Earned Value Management (EVM) Formulas

Earned Value Management (EVM) Formulas

Earned Value Management (EVM) is a project management methodology that integrates scope, schedule, and cost to assess project performance and progress. It provides an objective way to measure project performance and forecast future performance.

Key Terms:

• Planned Value (PV): The authorized budget assigned to scheduled work. It is the budgeted cost of work scheduled (BCWS).

Formula: PV = Budget at Completion (BAC) × % Planned Complete

Example: A project has a total budget (BAC) of $100,000. By the end of the first month, 20% of the work was planned to be completed.

PV = $100,000 × 0.20 = $20,000

• Earned Value (EV): The value of the work performed in terms of the authorized budget assigned to that work. It is the budgeted cost of work performed (BCWP).

Formula: EV = Budget at Completion (BAC) × % Actual Complete

Example: For the same project with a BAC of $100,000, if 15% of the work is actually completed.

EV = $100,000 × 0.15 = $15,000

• Actual Cost (AC): The total cost incurred for the work performed. It is the actual cost of work performed (ACWP).

Example: For the 15% of work actually completed, the actual cost incurred was $18,000. AC = $18,000

Performance Measurement Formulas:

• Cost Variance (CV): Measures the difference between the earned value and the actual cost. It indicates whether the project is under or over budget.

Formula: CV = EV – AC

Interpretation:
CV > 0 : Under budget (favorable)
CV < 0 : Over budget (unfavorable)
CV = 0 : On budget

Example: Using the values above: CV = $15,000 (EV) – $18,000 (AC) = -$3,000

Interpretation: The project is $3,000 over budget.

• Schedule Variance (SV): Measures the difference between the earned value and the planned value. It indicates whether the project is ahead of or behind schedule.

Formula: SV = EV – PV

Interpretation:
SV > 0 : Ahead of schedule (favorable)
SV < 0 : Behind schedule (unfavorable)
SV = 0 : On schedule

Example: Using the values above: SV = $15,000 (EV) – $20,000 (PV) = -$5,000

Interpretation: The project is $5,000 behind schedule.

• Cost Performance Index (CPI): Measures the cost efficiency of the project work. It indicates the value earned for each dollar spent.

Formula: CPI = EV / AC

Interpretation:
CPI > 1 : Performing efficiently (under budget)
CPI < 1 : Performing inefficiently (over budget)
CPI = 1 : Performing on budget

Example: Using the values above: CPI = $15,000 (EV) / $18,000 (AC) = 0.83

Interpretation: For every dollar spent, only $0.83 worth of work was earned. The project is performing inefficiently in terms of cost.

• Schedule Performance Index (SPI): Measures the schedule efficiency of the project work. It indicates the rate at which the project is progressing compared to the plan.

Formula: SPI = EV / PV

Interpretation:
SPI > 1 : Performing efficiently (ahead of schedule)
SPI < 1 : Performing inefficiently (behind schedule)
SPI = 1 : Performing on schedule

Example: Using the values above: SPI = $15,000 (EV) / $20,000 (PV) = 0.75

Interpretation: The project is progressing at 75% of the planned rate. The project is performing inefficiently in terms of schedule.

Forecasting Formulas:

• Budget at Completion (BAC): The total planned budget for the project.

This is the total value of the project baseline.

Example: The total budget for the entire project is $100,000. BAC = $100,000

• Estimate At Completion (EAC): The expected total cost of completing all work.

There are several ways to calculate EAC, depending on assumptions about future performance:

• • EAC (if CPI is expected to continue for the remainder of the project):

This assumes that the current cost efficiency will continue.

Formula: EAC = BAC / CPI

Example: Using BAC = $100,000 and CPI = 0.83: EAC = $100,000 / 0.83 = $120,481.93 Interpretation: At the current rate of spending, the project is expected to cost approximately $120,481.93 to complete.

