates that more work has been done than planned and a negative value indicates less work has been done than planned.

Cost variance (CV) – Determines whether a project is overbudget or underbudget.

Schedule performance index (SPI) – Indicates how the team is working compared to the plan. A value less than 1.0 indicated less work is being accomplished than was planned. 

Cost performance index (CPI) – Indicated the cost efficiency of a project. A value less than 1.0 indicates that more money is being used to complete the work.

To complete performance index (TCPI) – This compares the work completed to date with the remaining budget allocated to complete the work.

For a detailed EVM glossary, click here.

Basic Calculations

SV = EV – PV

SV% = SV/PV

SPI = EV/PV

CV = EV – AC

CV% = CV/EV

CPI = EV/AC

Forecasting Calculations

EAC = AC + ETC

VAC = BAC – EAC

VAC% = VAC/BAC

TCPI_EAC = (BAC – EV)/(EAC – AC)

TCPI_BAC = (BAC – EV)/ (BAC – AC)

% Complete = EV/BAC

% Spent_EAC = AC/EAC

% Spent_BAC = AC/BAC

Statistical calculations for ETC and EAC

Estimating the ETC and EAC should be done in a detailed manner by analyzing the remaining work. However, the ETC and EAC can be calculated statistical too but do not take into account any management interventions.

ETC = (BAC – EV)/CPI

EAC = BAC/CPI

CV	CPI	SV	SPI	Schedule	Budget
> 0	> 1.0	> 0	> 1.0	Ahead	Under
= 0	= 1	> 0	> 1.0	Ahead	On
< 0	< 1.0	> 0	> 1.0	Ahead	Over
> 0	> 1.0	= 0	= 1.0	On	Under
= 0	= 1	= 0	= 1.0	On	On
< 0	< 1.0	= 0	= 1.0	On	Over
> 0	> 1.0	< 0	< 1.0	Behind	Under
= 0	= 1	< 0	< 1.0	Behind	On
< 0	< 1.0	< 0	< 1.0	Behind	Over

Earned Value Analysis Calculation Example

Let’s assume we are busy with a specific project task. The authorized budget is $1000 (BAC) and the work planned to date is $350 (PV). The work performed to date is $300 (EV). The costs incurred to date are $310 (AC).

Before we jump into the calculations, let’s first see how we obtain the PV, EV and AC amounts mentioned above. Firstly, for the planned value we have assumed the task should have been 35% complete to-date, i.e., 35% x $1000 = $350.

However, the task is currently only 30%, i.e., 30% x $1000 = $300.

The actual costs are obtained from all the costs associated with this task which can include labor hours, materials, equipment, etc. In this example, we assume the actual cost to date is $310.

Let’s start looking at the calculations and interpreting the results:

SV = EV – PV 

= 300 – 350

= -50

∴ Less work has been done compared to what was planned.

 

SV% = SV/PV

= (-50/350) x 100

= 14 %

∴ 14 % of the planned work has not been done.

 

SPI = EV/PV

= 300/350

= 0.85

∴ Less work is being performed than planned as the value is less than 1 or at a rate of 85%.

 

CV = EV – AC

= 300 – 310

= -10

∴ The value is negative and therefore the project is over budget.

 

CV% = CV/EV

= (-10/300)

= 3.3 %

∴ The project is 3.3% over budget.

CPI = EV/AC

= 300/310

= 0.97

 ∴ The project resources can be utilized more efficiently as the CPI is less than 1.0.

 

% Complete = EV/BAC

= (300/1000) x 100

= 30%

∴ The project is 30% complete

Assuming after a thorough review of the project, the project manager estimates the ETC to be $750.

 

EAC = AC + ETC

= 310 + 750

= $1060

∴ The project is forecast to be over budget. 

VAC = BAC – EAC

= 1000 – 1060

= -$60

∴ The project is forecast to be $60 over budget. 

 

VAC% = VAC/BAC

= (-60/1000)

= -6 %

∴ The project is forecast to be 6% over budget. 

 

% Spent_EAC = AC/EAC

= 310/1060

= 29.2%

% Spent_BAC = AC/BAC

= 310/1000

= 31%

TCPI_EAC = (BAC – EV)/(EAC – AC)

= (1000 – 300) / (1060 – 310)

= 0.93

∴ It is likely that the team can achieve the EAC as the CPI is currently higher at 0.97. 

 

TCPI_BAC = (BAC – EV)/ (BAC – AC)

= (1000 – 300)/ (1000 – 310)

= 1.0

∴ The team needs to increase the CPI from 0.97 to 1.0 to achieve the budget, this could still be possible.

Another resource on EVM

NASA EVM handbooks