PMP Earned Value Management (EVM) Calculation Explained in Simple Terms

A simplified discussion of the EVM calculation just enough for the PMP Exam


PMP Earned Value Management (EVM) Calculation

Summary: Among all the PMP® Exam formulas calculation questions, the Earned Value Management (EVM) questions are usually considered the most important ones as candidates will need to solve quite a few of them in the real PMP® Exam — I got around 5+ EVM questions on my PMP® Exam paper and I am quite confident that I could get them all correct.

However, many project managers may not have done any EVM in their projects and many of them consider the EVM questions a bit scary. This post aims to help PMP® aspirants to understand easily the EVM concepts and how to tackle the EVM questions.

Introduction

PMP® Earned Value Management (EVM) questions are difficult? Or easy?

As project managers come from different backgrounds, there is no consensus for the level of difficulty of EVM questions. But if you can understand the concepts of EVM firmly, you too will find that EVM questions for the PMP® Exam is indeed NOT difficult at all. After all, the PMP® Exam is not an exam decided for Maths students, the PMP® Exam tests your understanding of project management as a whole.

Download the full list of PMP® Exam formulas for Free

To arrive at the correct answers for EVM questions, all you need to do in the PMP® Exam is to:

  1. Read the question carefully
  2. Select the correct formula to apply
  3. Calculate the answer (this is often the easiest part! You can get most answers without the use of calculators)

PMP® EVM Concepts Explained With Examples

Earned value management (EVM) is used to assess the schedule and cost performance of a project — with EVM, the project manager will know exactly whether the project is:

  • ahead of / on / behind schedule
  • under / on / over budget

Earned value management (EVM) bases on the concept that i) work completed will deliver value and ii) the value delivered equals the budget put into the work. The value gained can be assessed along the progression of the project. In reality, earned value management is very complicated as value usually cannot simply be assessed based on the percentage of completion.

Good news here: PMI has simplified PMP® EVM calculation to very “ideal” situations! You will just need to know the following to get your PMP® EVM questions correct.

Basic EVM Formulas

To speak more clearly how the value is to be managed, a number of terms are defined in EVM (explained with the example of building 10 houses each has a value of US$1000 expected to be completed in 10 weeks in proportion):

  • Planned Value (PV) — The budgeted value of the work completed so far at a specific date
    example: at end of week 4, altogether 4 houses should be completed, the PV is US$4000
  • Earned Value (EV) — The actual value of the work completed so far at a specific date (refer to the “Notes on Earned Value Measurement” section below)
    example: by end of week 4, only 3 houses are completed, the EV is US$3000
  • Actual Cost (AC) — The total expenditure for the work so far at a specific date
    example: by end of week 4, US$4000 was spend, the AC is US$4000

EVM is based on monitoring these three aspects along the project in order to reveal the health of the project with the following indices:

  • Schedule Variance (SV) — difference between PV and EV, to tell whether the project work is ahead of / on / behind schedule
    • SV = EV – PV
      If the project is behind schedule the SV will be negative (i.e. achieved less than what planned)
      If the project is on schedule the SV = 0
      If the project is ahead of schedule the SV will be positive (i.e. achieved more than what planned)
    • example: by end of week 4, the SV = EV – PV = US$3000 – US$4000 = -US$1000 (behind schedule)
  • Schedule Performance Index (SPI) — ratio between EV and PV, to reflect whether the project work is ahead of / on / behind schedule in relative terms
    • SPI = EV/PV
      If the project is behind schedule the SPI < 1 (i.e. achieved less than what planned)
      If the project is on schedule the SPI = 1
      If the project is ahead of schedule the SPI > 1 (i.e. achieved more than what planned)
    • example: by end of week 4, the SPI = EV/PV = US$3000/US$4000 = 0.75 (behind schedule)
  • Cost Variance (CV) — difference between PV and AC, to tell whether the project work is under / on / over budget
    • CV = EV – AC
      If the project is over budget the CV will be negative (i.e. achieved less than spent)
      If the project is on budget the CV = 0
      If the project is under budget the CV will be positive (i.e. achieved more than spent)
    • example: by end of week 4, the CV = EV – AC = US$3000 – US$4000 = -US$1000 (over budget)
  • Cost Performance Index (CPI) — ratio between EV and AC, to reflect whether the project work is under / on / over budget in relative terms
    • CPI = EV/AC
      If the project is over budget the CPI < 1 (i.e. achieved less than spent)
      If the project is on budget the CPI = 1
      If the project is under budget the CPI > 1 (i.e. achieved more than spent)
    • example: by end of week 4, the CPI = EV/AC = US$3000/US$4000 = 0.75 (over budget)

