# Earned Value Management: An Overview With Formulas

The most difficult part of running a project is preventing it from deviating too far from its planned course. This is where earned value management (EVM) comes in.

Earned value management is a performance management technique that gives you a detailed insight into a project’s current and future performance.

Read on to learn about the most important EVM concepts and formulas and how to implement them in your projects.

- Earned value management is a performance management technique used to determine the project’s current and future performance.
- EVM considers project scope, schedule, and cost data to provide an insight into the project’s health and progress.
- Some of the benefits of EVM are reduced project risk, more accurate reporting about the project’s progress, and better issue detection and resolution.
- Using EVM can be problematic because it doesn’t consider project quality and only works if your data is accurate and meticulously collected.

Table of Contents

## What is earned value management (EVM)?

**Earned value management (EVM) is a performance management methodology that uses ****project scope****, schedule, and cost measurement data to measure and track project performance. **

Using the core EVM concepts, project managers can also predict the project’s future behavior based on past trends and make informed decisions and course corrections when necessary.

EVM originated in 1967 as an integral part of the Cost/Schedule Control System Criteria (C/SCSC), a process introduced by the US federal government.

The framework that comprises the processes, tools, and people involved in the implementation of EVM within an organization is called an **earned value management system (EVMS)**.

The system is based on the 32 guidelines established by the universally accepted EIA-748 Standard, which originally came out in 1998.

The method used to collect the objective performance data for EVM is called **earned value analysis (EVA)**.

## Benefits of earned value management

Some of the core benefits of EVM are that it:

**Integrates schedule, cost, and technical elements**to accurately measure performance and progress against project baselines,**Ensures better visibility and oversight of project activities**,**Allows project managers to detect potential problems earlier**and act on them before they take over the project,**Helps with recognizing trends and predicting future performance**based on those trends with relative accuracy,**Enables more accurate reporting**to project stakeholders and understanding of where and why issues are happening,**Improves accountability, motivation, and transparency among stakeholders, and****Reduces****project risk**.

EVM can also be used to reflect on your past wins and losses. As Leigh Ann Gunther, PMP, VP of Education at PMI Delaware Valley Chapter, and Senior Technical Project Manager, explains it:

*“Earned value management techniques can be best suited for “look-backs” and past performance reviews to assess how a team did in previous periods of the project or product. Value measurements like planned value, actual costs, and earned value calculated as a “look-back” can help project estimates at completion performance indexes.”*

And though EVM can seem complicated, Leigh Ann believes *“having the knowledge in your toolkit to pull out at the opportune time is enormous.”*

*“Years passed before I saw an opportunity to use this technique, and the payoff was huge. I was the Product Owner when leadership began to question whether or not the organization should continue to sponsor my product and whether or not the result was financially in our long-term interest. I grabbed my old PMBOK Guide, built an earned value analysis of the product, and projected forward based on past performance. My leadership was so impressed and heaped praise.”*

💡 **Plaky Pro Tip**

How do you effectively manage and respond to positive and negative risks? Learn all about project risk management in our guide:

## Basic concepts of earned value management

The core concepts of EVM include:

- Budget at completion (BAC),
- Planned value (PV),
- Actual cost (AC),
- Earned value (EV),
- Cost variance (CV),
- Cost performance index (CPI),
- Schedule variance (SV), and
- Schedule performance index (SPI).

Let’s learn about these concepts in more detail.

### Budget at completion (BAC)

**Budget at completion (BAC) represents the total authorized ****project budget,**** i.e., the sum of all estimated budgets for the entire project scope.**

### Planned value (PV)

**Planned value (PV) is the amount of money you plan to spend on your project over a set period.**

It is also known as the budgeted cost for work scheduled (BCWS).

The value of PV changes depending on which portion of the project you’re looking at.

#### Planned value example

Suppose you have 4 days to paint your living room.

You can allocate $20 per wall, so assuming the room has 4 walls, your total budget (BAC) is $80.

This means:

- PV for day 1 is $20,
- PV for the first 2 days is $40,
- PV for the first 3 days is $60,
- PV for all 4 days is $80 (PV = BAC).

The painter also agrees to paint 1 wall a day, accounting for 25% of the work each day.

