earned value management evm pmp

There are a few common queries that you’ll deal with as a project manager. Most of the time, it will be about the status and progress made on the given project how much work you have completed, what is remaining, etc.

Clients are not interested in daily reports. They need broader information to help them visualize the money spent on the project and the value of the work completed.

Earned Value Management (EVM) is your aid in this. It helps you find the project’s status, its progress, and its performance.

What is Earned Value Management (EVM)?

In the past, project managers used to have two parameters: planned expenditures and actual expenditures.

These two variables help the project manager compare planned spending with actual spending. However, this is not enough information to get the whole picture; the information was incomplete. It was not possible to understand the relationship between the completed work and the money spent.

Getting the cost performance of the project was not possible.

This is where Earned Value Management (EVM) comes in. It helps project managers overcome the shortcomings of traditional project management methods.

Earned Value Management was developed in the sixties when the US Air Force started using it in their programs. Since 2005, it has become a part of general federal project risk management. These days Earned Value Management is a requirement for US government contracts.

Earned Value Management vs Traditional Project Management

Earned Value Management has several advantages.

The traditional method focuses on planned and actual expenditures, while Earned Value Management focuses on actual accomplishments and gives you an insight of the project.

Earned Value Management helps in analyzing the cost performance, schedule performance, cost variance, and schedule variance.

According to the PMBOK Guide,

“Earned Value Management (EVM) in its various forms is a commonly used method of performance measurements. It integrates project scope, cost, and schedule measures to help the project management team assess and measure the project performance and progress.”

Elements of Earned Value Management

Earned Value Management has three essential elements:

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

You can call them primary data points as well.

Planned Value

Planned Value is the scheduled cost of work planned in a given time. It is also called Budgeted Cost of Work Scheduled (BCWS). The total Planned Value of the project is the Budget at Completion (BAC).

Earned Value

Earned Value is the amount of money earned from the completed work at a given time.

Simply put, you can say that the Earned Value will show you the value of the completed work if the project was terminated today, which is also called Budgeted Cost of Work Performed (BCWP).

Actual Cost

Actual Cost is the money spent to date. It is also called the Actual Cost of Work Performed (ACWP). This is the easiest element of Earned Value Management to identify; it just takes one look at the question.

Visit: Earned Value, Planned Value, and Actual Cost

You can calculate the following variances and performance indexes with the help of these three elements:

  • Schedule Variance
  • Cost Variance
  • Schedule Performance Index
  • Cost Performance Index

Variances

You have two variances in Earned Value Management: Schedule Variance and Cost Variance. These help you track project performance in dollars.

Schedule Variance

Schedule Variance is the difference between Earned Value and Planned Value. It lets you know how much you are ahead or behind schedule in terms of dollars.

Schedule Variance = Earned Value – Planned Value

SV = EV – PV

You are behind schedule if the Schedule Variance is negative, you are ahead of schedule if the Schedule Variance is positive and on schedule if it is zero.

Cost Variance

Cost Variance is the difference between Earned Value and Actual Cost. It lets you know whether you are under or over budget.

Cost Variance = Earned Value – Actual Cost

CV = EV – AC

You are over budget if the Cost Variance is negative, you are under budget if it is positive Zero means you are on budget.

Visit: Schedule Variance and Cost Variance

Indexes

Like variances, indexes help you compare the planned progress with actual progress. This helps you understand how efficient your progress is. You have two indexes in Earned Value Management: Schedule Performance Index (SPI), and Cost Performance Index (CPI).

Schedule Performance Index

This is the ratio of Earned Value and Planned Value.

Schedule Performance Index = (Earned Value) / (Planned Value)

SPI = EV / PV

If the Schedule Performance Index is greater than one, you have completed more work than planned to at this time or you are ahead of schedule. If the opposite is true,  you have completed less work than planned and you are behind schedule. Lastly, if the Schedule Performance Index is equal to one, you have completed the work as planned and are on schedule.

Cost Performance Index

This is the ratio between the Earned Value and Actual Cost.

Cost Performance Index = (Earned Value) / (Actual Cost)

CPI = EV / AC

You are earning less than what you are spending or are over budget if the CPI is less than one. If it is greater than one, you are earning more than you are spending and are under budget. If the CPI is one, the cost spent is equal to the cost earned; you are on budget.

Visit: Schedule Performance Index and Cost Performance Index

Variance and performance indices are examples of derived data points.

Earned Value Management in Forecasting

Earned Value Management helps you to forecast the following:

  • Estimate at Completion
  • Estimate to Complete
  • Variance at Completion
  • To Complete Performance Index

These tools serve as an early warning sign.

Estimate at Completion

Estimate at Completion is the project’s total expected budget.

This is the price tag of the project at the end.

You can calculate the Estimate at Completion in four different scenarios. Please refer to my blog post on Estimate at Completion for further detail.

Estimate to Complete

Estimate to Complete lets you know the expected cost of completing the rest of the work.

You can calculate the Estimate to Complete in three different scenarios. Please refer to my blog post on Estimate to Complete for more details.

Variance at Completion

Variance at Completion tells you how much you will be under or over budget when the project is complete. It is the difference between the Budget at Completion and the Estimate at Completion.

