1. “PMP® Exam Prep” Earned Value Management
Test Notes - Ravikumar
Ravikumar Kalose N, PMP®
ProPM Academy PMP(R) course

2. Control Costs – Earned Value Management
Earned Value Management (EVM) – Is an Project Management methodology to determine project performance at any given point of time and forecast project’s future performance.
EVM Integrates project triple constraints (scope, cost, schedule) to determine project progress and performance
EVM uses three key measurement components
Planned Value (PV) – denotes the authorized budget to be expended for an activity, work package, or to the project at a given point, sometimes referred to as the “Budget At Completion (BAC)” (the total PV at the end of the project)
Earned Value (EV) – The value of work performed expressed in terms of the authorized budget
Actual Cost (AC) – Cost incurred or expended for the work performed at a given point
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3. Earned Value - Illustration
Activities
$600 0% $0 E
$5000 D
20%
$2000 C
$800
50%,
$600
$2000 B
75%
$2500
PV= $4900
EV= $3400
$500 A
100%,
$600
AC= $5700 1 2 3 4 5 6 7
Time (in Weeks) 

4. Earned Value (EV) Earned Value Characteristics
An objective method to measure value of the actual work completed at a given point of time in the project life cycle.
EV measurements helps to determine if a project is on track
EV is an indicator of current project performance
Provides early warnings and trends on any cost, schedule over runs
Earned Value Characteristics
Earned value indicates how much of “value” you have “earned” on the project at any given point of time. (Ex: end of 3rd month, I have spent $0.5M but my earned value is $0.35M)
Helps determine variance against Planned Value (PV).
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5. Graphical Analysis
Earned Value key components – Graphical representation
Source: PMBOK 4, Page 183
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6. Performance Measurements
Earned Value – Key Components
PV = Planned % complete X BAC
EV = Actual % complete X BAC
AC = Cumulative money spent till date
Performance Reviews
Variances Analysis
Schedule Variance (SV) = EV – PV
Cost Variance (CV) = EV – AC
Variance At Complete (VAC) = BAC – EAC
Performance Indicators
Schedule Performance Index (SPI) = EV / PV
Cost Performance Index (CPI) = EV / AC
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7. Forecasting….
Forecasting – Based on the information on performance indicators, a forecast (Estimate To Complete - ETC, Estimate at Complete - EAC) can be arrived.
Provides an early warning for the project team if EAC is not within tolerance limits
Three methods to compute EAC are as below
EAC = AC + BAC – EV
EAC = BAC / cumulative CPI
EAC = AC + ((BAC – EV) / cumulative CPI X cumulative SPI ))
Also the forecasting of schedule can be derived using
Revised Schedule: Project Planned Total Duration X SPI
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8. Forecasting… Trend Analysis
To-Complete-Performance-Index - Indicates required project performance to meet specified goal such as BAC or EAC
TCPI = work remaining / funds remaining
TCPI = (BAC- EV) / (BAC - AC)
TCPI = (BAC – EV) / (EAC – AC)
Trend Analysis
Graphical representation of trends of project performance
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9. EVM - Example Let us consider the following example to understand the
concepts better.
An ERP implementation project for ABC company is estimated
to cost $500,000 with an estimated duration of 40 weeks. At
the end of 10 weeks the project is 20% complete with
$150,000 being already spent on the project.
BAC =500,000, AC = 150,000,
PV = 10/40*500,000 = 125,000
EV = 20/100*500,000 = 100,000
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10. Variance and Performance Analysis
BAC = 500,000
PV = 125,000
EV = 100,000
AC = 150,000
Metric
Formula
Value
Analysis CV
EV-AC
-50,000
This indicates $50,000 has already been additionally spent in excess of the project worth of work up-to this point SV
EV-PV
-25000
The negative value indicates the project is lagging behind its planned schedule.
CPI
EV/AC
0.67
A value less than 1 indicates over utilization of funds against the actual work. In this case the project is earning $0.67 worth value for every $ spent, not a good sign.
SPI
EV/PV
0.80
A value less than 1 indicates that the project is behind planned schedule and progress has only been at 80% .
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11. Graphical Analysis CV SV
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12. Budget Forecast Analysis
BAC = 500,000
PV = 125,000
EV = 100,000
AC = 150,000
CV = -50,000
SV = -25,000
CPI = 0.67
SPI = 0.80
Metric
Formula
Value
Analysis
EAC
BAC/CPI
746,268.65
The revised estimates now for project completion based on current performance is $746, as against planned $500,000.
ETC
EAC-AC
596,268.65
The project would now require additionally $596, to complete from this point onwards
VAC
BAC-EAC
-246,268.65
There is an additional $246, required to complete the project compared to original estimates
TCPI
(BAC-EV)/(BAC-AC)
(WORK LEFT TO DO)/ MONEY REMAINING)
1.14
The project need to now perform at an performance of 1.14 times in order to stay within the estimated budget
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13. Terminologies Terminology Description Formula
Budget At Completion (BAC)
The original estimated (planned) project Cost
None
Planned Value (PV)
Indicates amount of work which “SHOULD have been completed” or “Authorized work for completion” as per plan at any point
PV=Planned % complete X BAC
Earned Value (EV)
Actual work that is accomplished at any point
EV= Actual % complete X BAC
Actual Cost (AC)
The actual money spent at any point of time
AC= Cumulative money spent till date
Cost Variance (CV)
The difference between how much was actually Earned and how much was actually spent
CV=EV-AC
Schedule Variance (SV)
The difference between planned schedule Vs Actual Schedule
SV = EV-PV
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14. Terminologies (2) Terminology Description Formula
Cost Performance Index (CPI)
Indicates the project performance for every $ spent
CPI = EV / AC
Schedule Performance Index (SPI)
Indicate actual schedule progress of the against the planned schedule
SPI = EV / PV
Estimate At Completion (EAC)
The revised project Budget for completion based on current performance indicators
EAC = BAC / Cumulative CPI
Estimate To Complete (ETC)
How much more (cost) would be needed to complete the project based on current performance indicators
ETC = EAC – AC
Variance At Completion (VAC)
The difference between the budgeted cost and revised estimates based on current performance indicators
VAC = BAC – EAC
To-Complete Performance Index (TCPI)
Project Performance required to be achieved in order to stay within the original budget using the remaining funds
TCPI = (BAC-EV) / (BAC-AC)
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15. Points to Remember…
Variance Value (SV, CV, VAC) : If Negative, it is below planned performance,
If Positive, it is above planned performance
If Zero, it is exactly meeting the planned performance
Performance Index (CPI, SPI): If the Value is less than 1, it is below planned performance
If the Value is more than 1, it is above planned performance
If the Value is equal to 1, it is exactly meeting the planned performance
TCPI: If the Value is Less than 1, it is above planned performance
If the Value is more than 1, it is below planned performance
If the Value is Equal to 1, it is exactly meeting the planned performance
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