### Actual cost (AC)

**Actual cost (AC) refers to the actual amount of money spent up to a certain point in time.**

It is also known as the actual cost of work performed (ACWP).

There’s no formula for calculating AC, as it’s a sum of all project expenses, such as money spent on:

- Equipment and supplies,
- Travel,
- Employee compensation, etc.

Projects often have many hidden costs that project managers forget to include when calculating AC, which can then skew the results of the analysis.

So, make sure to double-check your total expenditures before performing EVA.

#### Actual cost example

Let’s take a look at the same example as before.

Day 1 of your project was supposed to cost $20, but you didn’t have enough plastic sheets to cover all the furniture.

So, after spending an additional $15 on plastic sheets, the actual cost for day 1 was $35.

### Earned value (EV)

**Earned value (EV) represents the monetary value of the work performed up to a certain point in time.**

It is also known as the budgeted cost for work performed (BCWP).

A commonly used formula for calculating EV is:

EV = % of work completed x BAC

Ideally, you’d want EV and PV to be the same. However, since projects rarely go exactly according to plan, they’re likely to differ.

#### Earned value example

Going back to our example, at the end of day 1, the painter finished the first wall and half of the second wall, accounting for 37.5% of the completed work.

Let’s apply the formula to calculate EV:

EV = 37.5% x $80

EV = $30

Another way to calculate EV in this example is to count the number of completed units — the number of walls finished on day 1.

Since the painter finished painting 1 + 0.5 walls, the value they’ve earned with their hard work (EV) on the first day is $20 + $20/2 = $30.

To recap, here’s how day 1 of the project went:

PV = $20

AC = $35

EV = $30

This means the painter has finished more work than originally planned, but you’ve spent more money than planned.

So, your project is ahead of schedule and over budget.

### Cost variance (CV)

**Cost variance (CV) ****determines**** how much over or under budget the project is by measuring the difference (variance) between the earned value and the actual ****cost****.**

The formula for calculating CV is:

CV = EV – AC

If the value you get from the formula is:

- Below 0 — you are over budget,
- Exactly 0 — you are on budget,
- Greater than 0 — you are under budget.

#### Cost variance example

In our example, the earned value by the end of day 1 was $30, while the actual cost amounted to $35 due to the cost of plastic sheets.

We can now apply the cost variance formula to our example.

CV = $30 – $35

CV = -$5

The negative result shows the project is currently $5 over budget.

### Cost performance index (CPI)

**The cost performance index (CPI) is the ratio between the earned value and the actual cost that shows how well the project is performing financially.**

The formula for calculating CPI is:

CPI = EV / AC

If the value you get from the formula is:

- Below 1 — you are over budget,
- Exactly 1 — you are on budget,
- Greater than 1 — you are under budget.

#### Cost performance index example

Let’s apply the formula:

CPI = $30 / $35

CPI = 0.86

This result tells us 2 things:

- We are over budget since the result is less than 1, and
- For every dollar spent on the project so far, we have gained $0.86 in value.

💡 **Plaky Pro Tip**

Check out our guide for a more in-depth look at what the cost performance index is and how it works:

### Schedule variance (SV)

**Schedule variance (SV) determines how much the project has deviated from the planned schedule ****by measuring the difference between the earned value and the planned value.**

The formula for calculating SV is:

SV = EV – PV

If the value you get from the formula is:

- Below 0 — you are behind schedule,
- Exactly 0 — you are on schedule,
- Greater than 0 — you are ahead of schedule.

#### Schedule variance example

Though you planned to spend $20 on day 1 (PV), the value of the performed work for that day is $30 (EV).

We can now calculate the schedule variance at the end of day 1.

SV = $30 – $20

SV = $10

A value greater than 0 tells us this project is currently ahead of schedule.

### Schedule performance index (SPI)

**The schedule performance index**** (SPI) is the ratio between the earned value and the planned value that shows whether the project has deviated from its planned schedule.**

The formula for calculating SPI is:

SPI = EV / PV

If the value you get from the formula is:

- Below 1 — you are behind schedule,
- Exactly 1 — you are on schedule,
- Greater than 1 — you are ahead of schedule.

