Earned Value Management (EVM)

Project Managers on construction and maintenance projects need a

solid understanding of the fundamentals of Earned Value
Management (EVM or Earned Value Analysis EVA) and how to
produce an S-Curve report to update stakeholders on the projects
health. EVM is a standard project management process that
measures your projects progress and performance by combining scope,
schedule and cost the iron triangle of Project Management into
an integrated system of monitoring and reporting.
Reports are typically presented as an S-Curve Report, which gives your
project stakeholders a clear visual report showing how your project is
trending.
Earned Value Management improves communication, reduces project
risk and provides better forecasting, progress tracking and project
visibility. It is the industry standard method of tracking project progress
on capital projects.
This 1-Page summary in our Project Controls series gives you
a downloadable quick Reference Guide on the fundamentals of earned
value analysis including a EVM cheat sheet of the abbreviations,
definitions and EVM calculations required to show your stakeholders
your projects current earned value, cost performance index (CPI) and
schedule performance index (SPI).
This article will cover:

What you need to get started with EVM on your

project
How to read an S-Curve report
Example Earned Value calculation including
how to calculate CPI and SPI

What You Need to Get Started:

1. A Project Plan

Your project plan will include your projects scope, schedule, and costs.
Project plans may also include resource loading and a quality plan.
Project Managers use tools like Oracle Primavera P6 or Microsoft
Project to create their resource-loaded project schedule (or they simply
use an Excel spreadsheet to organize their project though managing
projects in Excel can quickly become a headache). Project Managers
will also integrate these tools with other software packages during work
execution for daily progress tracking, delay tracking and timesheets.
2. What you plan to spend and what you expect to have
done for the dollars spent
The project will have a budget that needs to be aligned to the
completion of Activities which is the scope of the project. Your project
plan will need to show that you plan to have X Activities Done by Y Date
and it will cost you $MM.
For example: you have a project with 20 Activities and a budget of
$5MM to be completed over 10 months. Your plan may say:

Month 1 / 2 Activities Completed / $500K

Month 2 / 4 Activities Completed / $1.15MM

Month 3 / 7 Activities Completed / $1.75MM

Month 10 / 20 Activities Completed / $5MM

$5MM is your Budget at Completion (BAC) and the starting point for
your Earned Value Management.
3. Metrics to quantify work % complete
Not all activities in your scope are created equal. You need to decide
how you will measure when an activity in your scope is completed and
how that will credit your overall percent complete on the project.

There are a few common ways that % complete for a project is

quantified throughout the duration of the project:

Physical % Complete direct daily / weekly

data from the foreman on the project in the field,
based on their expert judgment of how the Activities
have progressed

Units % Complete calculated by the actual

labour and non-labour units completed divided by the
Actual completed Units + remaining Units

Duration % Complete calculated as the delta

between the Original (or Planned) Duration and the
Remaining Duration divided by the Planned Duration

Whichever progressing method you decide to use you need to know

how much work youve done on the project at any given point, what it
has actually cost you to get that work done and what you had planned to
spend to get that same amount of work done.
4. A method to track work execution on Activities
Getting quality data from the people actually executing the
work in the field daily is critical no matter what your project is. No
matter how you choose to get your daily data from the field you need to
be capturing at a minimum:

Actual % Complete

Actual Costs

Actual Hours Spent

Actual Start / Finish

Of course the more field data you have the better you can understand
the factors impacting your project delivery and develop plans
for mitigating the risks to your project objectives in terms of schedule
and cost performance.
5. Formulas to calculate Earned Value, Cost Variance,
Schedule Variance, Cost Performance Index, Schedule
Performance Index and Variance at Completion

There are 4 primary data points you need to begin with Earned Value
Management and you should be able to calculate these data points for
any data date on your S-Curve Report:
1. BAC = Budget at Completion (BAC)
What you plan to spend for 100% complete on the project
BAC = Total Planned Cost
2. PV = Planned Value (also called Budgeted Cost for Work Scheduled
or BWCS)
What you plan to spend on what you plan to be completed
PV = BAC x (% Completed Planned)
3. AC = Actual Cost (also called Actual Cost of Work Performed or
ACWP)
The actual cost of the work performed on the project
AC = SUM(Cost)
4. EV = Earned Value (also called Budgeted Cost for Work Performed or
BWCP)
What you planned to spend ($) on whats actually been done
(work % complete)
EV = BAC x (% Completed Actual)
To Summarize:

From these data points you can calculate your projects variances from
the original project baseline plan, which are the real indicators to project
stakeholders on how your project is progressing. The main variances
Project Managers care about are Cost Variance, Schedule Variance and
Variance at Completion:
5. CV = Cost Variance (how far over or under budget am I?)
CV = EV AC
6. CV% = Cost Variance % (how far over or under budget expressed as
a %)
CV% = (CV) / (EV) * 100%
7. SV = Schedule Variance (how far ahead or behind schedule am I?)
SV = EV PV
8. SV% = Schedule Variance % (how far ahead or behind schedule
expressed as a %)
SV% = (SV) / (PV) * 100%
9. VAC = Variance at Completion (Variance of total actual cost and
expected cost)
VAC = BAC EAC
EAC is your Estimate at Completion and is explained below.

