evm-cost-pmp

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finish at this point in time. Earned value (EV) represents the sum of all the budgeted costs ofcompleted work at this point in time. Actual costs (AC) are the actual costs of the workproduced. It is important to remember EV is based off the original project budget. EVA newbiesoften confuse the actual cost with the earned value figure. The following example depicts EVAin action.

Assume a small four-week software enhancement is budgeted for $10,000. While reportingstatus during the third week, the project manager determines his team has only completed 50percent of the work. Based on the project schedule, the team was supposed to complete 75percent of the work during the third week. The project manager also noticed they've spend$9,000 to date on the project. What is the overall health of the project?In this example, the planned value is $7,500. Based on the project schedule, the team shouldhave been 75 percent complete. The planned value can be calculated by multiplying the plannedpercent complete by the project budget.

PV = Planned % Complete * Project Budget = 75% * $10,000 = $7,500The earned value is determined by multiplying the actual percent complete by the project budget.The earned value determines that amount of value that has been delivered to the project to date.

EV = Actual % Complete * Project Budget = 50% * $10,000 = $5,000Finally, the actual costs to deliver 50 percent of the project were $9,000. The actual costs arecalculated by tracking the actual spend against the project budget.AC = $9,000By applying these calculations, we can determine cost and schedule variances. The cost variance(CV) measures the difference between the actual costs of work performed to the project budget.The schedule variance (SV) is a measure of the actual progress to the project schedule. Thesevariances are described by two simple equations.

CV = EV ACSV = EV PVThe cost variance for this project is $5,000 - $9,000 = -$4,000. The schedule variance for thisproject is $,5000 - $7,500 = -$2,500. When reviewing cost and schedule variances, the projectmanager wants the variances to be zero or greater. Positive variances indicate a cost savings orschedule efficiency. However, these should be examined to confirm the cost or scheduleefficiency data is correct. In this example, the project has negative cost and schedule variances.By reviewing these calculations, the project manager can quickly determine that the project hadspent 90 percent of its budget only to only complete 50 percent of the work. The project isbehind schedule and will be over budget at the end of the project. The project manager will likelyneed to reduce scope, extend the project schedule or obtain more funding to deliver the originalsoftware enhancement.


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Two final calculations are made to determine the cost and schedule performance indices. Thecost and schedule performance indices are helpful in communicating an objective assessment ofproject health to the project stakeholders. Each index represents a performance ration to eitherbudget or schedule. The cost performance index (CPI) is a measure of a project's earned value

compared to the actual costs incurred. The schedule performance index (SPI) is a measure ofactual progress to the project's schedule. When reviewing these calculations, the indices shouldbe as close to 1 or greater. If the number is equal to 1, then the project is on schedule. If they aregreater then 1, then the project is ahead of schedule.

CPI = EV / ACSPI = EV / PVIn the project example, the CPI is .55 and the SPI is .66. Both numbers are less than 1 and theproject schedule and budget need to be examined. If the project continues at this rate, it will costthe company at total of $18,181 to complete a project that was originally budgeted for $10,000.

To calculate the estimate at completion (EAC), divide the original budget by the costperformance index.EAC = BAC/CPIWho's afraid of EVA now? If you can answer three questions, subtract and divide then you canapply EVA to provide an objective assessment of project health. EVA requires project managersto track project actual start and finish dates while comparing actual costs to the project baseline.By adopting EVA on your projects, you will reinforce good project management principles.When presenting the status of a project, the traffic light reporting process can be replaced withobjective SPI and CPI calculations. If your customers and management still prefer to speak intraffic light terms, establish ranges using the SPI and CPI indices to determine the red, yellow orgreen status. A project with an SPI greater than .95 could be considered green or any project witha CPI lower than .85 is immediately red. If your project is 15 percent off its budget, you'll needto gain significant efficiencies to bring the project back on budget. Establish your own ranges asappropriate and continue to use a consistent objective definition to summarize project status.If project management had an instrument panel, I'd look for an SPI and CPI gauge to help directmy project's next steps. The metrics provide an objective assessment of project health based onthe project plan. If EVA is new to your organization, your customers, team members and seniormanagement will need to be educated in interpreting EVA.I explain to my customers and senior management that my job is to ensure the SPI and CPInumbers are as close to 1 as possible. If they are not equal to 1 or greater, then it is my job toexplain the gaps and share my plan to bring the project back on track and successfully deliver.After some orientation and a few reporting periods, my customers started inquiring about theirproject's SPI and CPI. They were equally interested in the objective evidence that indicated theirproject was on track.


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After learning about EV, PV, AC, CPI, SPI and other acronyms, it can become confusing tryingto remember how to track all these numbers and calculations. Fortunately, Microsoft Projecttracks all this information for you and with a few clicks of the mouse and some simple division;you can add these metrics to your status report.

EVM Benefits

EVM contributes to:

y Preventing scope creepy Improving communication and visibility with stakeholdersy Reducing risky Profitability analysisy Project forecastingy Better accountabilityy Performance tracking

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