Earned Value Management for Absolute Beginners

Earned Value Management for Absolute Beginners
By Mike Griffiths

Let’s imagine our project is to build a wall around a garden.

For simplicity, let’s assume 4 equal sides and a budget of $200 per side. Our schedule is one side per day so we should finish in 4 days with a cost of $800.

Here is how the project progresses:

Day 1 Progress: Front wall completed and the budget of $200 spent – perfect!

Day 2 Progress: Side 1 started, but the foundations had to go deeper than expected using more materials so the side was not quite completed and the spend was $220

Day 3 Progress: Side 1 was finished, only half of the back wall was built, but the team left early and only spent $140 that day

So are we ahead or behind? How much over/under budget are we?

This is the type of thing that happens on real projects, some things go fine; other things go slower than anticipated and before long you need to determine, on balance, how much ahead or behind from the original plan you are.

Just from common sense we can tell we are behind, by the end of day 3 we should have finished 3 sides not 2.5.

Spend wise, we can make some estimates too; we have achieved 2.5 out of 4 sides which is 62.5% (2.5 / 4 *100 = 62.5) of the overall project. We have spent $200 + $220 + $140 = $560 of the $800 which is 70% (560/800 *100 = 70) of the budget. Having spent 70% of your budget and only achieved 62.5% of your budgetted progress indicates you are spending faster than anticipated.

Congratulations you now understand the basics of Earned Value!

Earned Value has some unique terminology that throws off lots of people, but none of it is too complicated, here are the terms:

Earned Value Terms

Term	Name	Meaning
PV	Planned Value	Estimated value of the work planned to be done
EV	Earned Value	Estimated value of the work actually accomplished
AC	Actual Costs	Actual Costs Incurred
BAC	Budget At Completion	Amount budgeted for total project
EAC	Estimate At Completion	Currently expected total for project
ETC	Estimate To Complete	How much more to finish
VAC	Variance At Completion	How much over/under we expect to be

Using the above terms, we get the following values for our example above (at the end of day 3):

Term	Name	Meaning	Day 3 values
PV	Planned Value	Estimated value of the work planned to be done	$600
EV	Earned Value	Estimated value of the work actually accomplished	$200+$200+$100=$500
AC	Actual Costs	Actual Costs Incurred	$200+$200+$140=$540
BAC	Budget At Completion	Amount budgeted for total project	$800
EAC	Estimate At Completion	Currently expected total for project	?
ETC	Estimate To Complete	How much more to finish	?
VAC	Variance At Completion	How much over/under we expect to be	?

To fill in the remaining fields we need some formulae, again don’t be put off by the terminology, it is really quite easy:

Earned Value Forumlae

Name	Formula	Meaning
Cost Variance	CV = EV – AC	-ve = over budget, +ve = under budget
Schedule Variance	SV = EV – PV	-ve = behind schedule, +ve = ahead of schedule
Cost Performance Index	CPI = EV / AC	I am getting “x” cents out every $
Schedule Performance Index	SPI = EV / PV	I am progressing at “x”% originally planned
Estimate At Completion	EAC = BAC / CPI	As of now, how much do we expect the total project to cost
Estimate To Complete	ETC = EAC – AC	How much more to finish
Variance At Completion	VAC = BAC – EAC	How much over/under we expect to be

The first two values (Cost Variance and Schedule Variance) are measures of how much ahead or behind cost and schedule we are. Just remember negative values here are negative signs for the project, it means we are over budget or behind schedule.

The next two values (Cost Performance Index and Schedule Performance Index) are factors where the value 1 means on budget or schedule, anything below 1 means behind, anything above 1 means ahead.

So plugging in our numbers we get:

Name	Formula	Meaning and Value
Cost Variance	CV = EV – AC	$500 – $560 = -$60 (we are over budget)
Schedule Variance	SV = EV – PV	$500 – $600 = -$100 (we are behind schedule)
Cost Performance Index	CPI = EV / AC	$500 / $560 = 0.89 (I am getting 89 cents out of every $)
Schedule Performance Index	SPI = EV / PV	$500 / $600 = 0.83 (I am progressing at 83% of the rate originally planned)
Estimate At Completion	EAC = BAC / CPI	$800 / 0.89 = $900 (The total is now likely to be $900)
Estimate To Complete	ETC = EAC – AC	$900 – $560 = $340 (From now I will likely spend $340)
Variance At Completion	VAC = BAC – EAC	$800 – $900 = -$100 (We expect to be $100 over budget)

So we can estimate that at this rate it is more likely to cost $900 rather than the $800 budget and given we are only progressing at 83% of the rate we first estimated, this will now take 4.8 days to finish (original 4 days / 0.83 rate of progress = 4.82).

That is it, no quantum mechanics necessary. Negative Variance figures are generally bad as are performance indexes below 1. There are other formulae, and alternative formulae that can be used in certain circumstances, but these are the basics.

All of these numbers were available to us in our initial common sense assessment of progress. Having completed only 2.5 sides instead of 3 by the end of day 3 gives us the 2.5/3 = 0.83 Schedule Performance Index (SPI) we calculated. Likewise spending $560 and only building $500 worth of original plan work is our 500/600 = 0.89 Cost Performance Index (CPI)

Download Earned Value Management Cheat Sheet Courtesy of Mike Griffiths – Leading Answers

Mike Griffiths is an independent consultant specializing in effective project management. Mike was involved in the creation of DSDM in 1994 and has been using agile methods (Scrum, FDD, XP, DSDM) for the last 13 years. He serves on the board of the Agile Alliance and the Agile Project Leadership Network (APLN). He maintains a leadership and agile project management blog at http://www.LeadingAnswers.com