Variance at Completion = Budget at Completion – Estimate at Completion

VAC = BAC – EAC

You have spent more than you planned to if the Variance at Completion is negative. You have completed the project within the planned budget if the difference is positive.

To Complete Performance Index

The To Complete Performance Index (TCPI) is the estimate of the cost performance required by the project to meet the budgeted goal. Please note that Cost Performance Index is the past performance while the To Complete Performance Index is the future cost performance.

You can calculate the TCPI by dividing the remaining work by the remaining funds.

TCPI = (Remaining Work) / (Remaining Funds)

There are two cases in which you can calculate the TCPI.

Case I: under budget

TCPI = (BAC – EV) / (BAC – AC)

Case II: over budget

TCPI = (BAC – EV) / (EAC – AC)

So, you can see how Earned Value Management helps you analyze the project’s performance and forecasting.

Visit: To Complete Performance Index

Benefits of Earned Value Management

Earned Value Management offers immense benefits to project managers, sponsors, clients, and organizations.

Here are a few benefits of Earned Value Management:

  • Greater control of project constraints.
  • Improved planning processes and correlates time-phased budgets to the project tasks.
  • Shows the project’s status and progress.
  • Any deviations from the baseline can be found early.
  • Measures the project’s cost and schedule performance.
  • Tracks your project’s performance.
  • Gives clients a better understanding of the project’s progress.
  • Improves communication and project visibility, which helps prevent scope creep.
  • Keeps an eye on deviations from any performance measurement baselines.
  • Finds the potential risk areas.
  • Increases clients’ confidence in your project’s success.

Summary

Earned Value Management helps analyze the project’s performance and predict the forecast. It provides you with quantitative data for decision making. Earned Value Management is an excellent communication tool for project stakeholders because it helps them understand the project’s insights.

Many PMP aspirants find EVM concepts difficult because of the mathematical calculations. However, these calculations are easy if you understand the concepts.

I have written seven blog posts on Earned Value Management and project forecasting. In these, I explain EVM concepts in simple language with examples. This blog post is the first blog post in a series of seven on Earned Value Management.

The following are links to the other blog posts:

These blog posts are in a particular sequence, and I request you to follow this order. Bookmark this blog post and use it as a reference for Earned Value Management concepts.

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Speak Your Mind

  • Fahad

    I came across this when I was searching for EVA long time ago and I found it enriching, thanks for that

    I am Quantity surveying MSc student in the UK, I have experienced EVM/EVA couple of year ago when working at Heathrow Airport. having experienced it then, I found it to be a very useful tool which I think it is under-utilized. EVM is not widely used in the UK, some infrastructure project uses it.

    My research topic is “Could EVM influence the performance on construction projects?” when seeing people’s comments I thought I could find people to help in my research whom I believe might be using EVM on regular basis, I will be preparing the questionnaire shortly and I am looking for people. could you be interested in being part of the research? I hope some of your audience would do too.

    • Hello Tauseef, this is a good question and in fact I wanted to write a blog post on this topic but did not write because it was not so important for the PMP exam.

      Anyway…

      In milestone method you divide the work into milestones and once your milestone is achieved you get hundred percent of your earned value.

      For example let us say that you divided the project into four milestone.

      Your are working towards completing the first milestone but your earned value will be zero until you achieve your milestone. Therefore either your earned value is zero or hundred percent.

      This this technique is not accurate; therefore sparingly used.

      Hope it helps.

  • Hi,
    May I know How to calc Maximum float of the project , given details are:
    Managmnt wants project completed in 40days..
    CPI=1.1
    Critical Path Duration=38days
    Std Deviation =2days

  • Dear Fahad,
    its a great job u r doing..i have passed pmp yesterday Alhamdulilah and have been benifited by your multiple posts…
    great conteibution brother, Keep it up

  • Great articles, this one helped me get my head around EVM for sure.
    *I think there is a typo in the formula for SPI, it says SV=EV/PV but should say SPI=EV/PV.

  • Thank you for all your blogs on formulas. Had I not found your website at the last moment to study and get a comprehension, I would have failed the PMP exam. Your ability to write simply and with full clarity is incredible. Again thank you!! I passed the exam!

  • hi , I came across a problem which I have difficulty resolving.hope you can help ..

    You are given 4 team members to roll out optimization integration touchpoints in LOB system.There are 8 touch points to be completed. As per plan you should hve completed atleast 50% work infirst 10days. You have 20 days to complete the project. You are worried that your team is already doing overtime and have spend at least 55% of allocated hours. on the other hand the team was able to complete only 40%of the work. Calculate the CV of the project.

    • @Fahad, visited your blog and it is very helpful in revising my concepts.

      @Pushpa,I know it about a year old question but i’ll to answer your question . I hope it will help.

      As Fahad asked for budget, which is not stated in the problem. We assume it is X hours – This is a software project and mostly they are budgeted in hours .

      Now CV = EV – AC

      EV = 40% of work done = 40% of X = 0.4X
      AC = 55% of allocated hours = 55% of X = 0.55X

      Now substitute these values

      CV = 0.4X – 0.55X
      CV = -0.15X ( Substitute X with allocated hours )- You are already over budget . 🙂

      Hope it helps.

  • So impressed with your explainations that for the first time I am posting in any BLOG to express my appreciation. Brilliantly simplified.

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