Earned Value (EV) is a project management technique used to objectively measure project performance against the approved baseline plan. The method determines how much work has actually been completed relative to what was scheduled and budgeted. EV is distinct because it converts the abstract concepts of scope, schedule, and time into concrete, measurable financial terms. This approach allows for a fact-based assessment of a project’s trajectory by focusing on the value of the work accomplished.
Defining Earned Value Management
Earned Value Management (EVM) is a systematic project control methodology designed to provide a unified view of project performance. It achieves this by formally integrating the technical scope of work, the schedule, and the cost resources into a single system. The goal of EVM is to determine whether the value of the work performed meets the expectations set by the project plan.
This integrated approach establishes a financial baseline against which all work progress is measured throughout the project lifecycle. EVM quantifies deviations when a project is over budget or behind schedule, providing a clear performance context. This system requires accurate planning and a defined work breakdown structure to be effective.
The Three Core Components
The EVM methodology relies on the interaction of three fundamental data points tracked throughout the project’s execution.
Planned Value (PV)
Planned Value (PV) represents the authorized budget planned to be spent by a specific point in time. PV reflects the dollar value of the work that should have been completed according to the project timeline. This metric is derived directly from the project’s time-phased budget baseline, setting the standard for schedule measurement.
Actual Cost (AC)
Actual Cost (AC) is the total cost incurred and recorded for the work accomplished up to the current date. AC represents the financial resources expended by the project team. It includes all direct and indirect costs associated with performing the work and must be tracked precisely from the project’s accounting system.
Earned Value (EV)
Earned Value (EV) represents the value of the work actually completed, expressed in terms of the approved budget. EV is the metric that links scope and budget. Calculating EV requires determining the percentage of the total work completed for a task and multiplying that percentage by the task’s total planned budget. Project managers use EV to objectively assess the real progress made.
Measuring Project Performance Using Variances
Project managers calculate variances to measure the absolute magnitude of deviation from the plan. Variances are expressed in monetary or time units, quantifying the difference between planned and achieved performance. These metrics provide an immediate understanding of the project’s current status.
Schedule Variance (SV)
The Schedule Variance (SV) measures the difference between the value of the work completed (EV) and the value of the work planned (PV). The formula is $\text{SV} = \text{EV} – \text{PV}$. A positive SV indicates the project is ahead of schedule. Conversely, a negative SV signals a schedule delay, as the value of the work performed is less than what was scheduled.
Cost Variance (CV)
The Cost Variance (CV) measures the difference between the value of the work completed (EV) and the actual cost expended (AC). The formula is $\text{CV} = \text{EV} – \text{AC}$. A positive CV means the project is currently under budget because the value earned is greater than the cost incurred. A negative CV signifies the project is over budget.
Calculating Efficiency with Performance Indices
Performance indices measure efficiency, indicating the rate at which the project is generating value. These indices are useful for comparing performance across different projects or phases, regardless of their total budget size. They offer a proportional view of how effectively resources are being converted into completed work.
Schedule Performance Index (SPI)
The Schedule Performance Index (SPI) measures the efficiency of time utilization by comparing the value of work completed (EV) to the value of work planned (PV). It is calculated using the formula $\text{SPI} = \text{EV} / \text{PV}$. An SPI greater than $1.0$ indicates the project is ahead of schedule. If the SPI is less than $1.0$, the project is behind schedule.
Cost Performance Index (CPI)
The Cost Performance Index (CPI) is a measure of budget efficiency, comparing the value of work completed (EV) to the actual cost incurred (AC). The formula is $\text{CPI} = \text{EV} / \text{AC}$. A CPI greater than $1.0$ signifies the project is under budget, generating more earned value for every dollar spent. Conversely, a CPI less than $1.0$ indicates poor cost performance.
Forecasting the Final Outcome
The predictive capability of EVM allows managers to forecast the final cost outcomes based on current performance trends.
Budget at Completion (BAC)
The Budget at Completion (BAC) is the total, approved planned budget for the entire project. BAC represents the original financial target the project team intends to meet.
Estimate at Completion (EAC)
The Estimate at Completion (EAC) is the revised projection of what the total project cost will be upon completion, based on performance demonstrated to date. The most common formula assumes past cost performance will continue, calculated as $\text{EAC} = \text{BAC} / \text{CPI}$. This calculation provides a trend-based prediction of the final financial requirement.
Project managers utilize alternate formulas when they believe future performance will differ from the past. Regardless of the specific formula chosen, the EAC provides a revised total cost for the project.
Estimate to Complete (ETC)
The Estimate to Complete (ETC) represents the expected cost required to finish the remaining work from the current point forward. ETC is derived by subtracting the Actual Cost (AC) from the calculated Estimate at Completion (EAC), expressed as $\text{ETC} = \text{EAC} – \text{AC}$. This metric focuses attention on the resources needed for the remainder of the project.
Interpreting the Results and Taking Action
The value of EVM lies in interpreting the combined metrics to diagnose project health and drive corrective action. Project managers must analyze the relationship between the performance indices to understand the underlying causes of deviation. For example, a CPI of $0.9$ and an SPI of $1.1$ suggests the team is ahead of schedule but is spending more money than budgeted to achieve that speed.
This diagnosis directs the manager to investigate whether the increased spending is sustainable. If the CPI is low, indicating poor cost control, measures like renegotiating vendor contracts or reducing overtime may be necessary. Conversely, if the SPI is low, the focus shifts to schedule recovery techniques, such as resource leveling or fast-tracking tasks.
EVM serves as an early warning system, alerting management to performance degradation. By consistently monitoring the trends in the indices and variances, a project manager can proactively implement changes. The data provides an objective basis for discussions with stakeholders about necessary scope adjustments, budget revisions, or schedule modifications.
Advantages and Limitations of EVM
Earned Value Management offers several advantages in project control by providing an objective, quantitative measure of performance that integrates cost, schedule, and scope data. The system provides an early warning signal of potential cost overruns or schedule delays, facilitating timely corrective intervention. This unified approach prevents managers from focusing exclusively on one dimension of performance.
However, the methodology requires considerable initial effort to establish a detailed, time-phased performance measurement baseline. The accuracy of all EVM calculations depends entirely on the quality and realism of this initial baseline plan. A limitation is that EVM focuses exclusively on cost and schedule performance and offers no direct assessment of the technical quality of the work completed.