Industry emphasizes Earned Value Management (EVM) as a comprehensive methodology for measuring project performance by integrating scope, schedule, and cost data. EVM provides objective metrics that reveal whether a project is on track, overspending, or falling behind—enabling proactive corrective action.
Core Earned Value Metrics
Three Fundamental Values:
Planned Value (PV) - The authorized budget assigned to scheduled work. This is what you planned to spend by a given point in time. Also called Budgeted Cost of Work Scheduled (BCWS).
Earned Value (EV) - The value of work actually completed, measured against the budget. This represents what was actually accomplished. Also called Budgeted Cost of Work Performed (BCWP).
Actual Cost (AC) - The actual expenditure incurred for work performed. This is what you've actually spent. Also called Actual Cost of Work Performed (ACWP).
Key Performance Indicators
Cost Performance Index (CPI)
- Formula: CPI = EV / AC
- Meaning: Cost efficiency - how much value you're getting for each dollar spent
- Interpretation:
- CPI > 1.0 = Under budget (good)
- CPI = 1.0 = On budget
- CPI < 1.0 = Over budget (poor)
- Example: CPI of 0.85 means you're getting $0.85 of value for every $1.00 spent (15% over budget)
Schedule Performance Index (SPI)
- Formula: SPI = EV / PV
- Meaning: Schedule efficiency - how much progress you're making compared to the plan
- Interpretation:
- SPI > 1.0 = Ahead of schedule (good)
- SPI = 1.0 = On schedule
- SPI < 1.0 = Behind schedule (poor)
- Example: SPI of 1.15 means you've completed 15% more work than planned at this point
Cost Variance (CV)
- Formula: CV = EV - AC
- Meaning: Absolute cost difference from budget
- Interpretation:
- CV > 0 = Under budget (good)
- CV = 0 = On budget
- CV < 0 = Over budget (poor)
Schedule Variance (SV)
- Formula: SV = EV - PV
- Meaning: Absolute schedule difference from plan (in dollar terms)
- Interpretation:
- SV > 0 = Ahead of schedule (good)
- SV = 0 = On schedule
- SV < 0 = Behind schedule (poor)
Variance at Completion (VAC)
- Formula: VAC = BAC - EAC
- Meaning: Expected variance from original budget at project completion
- Interpretation:
- VAC > 0 = Expecting to finish under budget
- VAC = 0 = Expecting to finish on budget
- VAC < 0 = Expecting to finish over budget
- Use: Helps stakeholders understand final cost impact
Forecasting Metrics
Budget at Completion (BAC)
- The total planned budget for the entire project
- Established during planning and serves as the baseline
Estimate at Completion (EAC)
- The expected total cost when the project is finished
- Multiple formulas depending on assumptions:
EAC Formulas:
- EAC = AC + Bottom-up ETC (most accurate, requires detailed re-estimation)
- EAC = BAC / CPI (assumes current cost efficiency continues)
- EAC = AC + (BAC - EV) (assumes remaining work will be on budget)
- EAC = AC + [(BAC - EV) / (CPI × SPI)] (considers both cost and schedule performance)
Estimate to Complete (ETC)
- Formula: ETC = EAC - AC
- Meaning: How much more money is needed to finish the project
- Use: Critical for resource planning and funding requests
To-Complete Performance Index (TCPI)
- Formula for remaining funds: TCPI = (BAC - EV) / (BAC - AC)
- Formula for EAC: TCPI = (BAC - EV) / (EAC - AC)
- Meaning: The cost efficiency required to meet budget goals
- Interpretation:
- TCPI > 1.0 = Must improve cost performance to meet target
- TCPI = 1.0 = Can maintain current performance
- TCPI < 1.0 = Can perform worse and still meet target
Schedule Metrics
Critical Path Method (CPM)
- Identifies the longest path through the project network
- Determines minimum project duration
- Activities on critical path have zero float/slack
Float/Slack
- Total Float: Amount an activity can be delayed without delaying project
- Free Float: Amount an activity can be delayed without delaying successor activities
Schedule Performance Index - Time-based (SPI(t))
- Alternative SPI calculation using time units instead of cost
- More accurate for schedule assessment late in projects
Additional Performance Metrics
Percent Complete
