Most projects track cost by comparing spend to budget. That is misleading: being 50% through the budget says nothing about whether 50% of the work is done. Earned value management (EVM) solves this by measuring the value of the work actually completed and comparing it with both the plan and the actual cost.
The three core measures
- Planned Value (PV): the budgeted cost of the work scheduled to be done by now.
- Earned Value (EV): the budgeted cost of the work actually completed by now.
- Actual Cost (AC): what the completed work actually cost.
Plus Budget at Completion (BAC): the total approved budget.
Variances and indices
| Measure | Formula | Interpretation |
|---|---|---|
| Cost variance (CV) | EV − AC | Negative = over budget |
| Schedule variance (SV) | EV − PV | Negative = behind schedule |
| CPI | EV ÷ AC | Value earned per unit spent |
| SPI | EV ÷ PV | Rate of progress vs plan |
Forecasting
| Measure | Formula | Use when |
|---|---|---|
| EAC | BAC ÷ CPI | Current cost performance will continue (most common) |
| EAC | AC + (BAC − EV) | Past variance was a one-off |
| EAC | AC + (BAC − EV) ÷ (CPI × SPI) | Schedule pressure will also drive cost |
| ETC | EAC − AC | Money still needed |
| VAC | BAC − EAC | Expected over/under at completion |
| TCPI | (BAC − EV) ÷ (BAC − AC) | Efficiency needed to finish on budget |
Worked example
A $100,000 project is planned to last 10 months with even spending. At the end of month 4:
- PV = $40,000 (40% should be done)
- The team estimates 35% of the work is done, so EV = $35,000
- Invoices and timesheets show AC = $42,000
CV = 35,000 − 42,000 = −$7,000 (over budget). SV = 35,000 − 40,000 = −$5,000 (behind schedule). CPI = 0.83; SPI = 0.88. EAC = 100,000 ÷ 0.83 ≈ $120,000. TCPI = 65,000 ÷ 58,000 ≈ 1.12 — the team would need to be 12% more efficient than planned for the rest of the project, which rarely happens without changing scope. Try these numbers in the EVM calculator.
Measuring earned value honestly
EVM is only as good as the EV estimate. Common rules for crediting progress:
- 0/100: credit only when complete — conservative, good for short tasks.
- 50/50: half on start, half on finish.
- Weighted milestones: credit at defined checkpoints.
- Physical % complete: for measurable work (metres laid, pages written).
Avoid "percent complete by gut feel" — tasks famously sit at 90% for weeks.
Reporting EVM to executives
Skip the acronyms. Say: "For every dollar we spend we are getting 83 cents of planned work, and we are progressing at 88% of the planned rate. At this rate we will finish about $20,000 over budget and two months late unless we act. Here are three options."
Put this into practice
Use our free tools to apply what you just read — or get a free consultation if you want an expert to look at your project.