To summarize the variance calculations:

In addition to your variances you can also calculate your cost and
schedule performance index values (CPI and SPI):
10. CPI = Cost Performance Index
This is the ratio of planned spend on whats actually done to whats
actually spent for the work delivered by reporting date
CPI = (EV) / (AC)
A value greater than 1 is typically good (it indicates your cost to date is
less than planned) and a value less than 1 is typically bad (it indicates
your cost to date is more than planned). A value of 1 indicates you are
on plan.
11. SPI = Schedule Performance Index
This is the ratio of planned spend on whats actually done to planned
spend on what you planned to have done by reporting date
SPI = (EV) / (PV)
A value greater than 1 is typically good (it indicates your are ahead of
schedule vs. plan) and a value less than 1 is typically bad (it indicates
you are behind schedule vs. plan). A value of 1 indicate you are on plan.

To summarize the Cost Performance and Schedule Performance Index

calculations:

Lastly, with the above calculations completed you can do some project
forecasting to see where you expect to end up:
12. EAC = Estimate at Completion
This is the expected total cost to hit 100% complete on your projects
scope. The typical formula to calculate EAC assumes that similar
variances to those experienced on the project to date will occur again
over the course of the project:
EAC = AC + ((BAC EV) / CPI))
Alternatively you can calculate EAC assuming similar variance will not
occur in the future. You may want to do this in the case of a major oneoff event that impacted your project and skewed the index:
EAC = AC + (BAC EV)
With your Estimate at Completion value you can calculate your Variance
at Completion (VAC) against your planned Budget at Completion (BAC)
13. ETC = Estimate to Complete
This is the expected cost to finish the remaining work.
ETC = EAC AC
To summarize these are the formulas you would use for project
forecasting:

6. Reports on $ Expenditure vs. Time

Youve calculated your earned value, your cost performance index and
schedule performance index, and your forecasts for Estimate at
Completion (EAC) and Estimate to Complete (ETC). The next step is to
take this data and make it visually presentable to project stakeholders
this is done using an S-Curve report.

Reading an S-Curve Report

The important report elements:

Data Date
When is this project data as of?
Planned Value > Earned Value
We are behind schedule
Actual Cost > Earned Value
We are over budget

VAC = BAC EAC (Negative Value)

How far over budget do we
expect to be?
Estimated Complete Date vs. Planned Complete Date
When do we expect to finish?

Earned Value Management: Example

Lets say you are looking to calculate the Earned Value for a project that
has a Project Plan that looks something like this:
Budget = $5MM
Activities = 20 (equally weighted)
Duration = 10 months
And for simplicity well assume the project spend rate is the same each
month until completion. At month 5 your personnel in the field are
reporting that you are 40% complete on the project and youve spent
$3MM. What does your Earned Value look like?
To calculate this we work through the formulas provided above:
1.
2.

BAC = $5MM
PV = $2.5MM

3.
4.

AC = $3MM
EV = BAC *(AC) = $5MM * 0.4
= $2MM

5.

CV = EV AC = $2MM ($3MM
= -$1MM (over budget)

6.

CV% = (CV) / (EV) * 100% =

($1MM) / ($2MM) * 100% = 50% over
budget
7.
SV = EV PV = $2MM
$2.5MM = -$0.5MM (behind schedule)
8.
SV% = (SV) / (PV) = ($0.5MM) /
($2.5MM) * 100% = 20% behind schedule
9.
VAC = BAC EAC = $5MM
$7.5MM = -$2.5MM (over budget)
10.
CPI = (EV) / (AC) = $2MM /
$3MM = 0.667 (bad: cost > plan)
11.
SPI = (EV) / (PV) = $2MM /
$2.5MM = 0.8 (bad: behind vs. plan)
12.
EAC = AC + ((BAC EV) / CPI))
= ($3MM) + (($5MM $2MM) / 0.667)) =
$7.5MM
13.
ETC = EAC AC = $7.5MM
$3MM = $4.5MM (expected cost to finish)
Conclusion
This covers the basic concept of Earned Value Management (EVM), SCurve reports and how to work through the calculations with a simplified
example. In practice project plans are much more complex and may
require more nuanced indicators of your projects performance.
Download the Earned Value Management Reference Guide, print
it off and take it with you so that you always have at your fingertips a
quick reminder as to how earned value is calculated when reviewing
your project progress.
Learn how you to improve your progress tracking and delay
reports using Industrial Audits secure mobile field data
collection software and get started today!