- Physical progress measurement (50% of work completed)
- Critical for calculating earned value
Percent Spent
- Financial expenditure percentage (50% of budget spent)
- Used with percent complete to assess efficiency
Cost Performance Baseline
- Time-phased budget used to measure, monitor, and control cost performance
- Often displayed as an S-curve
Performance Measurement Baseline (PMB)
- Integrated scope, schedule, and cost baseline
- Used as reference for EVM measurements
Management Reserve
- Budget set aside for unknown risks (unknown unknowns)
- Not included in performance measurement baseline
- Requires management approval to use
Contingency Reserve
- Budget for known risks (known unknowns)
- Included in performance measurement baseline
- Project manager can use as needed
Practical Application Example
Project Status at Month 6:
- BAC = $1,000,000
- PV = $500,000 (planned to complete 50% by now)
- EV = $400,000 (actually completed 40%)
- AC = $450,000 (actually spent)
Calculations:
- CPI = $400,000 / $450,000 = 0.89 (11% over budget)
- SPI = $400,000 / $500,000 = 0.80 (20% behind schedule)
- CV = $400,000 - $450,000 = -$50,000 (over budget)
- SV = $400,000 - $500,000 = -$100,000 (behind schedule)
- EAC = $1,000,000 / 0.89 = $1,123,596 (projected final cost)
- VAC = $1,000,000 - $1,123,596 = -$123,596 (projected overrun)
- TCPI = ($1,000,000 - $400,000) / ($1,000,000 - $450,000) = 1.09
Interpretation: The project is significantly behind schedule and over budget. To finish within the original budget, cost performance must improve to 1.09 (9% better than current 0.89), which is unlikely. Project requires corrective action.
Benefits of EVM
- Objective measurement - Not based on opinions or feelings
- Early warning system - Identifies problems before they become critical
- Integrated view - Combines scope, schedule, and cost
- Trend analysis - Tracks performance over time
- Forecasting - Predicts final outcomes based on current performance
- Standardized reporting - Common language for stakeholders
- Actionable data - Supports decision-making and corrective actions
Limitations and Considerations
- Requires accurate work progress measurement
- Works best with clear, measurable deliverables
- Less effective in highly uncertain environments
- Can be administratively intensive
- May encourage focus on metrics over value
- SPI becomes less meaningful near project end
- Doesn't capture quality or stakeholder satisfaction
Key Concepts
Earned Value Management (EVM) - Methodology integrating scope, schedule, and cost data to objectively measure project performance and progress.
Planned Value (PV) - Authorized budget assigned to scheduled work; what you planned to spend by a point in time. Also called BCWS.
Earned Value (EV) - Budgeted value of work actually completed; what you've accomplished measured in budget terms. Also called BCWP.
Actual Cost (AC) - Real expenditure incurred for work performed; what you've actually spent. Also called ACWP.
Cost Performance Index (CPI) - Ratio of earned value to actual cost (EV/AC); measures cost efficiency where >1.0 is under budget.
Schedule Performance Index (SPI) - Ratio of earned value to planned value (EV/PV); measures schedule efficiency where >1.0 is ahead of schedule.
Cost Variance (CV) - Difference between earned value and actual cost (EV - AC); positive values indicate under budget performance.
Schedule Variance (SV) - Difference between earned value and planned value (EV - PV); positive values indicate ahead of schedule performance.
Budget at Completion (BAC) - Total planned budget for the entire project; the baseline budget.
Estimate at Completion (EAC) - Expected total cost when all work is finished; forecasted final project cost.
Estimate to Complete (ETC) - Expected cost to finish all remaining work (EAC - AC); funds still needed.
Variance at Completion (VAC) - Expected variance from original budget at completion (BAC - EAC); projected over/under budget amount.
To-Complete Performance Index (TCPI) - Required cost efficiency to achieve budget goals; shows how efficiently remaining work must be performed.