Note both SV and SPI / CV and CPI give similar information on schedule / budget but the indices will give more insights into the actual performance with a meaning comparison.

From my experience, the most difficult process of solving EVM problems for PMP® Exams is to identify the PV, EV and AC from the wordy calculation questions. Then you will just have to recall the correct formula to substitute the values into to get the answer — the question will usually ask you directly about the actual indices to get.

Advanced EVM Formulas

  • Budget at Completion (BAC) — also known as the project/work budget, that is the total amount of money originally planned to spend on the project/work
    • example: the BAC for the housing project = US$1000 x 10 = US$10000
  • Estimate at completion (EAC) — as the project goes on, there may be variations into the actual final cost from the planned final cost, EAC is a way to project/estimate the planned cost at project finish based on the currently available data
    • The following formulas can be used to calculate EAC based on which information and conditions given in the question:
      • EAC = BAC/CPI
        If we believe the project will continue to spend at the same rate up to now

        • The delay is caused by reasons which is likely to continue (e.g. labour with less skilled than expected)
        • example: the EAC for the housing project = US$10000 / 0.75 = US$13333
      • EAC = AC + (BAC-EV)
        If we believe that future expenditures will occur at the original forecasted amount (no more delays of the same kind in future)

        • The delay might be caused by some unforeseen reasons (e.g. typhoon) which is not likely to happen again
        • example: the EAC for the housing project = US$4000 + (US$10000 – $3000) = US$11000
      • EAC = AC + [(BAC-EV)/(SPI*CPI)]
        If we believe that both current cost and current schedule performance will impact future cost performance

        • The performance of the project will continue with sub-prime standards (over budget and behind schedule)
        • This formula is less likely to be used for the PMP® Exam
        • example: the EAC for the housing project = US$4000 + [(US$10000 – $3000)/(0.75*0.75)] = US$16444
      • EAC = AC + New Estimate
        If we believe the original conditions and assumptions are wrong

        • Will not be tested as there is nothing to calculate
  • Variance at Completion (VAC) — the variance at completion, i.e. the difference between the new estimate at completion and original planned value
    • VAC = BAC – EAC
      If we forecast the project will be over budget, VAC will be negative
      If we forecast the project will be under budget, VAC will be positive
    • example: the VAC for the housing project = US$10000 – US$13333 (just take the 1st EAC as an example only) = -US$3333
  • To Complete Performance Index (TCPI) — the efficiency needed to finish the project on budget, it is the ratio between budgeted cost of work remaining and money remaining
    • TCPI = (BAC-EV)/(BAC-AC)
      Use this equation if the project is required to finish within BAC

      • example: the TCPI for the housing project at end of week 4 = (US$10000 – US$3000) / (US$10000 – US$4000) = 1.167
    • TCPI = (BAC-EV)/(EAC-AC)
      Use this equation if the project is required to finish within new EAC

      • example: the TCPI for the housing project at end of week 4 with new EAC US$13333 = (US$10000 – US$3000) / (US$13333 – US$4000) = 0.75

Notes on Earned Value Measurement

The following will discuss how earned value is measured for project and work, from simple physical measurements, percentage complete to weighted milestones. Since the PMP® EVM questions cannot describe a lot of information, the part on earned value measurements will normally be based on simplified situations like physical measurements or percentage complete.

