The Earn Value Management (EVM) has three basic elements:

- Planned Value (PV)
- Earned Value (EV) &
- Actual Cost (AC)

In this blog post I’m going to discuss these three basic elements of Earn Value Management (EVM).

It is very important for you to understand these three EVM elements. Read this blog post again and again until you acquire full command over it. If you don’t understand these concepts well, you may have problems with more advanced concepts in cost management; e.g. Schedule Performance Index (SPI) and Cost Performance Index (CPI). I’ll try my best to give you every detail and steps to understand concepts and calculation involved here, but I also recommend you to keep a good PMP Exam Preparation reference book with you to refer to. These concepts and calculations are very easy, and once you understand it, the rest will be like a piece of cake.

Okay, let’s get started…

### Planned Value (PV)

The Planned Value is the approved value of the work to be completed in a given time period; i.e. *it is the money that** you should have spent as per the schedule.*

As per the PMBOK Guide “*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 also known as Budget At Completion (BAC).*”

PV = (Planned % Complete) X (BAC)

Planned Value is also known as The Budgeted Cost of Work Scheduled (BCWS).

Let me explain with the help of an example.

**You have a project to be completed in 12 months and the total cost of the project is $100,000. Six months have passed and the schedule says that 50% of the work should be completed. **

**W****hat is the Planned Value?**

Let us see that what we have been given in this question-

Project duration – 12 months**
**Project Cost (BAC) – $100,000

**Time elapsed – 6 months**

**Percent complete – 50% (as per the schedule)**

The definition of Planned Value says that Planned Value is the value of the work that should have been completed so far (as per the schedule).

Therefore, in this case we should have completed 50% of the total work.

Hence,

Planned Value = 50% of value of the total work

= 50% of BAC

= 50% of $100,000

= (50/100)X $100,000

= $50,000

Therefore, Planned Value (PV) is $50,000

### Earned Value (EV)

The Earned Value is the value of the work actually completed to date; i.e. it is the value of the project that you have earned so far.

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.*”

Earned Value is also known as the Budgeted Cost of Work Performed (BCWP).

**Example:**

**You have a project to be completed in 12 months and the total cost of the project is $100,000. Six months have passed and $60,000 is spent, but on closer review you find that only 40% of the work is completed so far.**

**What is the Earned Value (EV)?**

From the above question you can clearly see that only 40% of the work is actually completed.

The definition of Earned Value says that it is the value of the project that has been earned.

In this case only 40% of the work has been completed.

Hence,

Earned Value is = 40% of value of total work

= 40 % of BAC

= 40% of $100,000

= 0.4X$100,000

= $40,000

** **Therefore, Earned Value (EV) is $40,000

Actual Cost (AC)

The Actual Cost is the total cost incurred for the actual work completed to date; i.e. *it is the amount of money you have spent till now.*

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 the Actual Cost of Work Performed (ACWP).

**Example:**

**You have a project to be completed in 12 months and the total cost of the project is $100,000. Six months have passed and $60,000 is spent, but on closer review you find that only 40% of the work is completed so far.**

**What is the Actual Cost (AC)?**

Finding the Actual Cost (AC) is simplest of all.

As per the definition of Actual Cost, it is the amount of money that you have been spent so far.

And in our question, you have spent $60,000 on the project so far.

Hence,

Actual Cost is $60,000

This is all about Earned Value, Planned Value and Actual Cost. In the next blog post, we will discuss the Variances; i.e. Schedule Variance (SV) and Cost Variance (CV).

I have written an eBook “PMP Formula Guide” where I have explained all PMP formulas with examples and practice questions.

Here is the link for this eBook:

image credit => renjith krishnan / FreeDigitalPhotos.net

good, in the simplest form and style, easily understandable. No complicated long solution or words.

Thanks Manishi for your appreciation.

This was very helpful, thank you!

You are welcome!

Great examples! Helped me understand

I am happy that it helped you to understand the earned value analysis concepts.

Thank you!

Understanding in simple language.

Thanks alot for this Explanation it really helps me

I am glad that it helps you.

Thanks for the wonderful explaination…

Thank you so much! This was very easy, helpful and awesome explaination!

In a very comprenhensible text!

dear

i’d like to thank you for your effort and time

best regards

What table/field corresponds to EV, PV and AC in the SQL database?

Sorry Sam, I have no idea about the SQL database.

For a project, I have Planned Value :1725.02

Actual Cost is: 1709.02

Can we figure out Earned Value from this?

The system yielded 1865.91 which is higer than both numbers. Is this possible?

Thanks

No, you can not figure out the earned value from the given data.

Yes, it is possible to have earned value more than the actual cost and the planned value.

Hope it helps.