#### Schedule performance index example

Let’s apply the formula:

SPI = $30 / $20

SPI = 1.5

Since the value of SPI is 1.5 (greater than 1), we can infer the project is ahead of schedule.

💡 **Plaky Pro Tip**

In the guide below, we cover the schedule performance index in more detail:

## Making predictions with EVM

Project managers can also make predictions about their project’s future behavior with the following advanced EVM concepts:

- Estimate to complete (ETC),
- Estimate at completion (EAC),
- Variance at completion (VAC), and
- To-complete performance index (TCPI).

### Estimate at completion (EAC)

**Estimate at completion (EAC) is the estimate of t****he project’s total cost when it’s completed, ****based on the data collected so far. **

After all the variances are calculated, the EAC will likely differ from the original total budget approved for the project (BAC).

There are several ways to calculate the EAC, depending on the project’s circumstances.

EAC formulas | When to use |
---|---|

EAC = AC + bottom-up ETC | The original EAC is based on flawed data or the circumstances of the project have changed. To calculate the bottom-up ETC, each team member must estimate the total cost of the remaining work. |

EAC = AC + BAC – EV | The original project budget (BAC) has remained the same throughout the project, and any variances that might have occurred were the result of a one-time event that isn’t likely to repeat. |

EAC = BAC / CPI | There have been no changes to the cost performance index by the end of the project. It’s expected the project’s future performance will be the same as its past performance. |

EAC = AC + [(BAC – EV) / (CPI * SPI)] | The project hasn’t been going according to plan, and both the cost and schedule performance indices are showing unfavorable results. |

#### Estimate at completion example

In our example, the project is over budget at the end of day 1.

So far, there have been no changes to the total budget for the project. The only deviation that occurred is not expected to happen again (since we now have enough plastic sheets to cover all the furniture).

So, we should apply the second formula:

EAC = AC + BAC – EV

EAC = $35 + $80 – $30

EAC = $85

The result tells us that, if things continue as they are now, the total cost of the paint job by the end of day 4 will be $85.

💡 **Plaky Pro Tip**

Estimate at completion is an advanced concept that’s crucial to an effective earned value analysis. To find out more about it, take a look at our detailed guide:

### Estimate to complete (ETC)

**Estimate to complete (ETC) ****shows how much more money you can expect to spend by the end of the project based on previous data. **

The formula for calculating ETC is:

ETC = EAC – AC

#### Estimate to complete example

Using the previously calculated EAC, we can now get an estimate of the remaining cost required to complete the project (ETC).

ETC = $85 – $35

ETC = $50

### Variance at completion (VAC)

**Variance at completion (VAC) ****shows us the expected budget deficit or surplus by measuring the difference between the budget at completion and the estimate at completion.**

A negative VAC value indicates the project is expected to go over budget. Meanwhile, a positive value suggests an expected positive outcome.

The formula for calculating VAC is:

VAC = BAC – EAC

#### Variance at completion example

Let’s see how much the project will deviate from its original budget (VAC) by the end.

VAC = $80 – $85

VAC = -$5

The negative VAC value indicates the project is expected to be in a $5 deficit by the end of day 4.

### To-complete performance index (TCPI)

**To-complete performance index (TCPI) determines the amount of work that needs to be completed per unit of cost ****to**** finish the project within budget.**

TCPI is calculated by dividing all the remaining work by all of the remaining project funds.

The formulas for calculating TCPI are:

TCPI = (BAC – EV) / (BAC – AC)

or

TCPI = (BAC – EV) / (EAC – AC)

We use the second formula if we want to calculate a potential “what if” scenario. If the original BAC no longer applies, you can use this formula to calculate how much work you need to do per unit of cost to complete the project within the EAC.

If the value you get from one of these formulas is:

- Below 1 — the project will be easier to complete,
- Exactly 1 — the project will require the same level of efficiency to complete, and
- Greater than 1 — the project will be harder to complete.

#### To-complete performance index example

Using the same example, we can now use the first formula to determine the efficiency we should uphold until the end of the project (TCPI).

TCPI = ($80 – $30) / ($80 – $35)

TCPI = 1.1

The result indicates that for every unit of cost, it’s necessary to complete 1.1 units of work.

## Earned value management formulas

Here’s a quick overview of all the concepts and formulas we’ve covered so far.

