Planned Value (PV), Earned Value (EV) & Actual Cost (AC) in Project Cost Management

Planned-Value-PV-Earned-Value-EV-Actual-Cost-AC-Analysis-in-Project-Cost-Management

In my previous blog post I have discussed the Earned Value Management (EVM), and explained to you how it is different from traditional project management and its benefits over traditional project management.

In the same blog post, I also mentioned three basic elements of EVM, and now is the time to discuss them into detail.

The three basic elements of EVM are as follows:

  1. Planned Value (PV)
  2. Earned Value (EV)
  3. Actual Cost (AC)

From this point onwards, you are going to see many mathematical calculations; therefore, pay attention and don’t skip any step. If you skip steps, further calculation will be very difficult for you and you may have problems with understanding more advanced concepts in the cost management knowledge area.

The calculations involved here are very basic in nature once you understand them, and the rest will be a piece of cake for you.

In this blog post, I’ll try to give your every detail; however, I also suggest you keep a good PMP exam reference book for further reading.

Okay, let’s get started.

Planned Value (PV)

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).

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

Planned Value is also referred to as the Budgeted Cost of Work Scheduled (BCWS).

Formula to calculate the Planned Value (PV)

Planned Value = (Planned % Complete) X (BAC)

A mathematical 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 Planned Value (PV)?

Let us see what we have been given in this question.

Project duration: 12 months

Project Cost (BAC): $100,000 USD

Time elapsed: 6 months

Percent complete: 50% (as per the schedule)

The definition of Planned Value says that the 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, the Planned Value (PV) is $50,000 USD.

Application of Planned Value

Planned Value is used to calculate Schedule Variance (SV), and Schedule Performance Index (SPI).

Earned Value (EV)

Although, all three elements have their own significance, Earned Value has more respect among them, as it is the most important element of all.

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.”

In other words, the Earned Value is the value of the work actually completed to date, or you can say that if the project is terminated today, the Earned Value will show you the value that it has produced.

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

Formula to calculate the Earned Value (EV)

Earned Value = % of completed work X BAC

A mathematical example of Earned Value (EV)

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 is completed so far.

What is the 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 says that it is the value of the project that has been earned.

Hence,

Earned Value = 40% of value of total work
= 40% of BAC
= 40% of $100,000
= 0.4 X $100,000
= $40,000

Therefore, the Earned Value (EV) is $40,000 USD.

Application of Earned Value

Earned Value is used to calculate Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI), Cost Performance Index (CPI), Estimate at Completion (EAC), and To Complete Performance Index (TCPI).

Actual Cost (AC)

As per the PMBOK Guide “Actual Cost (AC) is the total cost actually incurred in accomplishing work performed for an activity or WBS component.”

The Actual Cost is the total cost incurred for the actual work completed to date; or simply put, it is the amount of money you have spent to date.

The Actual Cost is also known as the Actual Cost of Work Performed (ACWP).

Formula to calculate the Actual Cost (AC)

Finding the Actual Cost is simplest of all.

There is no special formula to calculate the Actual Cost. It is an amount that has been spent and can be found very easily in the question.

A mathematical 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 is completed so far.

What is the Actual Cost (AC)?

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 USD on the project so far.

Hence,

The Actual Cost is $60,000 USD.

Application of Actual Cost

The Actual Cost is used to calculate Cost Variance (CV), and Cost Performance Index (CPI).

Here all discussion about the elements of Earned Value Management comes to its end, however,before I conclude this blog post, let’s revise some key points:

  • Planned Value is the money that you should have spent as per the schedule.
  • Earned Value is the value of the work actually completed to date.
  • Actual Cost is the amount spent on the project to date.

Here is where this blog post completes, so now you can move to my next blog post on Schedule Variance (SV) and Cost Variance (CV), and let me know if you have anything on your mind through the comments section.

image credit => renjith krishnan / FreeDigitalPhotos.net 

Comments

  1. Manishi Sarma says

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

  2. Gabriela Garcia R says

    Thank you so much! This was very easy, helpful and awesome explaination!
    In a very comprenhensible text!
    :-)

  3. Sam Lee says

    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

    • Fahad Usmani says

      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.

      • Athar Ali Khan says

        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???

        • Fahad Usmani says

          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.

  4. V. John says

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

  5. jesus says

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

  6. melissa says

    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!

  7. Adeola says

    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.

    • Fahad Usmani says

      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?

      • Adeola says

        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?

        • Fahad Usmani says

          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?

          • Jacobia O. says

            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.

  8. Muhammad Ali says

    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.

    • Fahad Usmani says

      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.

  9. Saad says

    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

    • Fahad Usmani says

      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.

      • Athar Ali Khan says

        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??

  10. Imran Khan says

    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?

    • Fahad Usmani says

      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.

  11. Rio R says

    Thank you very much, Fahad…
    This is definitely the simplest and clearest way to explain PV, EV, and AC.
    Very very helpful article.. :)

  12. Pavan says

    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

  13. Neha says

    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!

  14. Sanjay Kumar says

    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?

    • Fahad Usmani says

      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….

  15. Sesha says

    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.

    • Fahad Usmani says

      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

  16. peggy says

    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

    • Fahad Usmani says

      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.

  17. Andy Furman says

    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).

  18. Michael says

    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.

    • Fahad Usmani says

      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.

      • Michael says

        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

  19. iSayed says

    I still don’t understand the difference between PV and EV. Isn’t EV the same as AC – i.e. the actual amount of work that has been done? The definition of EV is very vague in the PMBOK as well as everywhere on the internet.

    • Fahad Usmani says

      Difference between these terms is very clear.

      Earned Value is the value of the completed work. Let us say that by this time you have completed 10% of the project and total worth of the project is 100,000 USD. In this case the Earned Value will be 10,000 USD.

      However, you notice that, to complete this much of work you have spend 15,000 USD. This is your Actual Cost.

      Again when you see your schedule, which says that by time you should have completed 13% of the work. This means that your Planned Value is 13,000 USD.

      Hope it helps.

  20. Manish Katole says

    Dear Sir,

    Could you please explain the ways to get the ‘planned percent complete’ and ‘percent of work completed’.

    Thanks and Regards,
    Manish

    • Fahad Usmani says

      Usually these information are given in the question itself. Otherwise you can get it with either variance formulas or the performance index formulas.

  21. Tony says

    Hi, thanks for helping out in this forum. I do understand EV from theoretical discussions but in practical terms have some few questions. Now, for a contractor working on a project for a client. The contractor has a budget given by the client which is the PV, in respect to actual cost am a bit confused. Will the AC be the cost (internal cost) to the contractor or to the client, knowing that the contractor makes a margin from the client based on rate to client minus internal rate.

    Any help on this?

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