Dear Sir,

Why cant we calsulate EV from the given information????

I mean, is NOT really possible OR the question require more information…

BAC’s planned completion is PV

BACs actual completion is EV

Money spent so far from BAC is AC…

So, is there no banlance equation combining ALL four in it…

Something like PV + EV + AC = BAC???

Let us say that you have completed the project. Just think that in this case how much you have spend, how much you have earned, and what is your planned value.

If we go by your formula

BAC = PV + EV + AC

BAC = 3 times of BAC (approximately)

This is so because at the end of your project, planned value will be equal to BAC, and about equal amount has been spent to complete it same amount is earned.

Therefore your formula is not correct.

Very well explained, simple, straight to the point and with relevant, brief examples. Exactly what students would look for. Thumbs up

Thank you Mr. V. John.

Me parace muy bien que nos ayuden a interpretar los conceptos de la guia del PMBOK lo leia y me era complicado enterderlo.Gracias

Thanks for the explanation, I am most obliged.

You’re welcome and thanks for stopping at PM Study Circle.

simple to understand, good work, keep going

Wow, I can’t thank you enough. I was staring at my CAPM study guide, and pretty stumped about Rita’s definitions on this one. You saved me!

very simple and straight forward. thank u sir

An amount of 25,000$ was given to a small project team to produce an application for the duration of 12months. Rate of performance for the project is 20,000$. The budget at completion (BAC) is 120,000$. Please how do i find the cost variance (CV), earned value (EV) and actual cost (AC)?

Thank you.

Hello Adeola,

This question has some contradictory statements. You’re saying that project team has been given a 25,000$ money to produce an application within 12 months. According to this statement, BAC is 25,000$.

Now again in same question, you are saying that BAC is 120,000$. How is this possible?

Yes it got me confusing. Its actually a question from an assignment given to me.

The original question is “Amount of 25,000$ (PV) was given to a small project team to produce simple android mobile application for the duration of 12 months. Rate of performance for the project is 20,000$(RP). The budget at completion is 120,000$.”

I omitted (PV) from the earlier message. Does it make any sense now?

Sorry Mr. Adeola but it still don’t make sense to me.

The $25,000 is BAC for the project team, because project team has to complete the product from this amount.

Now again you are saying that BAC is $120,000. How is it possible?

Fahad,

I hope you do not mind but I wanted to get in touch with you and could not find a way to directly email you. You wrote a very helpful article on this site regarding the three estimating methods and I would like to know if you know of any resources that show actual examples with each method applied.

I am trying to understand the difference between Parametric estimating and Bottom Up as both seem to provide the same output to me. Please help me to understand if there is any difference.

I appreciate any help you can provide and thank you for reading my message.

This site is extreamly useful,

Thank you kindly for your efforts !!

Hiren

You’re welcome Hiren.

Dear Fahad,

Thanks for the great efforts you did, the material is very easy to digest and useful. you saved our time to understand complex things in a simplest way.

Thank you Muhammad. I always try to put concepts in simple way so that people can easily digest them.

Thanks again for appreciating my efforts.

I m still confused that what is the major difference between earned value and actual cost. What i perceived from you article is that earned value is in terms of the work which was performed/achieved at any spontaneous time and it has no concern with the cost involved in it whereas in actual cost the major parameter is the cost. Do correct me if i am wrong

Let’s say that you have $100 project. At certain point you notice that you have spend $50.

Therefore this $50 is you Actual Cost (AC).

Now, on closer review you notice that only 40% of the project is completed. Therefore, Earn Value (EV) will be the 40% of total work; i.e. $40.

Thanks Fahad Sb… for a moment Saad got me confused as well… BUT saved my undersading going off tarck..

Can we say!!! AC is the amount of MONEY you have spent on a project at any pointif time???? BUT “EV” is the % completed by spending that MONEY???

cause it might be possible that you have spent $80 but the completed work is only 30%

So 80 becomes teh AC and 30% becmes the EV

Right Sir??

You are right, EV is amount of money that you have earned by spending the AC.

Your project has a BAC of $400,000 and is expected to last one year. The project work is scheduled to be completed in equal amounts each month. Currently, the project is in month three, but is only 20% complete. You have spent $35,000 to completed the work. What is the PV for this project?

$8750

Hello Imran, sorry for this late reply. I was thinking that I have already replied.

Anyway, solution is as follow:

As the question says, the project work is scheduled to be completed in equal amounts in each month. Therefore, Planned Value to be spent in any single month is 400,000/12 which is $33,333.00

Now, you’re saying that the project is in third month.

Therefore, the money spend till the end of third month will be three times the money spend in one month; i.e. 3*33,333.000 which will be $100,000 USD.

Hope this helps.

Thanks!