It is likely that you will not be tested on the more difficult ways of measuring earned values. These are included here for your reference only.

  • Physical Measurement — directly transform the physical measurement of the amount of work completed into EV
    • example: building 10 houses each has a value of US$1000 expected to be completed in 10 weeks in proportion, earned value of 3 house built is US$3000
  • Percentage Complete — directly transform the percentage of the amount of work completed into EV
    • example: building 10 houses each has a value of US$1000 expected to be completed in 10 weeks in proportion, earned value of 30% complete is US$3000
  • Weighted Milestone — a EV is assigned to the 100% completion of each milestone of the work packages with prior agreement with stakeholders
  • Fixed Formula — a specific percentage of the overall PV is assigned to the start of a work package and the remaining assigned upon completion; these must be agreed upon in the project management plan
    • 0/100 rule: 0% EV at the activity begins; 100% EV upon completion
    • 20/80 rule: 20% EV at the activity begins; 80% EV upon completion.
    • 50/50 rule: 50% EV at the activity begins; 50% EV upon completion

EVM Charts

In common practices, EVM will also involve plotting the values on a graph in order to help stakeholders concerned to visualize the progress and the health of the project. More often than not you will find the EV, AC and PV plotted on a graph and you will be asked on the interpretation of the graph.

Insights to be gained from the chart:

  • If EV line is below PV, the project is behind schedule; if EV is above PV, the project is ahead of schedule.
  • If AC line is below EV, the project is within budget; if AC is above EV, the project is over budget.

Below is an example of the EVM charts you would be likely to encounter in your PMP® Exam — solid lines represent actual figures while dotted lines represent forecasted figures:

EVM Chart

Judging from the chart above, we can infer that the project is currently over budget and behind schedule.

PMP® Earned Value Management (EVM) Formulas in PMBOK® Guide At a Glance

12 PMP® EVM Formulas
Name (Abbreviation) Formula Interpretation
Schedule Performance Index (SPI)

SPI = EV/PV

EV = Earned Value
PV = Planned Value

< 1    behind schedule
= 1    on schedule
> 1    ahead of schedule
Cost Performance Index (CPI)

CPI = EV/AC

EV = Earned Value
AC = Actual Cost

< 1    Over budget
= 1    On budget
> 1    Under budget

sometimes the term ‘cumulative CPI’ would be shown, which actually is the CPI up to that moment
Schedule Variance (SV)

SV = EV – PV

EV = Earned Value
PV = Planned Value

< 0    Behind schedule
= 0    On schedule
> 0    Ahead of schedule
Cost Variance (CV)

CV = EV – AC

EV = Earned Value
AC = Actual Cost

< 0    Over budget
= 0    On budget
> 0    Within budget
Estimate at Completion (EAC) if original is flawed

EAC = AC + New ETC

AC = Actual Cost
New ETC = New Estimate to Completion

if the original estimate is based on wrong data/assumptions or circumstances have changed
Estimate at Completion (EAC) if BAC remains the same

EAC = AC + BAC – EV

AC = Actual Cost
BAC = Budget at completion
EV = Earned Value

the variance is caused by a one-time event and is not likely to happen again
Estimate at Completion (EAC) if CPI remains the same

EAC = BAC/CPI

BAC = Budget at completion
CPI = Cost performance index

if the CPI would remain the same till end of project, i.e. the original estimation is not accurate
Estimate at Completion (EAC) if substandard performance continues

EAC = AC + [(BAC -EV)/(CPI*SPI)]

AC = Actual Cost
BAC = Budget at completion
EV = Earned Value
CPI = Cost Performance Index
SPI = Schedule Performance Index

use when the question gives all the values (AC, BAC, EV, CPI and SPI), otherwise, this formula is not likely to be used
To-Complete Performance Index (TCPI)

