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.
What 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).
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.
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.
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.
Many thanks indeed
You’re welcome Sulaiman.