• • EAC (if future work will be performed at the budgeted rate):

This assumes that past cost variances are atypical and future work will be completed as planned.

Formula: EAC = AC + (BAC – EV)

Example: Using AC = $18,000, BAC = $100,000, EV = $15,000: EAC = $18,000 + ($100,000 – $15,000) = $18,000 + $85,000 = $103,000

Interpretation: If future work is performed at the budgeted rate, the project is expected to cost $103,000 to complete.

• • EAC (if CPI and SPI are expected to influence future work):

This is a more complex formula that considers both cost and schedule efficiency.

Formula: EAC = AC + (BAC – EV) / (CPI × SPI)

Example: Using AC = $18,000, BAC = $100,000, EV = $15,000, CPI = 0.83, SPI = 0.75:

EAC = $18,000 + ($100,000 – $15,000) / (0.83 × 0.75) = $18,000 + $85,000 / 0.6225 = $18,000 +
$136,546.18 = $154,546.18

Interpretation: Considering both cost and schedule efficiency, the project is expected to cost approximately
$154,546.18 to complete.

• • EAC (if future work is re-estimated): This is used when a new estimate to complete (ETC) is provided.

Formula: EAC = AC + ETC

Example: If a new estimate to complete the remaining work (ETC) is $90,000: EAC = $18,000 (AC) + $90,000 (ETC) = $108,000

Interpretation: Based on the new estimate for remaining work, the project is expected to cost $108,000 to complete.

• Estimate To Complete (ETC): The expected cost to complete the remaining project work.

Formula: ETC = EAC – AC (based on the chosen EAC calculation)

Example: Using EAC = $120,481.93 (from EAC = BAC/CPI) and AC = $18,000:

ETC = $120,481.93 – $18,000 = $102,481.93

Interpretation: The remaining work is expected to cost $102,481.93.

• • ETC (if future work efficiency is assumed to be the current CPI):

Formula: ETC = (BAC – EV) / CPI

Example: Using BAC = $100,000, EV = $15,000, CPI = 0.83: ETC = ($100,000 – $15,000) / 0.83 = $85,000 / 0.83 = $102,409.64

Interpretation: The remaining work is expected to cost $102,409.64, assuming current cost efficiency.

• Variance At Completion (VAC): The projected difference between the total planned budget (BAC) and the expected total cost at completion (EAC). It indicates the expected budget overrun or underrun.

Formula: VAC = BAC – EAC

Example: Using BAC = $100,000 and EAC = $120,481.93: VAC = $100,000 – $120,481.93 = -$20,481.93

Interpretation: The project is expected to be $20,481.93 over budget at completion.

• To Complete Performance Index (TCPI): The calculated CPI that must be achieved on the remaining work to meet a specified management goal (BAC or EAC). It indicates the future cost efficiency required to meet the target.

  TCPI (to meet BAC): This indicates the efficiency needed to finish the project within the original budget.

Formula: TCPI_BAC = (BAC – EV) / (BAC – AC)

Example: Using BAC = $100,000, EV = $15,000, AC = $18,000:

TCPI_BAC = ($100,000 – $15,000) / ($100,000 – $18,000) = $85,000 / $82,000 = 1.036

Interpretation: To finish within the original budget, the remaining work must be completed at an efficiency of 1.036. This means for every dollar spent, $1.036 worth of work must be earned.

• TCPI (to meet EAC): This indicates the efficiency needed to finish the project within the current Estimate At Completion.

Formula: TCPI_EAC = (BAC – EV) / (EAC – AC)

Example: Using BAC = $100,000, EV = $15,000, EAC = $120,481.93, AC = $18,000:

TCPI_EAC = ($100,000 – $15,000) / ($120,481.93 – $18,000) = $85,000 / $102,481.93 = 0.829

Interpretation: To finish within the current EAC, the remaining work must be completed at an efficiency of 0.829. This means for every dollar spent, $0.829 worth of work must be earned.