TCPI = (BAC – EV)/
(BAC – AC)

BAC = Budget at completion
EV = Earned value
AC = Actual Cost

TCPI = Remaining Work
/Remaining Funds

BAC = Budget at completion
EV = Earned value
CPI = Cost performance index

< 1    Under budget
= 1    On budget
> 1    Over budget
Estimate to Completion 

ETC = EAC -AC

EAC = Estimate at Completion
AC = Actual Cost

Variance at Completion

VAC = BAC – EAC

BAC = Budget at completion
EAC = Estimate at Completion

< 0    Over budget
= 0    On budget
> 0    Under budget

Note: Download the full list of PMP® Exam formulas for Free

Additional Resources

After understanding the above and memorizing the EVM formulas, PMP® aspirants should be able to answer PMP® EVM calculation questions. Now it is time to test your understanding of EVM calculation by going through some practice questions at the article tips and skills on how to answer all PMP® EVM questions correctly  — 20+ practice questions on PMP® EVM are also included to help you hone your EVM skills and all questions are fully explained.

 

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Edward Chung

Edward Chung aspires to become a full-stack web developer and project manager. In the quest to become a more competent professional, Edward studied for and passed the PMP Certification, ITIL v3 Foundation Certification, PMI-ACP Certification and Zend PHP Certification. Edward shares his certification experience and resources here in the hope of helping others who are pursuing these certification exams to achieve exam success.

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28 Responses

  1. MF says:

    Hi Edward,
    Please guide how can i get the downloadable pdf version of this article?

    Thanks in advance.
    Cheers

  2. Hope Barrow says:

    Hello Edward, your site is very helpful. Thanks for the time and effort you’ve spent in putting it together. I already sat and passed the PMP exam in 2013, but I find that there are some things that I don’t use so they fade from my memory over time, and I always have to revisit the subject. Earned value is one of them because my company does not use it. I only recently discovered that there is a certification called Earned Value Professional (EVP) offered by AACE International. Their site is http://www.aacei.org for anyone who is interested. For those people who are analysts or project controllers, a strong grasp of earned value is priceless! Thanks for your work!

  3. Barbara Alexander says:

    Thank you so much! I am getting ready for an intensive boot camp but math is not my thing at all. Your examples are helping me to begin to make sense of the formulae.

  4. Vikrant Vare says:

    Dear Edward, thanks a ton. I have cleared my PMP exam in first attempt on 30th August 2017. Your tips helped me lot.

  5. Rohini Kumar T says:

    Hi Edward,
    First of all, its a great source of information for the Beginners to Experts. I am afraid whether there is a Typo in the inferring the graph
    “Judging from the chart above, we can infer that the project is currently over budget and behind schedule”.
    If the AC is Below PV, I assume it should be under budget.

    2. Is this correct? If AC line is below EV, the project is within budget; if AC is above EV, the project is over budget. Or a typo?

    • Edward Chung says:

      Yes, this chart is quite confusing indeed (as I was also not quite sure of the answers in the beginning).

      In judging whether a project is over budget, we will just have to consider the AC vs EV. If AC > EV, it is over budget. If EV > AC, it is under budget. PV is used to judge whether the project is proceeding according to the schedule or not (i.e. ahead or behind the schedule).

      You may refer to the formulas below:
      ・Cost Performance Index (CPI) – CPI = EV/AC
      ・Schedule Performance Index (SPI) – SPI = EV/PV

      Wish you PMP success!

  6. Emil says:

    hi.

    great article, but i’m a little bit confused. if EAC=AC+BAC–EV then VAC is equal to CV, cause VAC=BAC–EAC (VAC=BAC-AC-BAC+EV=EV-AC=CV). so there is no point in calculate VAC, or am i wrong in something?