Name | Description | Formula |
---|---|---|

Budget at Completion (BAC) | Total project budget. | None |

Planned Value (PV)/ Budgeted Cost for Work Scheduled (BCWS) | How much money you had planned to spend by now. | None |

Earned Value (EV)/ Budgeted Cost for Work Performed (BCWP) | The amount of work completed up to a certain point, measured in a unit of currency. | None |

Actual Cost (AC)/ Actual Cost of Work Performed (ACWP) | How much money was actually spent by now. | None |

Cost Variance (CV) | Difference between EV and AC. | CV = EV – AC |

Cost Performance Index (CPI) | Ratio between EV and AC. | CV = EV / AC |

Schedule Variance (SV) | Difference between EV and PV. | SV = EV – PV |

Schedule Performance Index (SPI) | Ratio between EV and PV. | SPI = EV / PV |

Estimate at Completion (EAC) | Total cost of the project based on data up to now. | EAC = AC + ETC;EAC = AC + BAC – EV;EAC = BAC / CPI;EAC = AC + (BAC – EV) / (CPI * SPI) |

Estimate to Complete (ETC) | Total amount of money needed to complete the remaining work. | ETC = EAC – AC |

Variance at Completion (VAC) | Difference between the total budget from the beginning of the project and the latest estimate of how much the total project will cost. | VAC = BAC – EAC |

To-Complete Performance Index (TCPI) | The amount of work per dollar that needs to be completed to reach project goals within budget and schedule. | TCPI = (BAC – EV) / (BAC – AC) |

Earned value management concepts and formulas

## Limitations of earned value management

Some of the limitations of EVM are that it:

**Doesn’t****work without accurate data**— Using EVM requires you to be meticulous about collecting and checking all your data, as a single mistake can render your EVA useless.**Doesn’t****take quality into account**— EVM doesn’t factor in project quality, so even a project that’s under budget could be unsuccessful if it results in a poor-quality product.**Doesn’t fit all project types**— EVM is well suited for Waterfall projects (e.g., construction, engineering, or manufacturing projects) but may be challenging to implement in Agile projects or fast-paced projects that require some experimentation, such as prototyping projects.

Complexity is a potential roadblock too. As the expert we consulted, Leigh Ann Gunther, puts it:

*“Because of the velocity at which we experience market changes, shifting priorities, and evolving requirements, many organizations are adopting hybrid project and product management approaches. Unfortunately, many techniques leveraged in earned value management need plans, timelines, resources, requirements, and people identified and, hopefully, agreed upon upfront.”*

According to Tres Roeder, PMP, PMI-ACP-certified President of Roeder Consulting and the author of *A Sixth Sense for Project Management *and* Managing Project Stakeholders*, EVM can also *“send **project teams** astray when it is applied in the wrong situations.”*

*“Because EVM is only measuring completion of tasks against budget, it can be misleading. For example, let’s say you’re leading an effort where the value is not realized until the project is completely finished. In this situation, you have not received 50% of the value when milestones are 50% complete. Instead, you receive 0% of the value until the project is 100% complete. EVM is not the right metric in this situation.”*

## FAQs about earned value management

Now that you’ve learned all about the core EVM concepts and formulas, let’s answer some frequently asked questions about this project management technique.

### What are the 3 basic metrics of earned value management?

The 3 fundamental metrics of EVM are:

- Planned value (PV),
- Earned value (EV), and
- Actual cost (AC).

With these 3 basic metrics, we can calculate other metrics and ratios to learn more about a project’s health, such as:

- Cost variance (CV),
- Schedule variance (SV),
- Cost performance index (CPI),
- Schedule performance index (SPI), and
- To-complete Performance Index (TCPI).

### What are the 3 earned value methods?

According to *The Standard for Earned Value Management*, earned value measurement methods are categorized into 3 classes of work:

**Discrete effort**— activities with specific work breakdown structure (WBS) outputs that can be planned and measured,**Apportioned effort**— activities that support and can be measured in direct proportion to discrete effort, and**Level of effort (LOE)**— activities that don’t result in specific measurable outputs and are instead determined by the passage of time.

