Use earned value management to compare planned value, earned value and actual cost, and compute CPI, SPI and a cost forecast.
Why it matters
"We have spent 42% of the budget" sounds like useful information, but on its own it tells you almost nothing. Is 42% spent good or bad? It depends on how much work is done and how much was supposed to be done by now. Earned value management (EVM) combines scope, schedule and cost into a few numbers that answer two questions every sponsor asks: are we on schedule? and are we on budget? It is used widely on government and large IT projects, and its indices appear in PMI's certification material.
The three base numbers
Pick a status date, for example the end of month 4.
- Planned value (PV): the budgeted cost of the work that was scheduled to be done by the status date. It comes from your baseline plan.
- Earned value (EV): the budgeted cost of the work actually completed by the status date. If the whole project is budgeted at $480,000 and 37.5% of the work is done, EV = $180,000.
- Actual cost (AC): what the completed work actually cost, from timesheets and invoices.
The whole project's budget is the budget at completion (BAC).
Earned value is the clever part: it measures progress in money, using the budget for the work done, so it can be compared directly with both the plan and the spend.
Variances and indices
| Measure | Formula | Meaning |
|---|---|---|
| Cost variance | CV = EV - AC | Negative = over budget for the work done |
| Schedule variance | SV = EV - PV | Negative = behind schedule (in money terms) |
| Cost performance index | CPI = EV / AC | Value earned per dollar spent; below 1 = over budget |
| Schedule performance index | SPI = EV / PV | Rate of progress vs plan; below 1 = behind |
Indices are often more useful than variances because they are ratios: a CPI of 0.9 means the same thing on a $50,000 project and a $5 million one.
Forecasting
If the cost efficiency so far is likely to continue, a common forecast is:
EAC = BAC / CPI estimate at completion
ETC = EAC - AC estimate to complete (what is still to spend)
VAC = BAC - EAC variance at completion
There are other EAC formulas (for example, if you believe the overrun was a one-off, EAC = AC + (BAC - EV)). Say which one you used.
Worked example: Northside Clinics at month 4
The baseline says that by the end of month 4 the project should have done $240,000 worth of work. The team estimates 37.5% of the work is complete, and finance reports $200,000 spent.
BAC = 480,000
PV = 240,000
EV = 0.375 x 480,000 = 180,000
AC = 200,000
CV = 180,000 - 200,000 = -20,000 (over budget for the work done)
SV = 180,000 - 240,000 = -60,000 (behind plan)
CPI = 180,000 / 200,000 = 0.90
SPI = 180,000 / 240,000 = 0.75
EAC = 480,000 / 0.90 = 533,333
VAC = 480,000 - 533,333 = -53,333
In plain English for the steering committee:
"We are getting 90 cents of planned work for every dollar spent, and we have done three quarters of the work we planned by now. If nothing changes, the project will cost about $533,000, $53,000 over budget. The main cause is the integration delay; the recovery options are on page 2."
Notice that spend alone ($200,000, below the planned $240,000) would have looked like an underspend. EVM shows the project is in fact behind and over budget for what it has delivered.
Measuring "percent complete" honestly
EV is only as good as your progress measure. Guessing "about 40%" invites optimism. Better rules:
- 0/100: a work package earns nothing until it is done. Strict and simple for small packages.
- 50/50: half when started, half when finished.
- Milestone weights: for example design 20%, build 50%, tested 30%.
- Agile projects: use completed story points against the release plan (accepted stories only, not "nearly done").
Common mistakes
- Treating "money spent" as progress.
- Mixing up the formulas: in both indices, EV is on top. CPI uses AC; SPI uses PV.
- Reporting CPI to three decimals as if it were precise when the percent complete was a guess.
- Ignoring that SPI drifts back to 1.0 near the end of a late project (EV eventually equals PV once everything is done), so check the critical path too.
Quick recap
- PV = planned work, EV = work done (at budget rates), AC = actual cost.
- CPI = EV / AC and SPI = EV / PV; below 1 is bad.
- EAC = BAC / CPI forecasts the final cost if efficiency stays the same.
- Measure progress with clear rules, not optimism.
Try it
Open the Do tab. The earned value calculator is written except for one line: the CPI formula. Fill it in and the program produces the month 4 report. No programming experience needed.