Sir can we:

(100% / 12) x 3 = 25%

PV = 25% of 400,000 => $100,000 USD

Will it be a right apporach to follow in future???

If concept is clear, you can calculate it anyway you like..

Many thanks indeed

You’re welcome Sulaiman.

Thank you very much, Fahad…

This is definitely the simplest and clearest way to explain PV, EV, and AC.

Very very helpful article..

I am glad you liked it.

Fahad,

Very nice way of explaining the concepts. Anyone can clearly understands the concepts with the examples provided. This is a very useful article. Thank you!!

Pavan S

Thank you Pavan for you comments and stopping by…

thanks Fahad… i am a complete fresher just joined an organization. I saw these words in measurement and metrics analyses… When i googled it out, found your explaination most simplest one….. Thanks a lot!

You are welcome Neha.

Hello Fahad..

Can we apply the PV and EV concepts on FP projects using Fixed Milestone Billing (FMB) ?

If yes, then could you please let me know how this would need to be calculated?

Earn Value concepts provide you status of project and Fixed Milestone billing is way of making payment.

It is up to you that how you plan to make payment. You may make payment on monthly basis based on status report or based on some other parameters….

Dear Fahad,

Your Examples on PV, EV & AC and very clear.

I was struggling to know whats the difference between EV & AV, now you made me clear..

thank you very much for the detailed explanation.

Sesha.

This was the first article of series of few posts in cost management. I suggest you read all articles in this series to gain understanding of cost management concepts; e.g. SPI, CPI, EAC, ETC, TCPI, etc.

Fahad

Can you help me to understand how the “0.375″ in the answer was calculated.

You are a project manager who is in charge of an important project for your company. The project is 40% complete after 3 months and has cost $350,000. The budget for the project is $950,000 and is scheduled to last 8 months. How is the project performing?

Reason

The project is ahead of schedule and under budget

CPI=EV/AC CPI=(950,00*40%)/350,000 CPI=380,000/350,000 CPI=1.09(under budget); SPI=EV/PV SPI=380,000/(950,00 x 0.375) SPI=380,000/36,250 SPI=1.07 (ahead of schedule

Hello Peggy,

Let us calculate the Planned Value from the given question:

Question says that the total budget is 950,000 USD, and the duration is 8 months.

It means, you have to spend 950,000 USD in 8 months,

Therefore, money to be spend in one month = 950,000*1/8

and, money spend in three months = (950,000*1/8)*3

= 950,000*3/8

=950,000*0.375

=356,250 USD

Hope this helps.

Need to answer this questions

1. What is the actual cost to date? Is the project over or under budget?

2. What is the SV for the project? Is the project ahead of or behind schedule?

3. Calculate CPI and SPI.

4. Assume a typical variance and calculate ETC and EAC.

5. Assume an atypical variance and calculate ETC and EAC.

Assume that A project has earned value of planned value of $628,000 and earned value of $590,000 and that you have calculated a CV of ($50,000).

This is a very simple question, just apply the formula and get the answer.

I suggest you read this blog post and the links given inside it.

http://pmstudycircle.com/2012/05/fast-forward-earned-value-management-evm-forecasting-tcpi/

And, to calculate the EAC you need the BAC (Budget).

How do you call the difference between Actual Cost (AC) and Planned Value (PV)?

The answer is not Cost Variance

For cost variance, you can refer this blog post:

http://pmstudycircle.com/2012/05/schedule-variance-sv-cost-variance-cv-in-project-cost-management/

Good one.

Easy to understand and start over.

Thank you Venkat for your comment.

Thank you for your very good explanation.

Question: When we are talking about percentage of completion are we talking with regards to output, expenditure or time?

For example, if my project is to make 100 cars in one year, but i buy all my materials upfront and this accounts for half my expenditure, then when is the project 50% complete? Is it:

1) After ive made 50 cars

2) After half a year

3) After the first month when ive spent 50% of my planned budget

Thank you.

We are talking about the Values. For example, Earned Value, Actual Cost and Planned Value.

Producing cars is an example of operation.

Anyway I understand what you want to ask…

You will always measure your performance against approved plan. If your plan says that you should have done these things to date, and you do not able to do so, you’re in bad shape.

Thank you for your reply, im just trying to establish that where you have put ‘Percent complete – 50% (as per the schedule)’ how i can tell im 50% of the way through my project.

Yes i agree if your plan is saying you should have completed more by a certain date then your behind schedule but that dosen’t tell you your percentage completion, just that your not where you planned to be.

I’m sure it differs between projects but my question is whats the generic way of dividing up your project into 20%, 30%, 50%, before the project has begun…is it time related?

Again thank you

Yes it is time related with cost factor melted in…