    • Edward Chung says:

      Yes and no. You are right under a special circumstance — the EAC=AC+BAC–EV formula is applied when BAC remains the same (i.e. the variance is caused by a one-time event and is not likely to happen again and the project would proceed exactly as planned). In this case, CV at the time would be equal to the estimated VAC. But if the event has a long lasting effect on the project performance, CV at that time would NOT be equal to the new estimated VAC and other EAC formulas would apply in such case.

      Wish you PMP success!

  7. DM Hal says:

    Hi Edward,
    I am taking a class to earn my project management certification. I would like to get your permission to use the EVM chart above for one of my assignments. I understand EVM better because of your explanation. Thanks

  8. Dave Hammal says:

    Great article!
    Another typo: TCPI states 1.67 but should be 1.167

  9. Anas Dabbakh says:

    Hi Edward, I have a question regarding one of your formula interpretation. In the VAC formula (VAC = BAC – EAC) you are interpreting 0 result as being over budget. Should not it be the other way round ? If BAC is less than EAC (<0 result) it means that project is over budget, isn't that so ? Apologies, if I misinterpreted.

    • Edward Chung says:

      Hi Anas,

      If BAC is less than EAC, it means that at current stage the total cost estimated is less that what was planned at the beginning of the project, so the project is under budget, and vice versa. Hope this helps.

  10. Andrea Penna says:

    Hi,
    great explanation; but I think there is a confusion between “cost” and “value” in this explanation.
    Let me try to explain myself: in example above the reference to each house value of $1K seems to be the “price” the house will be sold at (so the revenues), but then the AC is associated with the cost to build the houses: 3 houses built = $3K of cost (so the cost of the task/project).
    I think EV should refer to “cost to deliver”; in the example above this could be:
    1 house estimated cost = $1K
    planned houses at today = 4, –> planned cost at today = $4K (PV)
    actual delivered houses at today = 3 –> EV = $3K
    actual cost to deliver 3 houses = $3.5K (AC)

    And so the CPI and SPI should be:
    CPI = EV/AC = 3K/3.5K over budget
    SPI = EV/PV = 3K/4K behind schedule

    or am I missing something? 🙂

    • Edward Chung says:

      Hi Andrea,

      You bring a new perspective in considering the “Value” in “Earned Value Management”. But, according to the norms, the “value” is usually defined as the “budgeted cost” in Earned Value Management.

      Thanks!

  11. Sandipan Chakraborty says:

    Thanks a lot sir. I was not confident which formula to apply while solving problems on EAC. But now I can creep out which conditions are required to be analysed. Thanks once again.

    Regards,
    Sandipan Chakraborty
    Assistant Engineering Manager
    Larsen and Toubro Limited
    Mobile no. +919830301488

  12. Brian says:

    In the “insights to be gained” from the EVM chart, it says “If AC line is below PV, the project is within budget”. Then below, it says it can be inferred that the project is over budget. On the chart, it shows the AC line below the PV line. Would it be within budget or over budget? Is it within budget today but forecasted to be above budget later? Thank you.

    • Edward Chung says:

      Hi Brian,

      Thanks a lot for pointing out the typo. When judging whether the project is over or under budget, we use the EV vs AC instead of the PV. I have corrected the typo above. Thanks!

  13. Constantine says:

    The same about the example: by end of week 4, the CV = EV/AC = US$3000/US$4000 = 0.75 (over budget).
    Should be CPI.

  14. Constantine says:

    Hi Edward,

    There is another typo in the example:
    the SV = EV/PV = US$3000/US$4000 = 0.75 (behind schedule)
    Instead of SV should be SPI.

  15. Jerome says:

    Hi, it seems the commentary you’ve added on the EVM is incorrect ? It looks like the project is over budget as of “today”.

  16. Edward Chung says:

    Hi Radka,
    Thanks for pointing out the typo. I have amended the post to correct the VAC calculation. Wish you PMP success!
    Regards,
    Edward

April 9, 2014