Discrete effort consists of 4 measurement methods:

**Fixed formula**— each activity is assigned a specific percentage at the start and when it’s completed (usually 0/100%, 50/50%, or 25/75%),**Weighted milestone**— each project milestone is given a budget value, which is earned by hitting the milestone,**Percent complete**— an estimated percentage complete is applied to the BAC to determine EV, and**Physical measurement**— a physical count is used to measure EV, e.g., the number of products made in a month.

💡 **Plaky Pro Tip**

To earn value through your work on your project, you have to carry out various project activities. Check out our guide to learn what project activities are and how to define them when planning your project:

### What are the steps to doing earned value analysis in project management?

Earned value analysis usually involves the following 5 steps:

- Find out the level of completion for each task (e.g., percent complete),
- Determine planned value, earned value, and actual cost,
- Calculate cost and schedule variances,
- Calculate other EVM indicators, such as schedule and cost performance indices, and
- Collect and interpret the data.

Since EVA is essentially a snapshot of your project’s current performance, you can determine when you want to check the project status in advance (e.g., every 2 weeks).

### What kinds of projects can benefit from earned value management?

EVM can prove beneficial in larger projects, such as:

- Multi-million dollar, large-scale development projects,
- Government projects, such as defense, energy, utility, transportation, urban development, and housing projects,
- Major engineering and construction projects, and
- Projects under cost-reimbursable (cost-plus) or incentive contracts.

An expert we consulted, Tres Roeder, explained when to use EVM in a project:

*“If you have a budget that is linear over time, and if spending money is synonymous to progress towards value realization, then EVM can be a good metric. Otherwise, don’t use it.”*

Due to its complexity and strictness, EVM is also more suitable for product development than service delivery and maintenance projects.

One of the biggest supporters and users of EVM is the US government. For example, in NASA, an EIA-748-compliant EVMS is needed for development or production contracts worth $20 million or more.

However, small-scale projects can also benefit from EVM.

As shown in a paper on the use of earned value-based metrics on small-scale construction projects, EVM could serve as an *“early warning tool for project teams”* that shows if something’s not going according to plan and thus helps prevent *“greater consequences in terms of sliding cost, time, or scope.”*

## How to use Plaky to track your EVM project data

Since tracking and organizing EVM project data can get overwhelming, you can use project management software like Plaky to make the whole process easier on you.

Since Plaky is fully customizable, you can use it to:

- Track project deadlines and costs,
- Create a series of tags for organizing costs,
- Create different fields for tracking EVM parameters, and
- Monitor and update their statuses to reflect the project’s performance.

Here’s an example of how you could use Plaky to keep track of EVM parameters like CPI:

Beyond that, you can also rely on Plaky if you want to:

- Create effective project roadmaps,
- Track progress against the project timeline,
- Break down projects into smaller tasks and arrange them in order of importance,
- Assign people to tasks and delegate responsibilities,
- Get updates and collaborate with your teammates in real time,
- Share project-related files and documents, and so much more.

And in case you don’t have time to create project boards from scratch, you can even browse Plaky’s project templates and get access to a number of pre-made boards for different use cases.

📖 Now that you’re familiar with EVM terminology, you might be interested in delving into our Project Management Glossary of Terms and expanding your general understanding of project management.

**References**:

- National Defence Industrial Association (NDIA). (2018, August 28). Earned value management systems EIA-748-D intent guide. Retrieved December 5, 2023 from https://www.ndia.org/-/media/sites/ndia/divisions/ipmd/division-guides-and-resources/ndia_ipmd_intent_guide_ver_d_aug282018.ashx?la=en
- Project Management Institute. (2019). The Standard for Earned Value Management. Project Management Institute, Inc. https://www.goodreads.com/book/show/45899516-the-standard-for-earned-value-management
- NASA earned value management (EVM) contract requirements checklist. NASA. (2023, April). Retrieved December 5, 2023 from https://www.nasa.gov/wp-content/uploads/2018/06/nasa-evm-contract-requirements-checklist.pdf
- Avlijas, R., Avlijas, G., & Heleta, M. (2015). Application of earned value based metrics on small-scale construction projects. The European Journal of Applied Economics, 12(2), 1–8. Retrieved December 5, 2023 from https://aseestant.ceon.rs/index.php/sjas/article/view/8515/3508