Earned value tells you two things a plain cost report cannot: whether you are getting the work done that you planned, and whether you are paying more or less than planned for the work you have done. It works by putting the plan, the progress and the cost into the same unit, money, so they can be compared directly.
The three numbers
| Term | Also called | What it means |
|---|---|---|
| Planned value (PV) | BCWS, budgeted cost of work scheduled | The budget for the work you planned to have done by now |
| Earned value (EV) | BCWP, budgeted cost of work performed | The budget for the work you have actually done |
| Actual cost (AC) | ACWP, actual cost of work performed | What the work you have done actually cost |
The total budget for the whole job is the budget at completion (BAC). Planned value rises over time from zero to the BAC, which is why it is drawn as an S-curve.
Variances and indices
| Measure | Formula | Reading it |
|---|---|---|
| Schedule variance (SV) | EV − PV | Below zero: less work done than planned |
| Cost variance (CV) | EV − AC | Below zero: the work done cost more than its budget |
| Schedule performance index (SPI) | EV ÷ PV | Below 1.0: behind plan |
| Cost performance index (CPI) | EV ÷ AC | Below 1.0: over budget for the work done |
A worked example
A job has a budget at completion of £1,000k. At the end of month six:
- planned value is £400k (the plan said £400k of work would be done);
- earned value is £350k (the work actually done was budgeted at £350k); and
- actual cost is £420k (that work cost £420k).
So:
- SV = 350 − 400 = −£50k, and SPI = 350 ÷ 400 = 0.875. The job is behind plan.
- CV = 350 − 420 = −£70k, and CPI = 350 ÷ 420 = 0.83. Each pound of work is costing about £1.20.
Forecasting the final cost
The estimate at completion (EAC) is the forecast final cost. There is no single right formula. Each one makes a different assumption about the work still to do, which is why it helps to see several side by side.
| Method | Formula | Assumes | Example |
|---|---|---|---|
| Remaining work at budget | AC + (BAC − EV) | The overspend so far was a one-off | £1,070k |
| Cost performance continues | BAC ÷ CPI | Future work costs what past work did | £1,200k |
| Cost and schedule pressure | AC + (BAC − EV) ÷ (CPI × SPI) | Being late will also push cost up | £1,311k |
| Bottom-up | AC + a new estimate to complete | The team re-estimates the remaining work | Depends on the estimate |
Two more useful numbers:
- Variance at completion: BAC − EAC. Using the CPI forecast, 1,000 − 1,200 = −£200k.
- To-complete performance index: (BAC − EV) ÷ (BAC − AC). Here 650 ÷ 580 = 1.12. To finish on budget, the rest of the work must be done about 12% more efficiently than planned. That is rarely realistic, which is itself a useful message.
How progress is measured
Earned value is only as good as the way progress is claimed. Common methods are:
- 0/100: no value until the task is finished. Good for short tasks.
- 50/50: half when it starts, half when it finishes.
- Weighted milestones: value claimed as agreed milestones are met.
- Units complete: value in proportion to measured quantities, such as metres laid.
- Physical percent complete: an assessed percentage, best backed by clear rules.
- Level of effort: value earned with time, for support work such as management. Keep it small, because it always looks on plan.
Never claim earned value from money spent. If earned value simply follows actual cost, the CPI will always be 1.0 and tell you nothing.
Things to watch
- SPI drifts back to 1.0 at the end. When all the work is done, EV equals PV, however late the job was. Earned schedule methods, which measure the delay in time rather than money, help late in a job.
- Work at the right level. Earned value works best at control account level, where one person owns the scope, schedule and budget.
- Keep the baseline stable. Only approved changes should move the performance measurement baseline, or the variances lose their meaning.
Common references for earned value management include the EIA-748 standard and guidance from the Association for Project Management.
Primer works out earned value at control account level from the same links as the schedule, and shows several forecasts side by side. See Cost in Primer.
This guide is general information, not legal, contractual or financial advice. Always check the source documents for your own contract or company.