Performance Measurement Baseline (PMB) - Integrated scope, schedule, and cost baseline against which project performance is measured.
Cost Performance Baseline - Time-phased budget used to measure and monitor cost performance, typically displayed as S-curve.
Budgeted Cost of Work Scheduled (BCWS) - Older term for Planned Value (PV).
Budgeted Cost of Work Performed (BCWP) - Older term for Earned Value (EV).
Actual Cost of Work Performed (ACWP) - Older term for Actual Cost (AC).
Critical Path - Longest sequence of dependent activities determining minimum project duration; activities with zero float.
Critical Path Method (CPM) - Technique for scheduling project activities using network diagrams and calculating critical path.
Float (Slack) - Amount of time an activity can be delayed without delaying the project or successors.
Total Float - Amount an activity can be delayed without delaying the overall project completion date.
Free Float - Amount an activity can be delayed without delaying any successor activity's early start date.
Management Reserve - Budget for unidentified risks (unknown unknowns); not part of performance baseline, requires management approval.
Contingency Reserve - Budget for identified risks (known unknowns); part of performance baseline, controlled by project manager.
S-Curve - Graphical display of cumulative costs, labor hours, or other quantities over time; typical project expenditure pattern.
Percent Complete - Estimate of work physically completed on an activity or project, used to calculate earned value.
Percent Spent - Portion of budget already expended, used to assess cost efficiency against percent complete.
Baseline - Approved version of a work product used as basis for comparison to actual results.
Variance Analysis - Technique for determining cause and degree of difference between baseline and actual performance.
Trend Analysis - Examination of project performance over time to determine if performance is improving or deteriorating.
Forecasting - Estimating future project conditions and events based on current performance and historical information.
Performance Report - Document presenting performance information including status, progress, and forecasts.
Work Performance Data - Raw observations and measurements collected during project execution.
Work Performance Information - Performance data analyzed and integrated based on context and relationships.
Work Performance Reports - Physical or electronic representation of performance information intended for decision-making.
Control Account - Management control point where scope, budget, actual cost, and schedule are integrated for performance measurement.
Work Package - Lowest level of WBS for which cost and duration are estimated and managed; deliverable at lowest decomposition level.
Planning Package - WBS component below control account but above work package, with known work content but without detailed schedule.
Level of Effort (LOE) - Support-type activity that does not produce definite deliverables (e.g., project management, quality assurance).
Apportioned Effort - Activity directly related to measurable discrete work, earned in same proportion (e.g., inspection).
Discrete Effort - Activity that produces specific deliverables and can be directly planned and measured.
50/50 Rule - Earned value technique crediting 50% EV at start of work and 50% at completion.
0/100 Rule - Earned value technique crediting 100% EV only upon complete task completion.
Weighted Milestone - Earned value technique assigning earned value credit based on achievement of milestones.
Percent Complete Method - Earned value technique based on estimates of work completed (physical or subjective).
Units Complete Method - Earned value technique for repetitive work, earning value based on completed units.
Cost-Schedule Index (CSI) - Combined indicator calculated as CPI × SPI; measures overall project health.
Schedule Performance Index - Time (SPI(t)) - Alternative schedule index using time periods rather than cost; more accurate late in projects.
Independent Estimate at Completion (IEAC) - EAC calculated independently by analysts, not derived from project team data.
Latest Revised Estimate (LRE) - Most current estimate of final project cost, may differ from calculated EAC.
Milestone - Significant point or event in the project, typically with zero duration, used to track progress.
Variance Threshold - Predetermined acceptable range of variance before corrective action is required.
Control Limit - Boundary of common cause variation on control chart; exceeding indicates special cause requiring investigation.
Root Cause Analysis - Technique for identifying underlying reasons for variances or problems.
Corrective Action - Intentional activity to realign future project performance with the plan.
Preventive Action - Intentional activity to ensure future project performance aligns with the plan.
Defect Repair - Intentional activity to modify a nonconforming product or component.