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Earned Value Management Formulas - PM Training

# Earned Value Management

This methodology combines scope, schedule and resource measurements to assess project performance and progress. All of these formulas use EV either subtracting from it or dividing into it. Understanding “value” means actual project work it is easier to grasp the calculations purposes and how you could use them.

### Earned Value (EV)

Purpose: This the actual work (value) that has been completed in the project by the team. It is calculated by multiplying the projects budget by the % of work completed.

Formula: EV = BAC x % of Work Completed

*BAC = Budget at Completion  ie.Planned amount the project should cost

### Planned Value (PV)

Purpose: This is the planned work (value) in the project plan that was expected to be completed at a given time before the project started. Similar to EV it is calculated using % of work planned multiplied by the projects budget.

Formula: PV = BAC x % of Work Planned to Be Completed

*BAC = Budget at Completion ie.Planned amount the project should cost

### Schedule Variance (SV)

Purpose: This is the difference between earned value and planned value. It gives you a measurement of how much a project is ahead/behind schedule.

Formula: ### Cost Variance (CV)

Purpose: This is the difference between earned value and actual cost. It gives you a measurement of how much a project is under or over budget.

Formula: Putting formulas into context from looking at a 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 PV, the project is within budget; if AC is above PV, 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: Judging from the chart above, we can infer that the project is within budget but behind schedule.

### Schedule Performance Index (SPI)

Purpose: This the schedule status expressed as a ratio of earned value to planned value.

Formula: Exam Tip: You will be given an SPI index figure and you will need to determine if the project is behind or ahead of schedule. The best way to determine this is remember high is good, low is bad ie.if less than one project is behind schedule and if above 1 it is ahead of schedule. The project is on schedule if SPI equals to 1.

### Cost Performance Index (CPI)

Formula: This the schedule status expressed as a ratio of earned value to actual cost. Exam Tip: You will be given an CPI index figure and you will need to determine if the project is under or over budget. The best way to determine this is remember high is good, low is bad ie.if less than one project is over budget and if above 1 it is under budget. The project is on budget if CPI equals to 1.

## Practice Earned Value PMP Exam Questions

You are managing an industrial architecture project. You’ve spent \$26,410 so far to survey the site, draw up preliminary plans, and run engineering simulations. You are preparing to meet with your sponsor when you dis cover that there is a new local zoning law will cause you to have to spend an additional estimated \$15,000 to revise your plans . You contact the sponsor and initiate a change request to update the cost baseline. What variable would you use to represent the \$26,410 in an earned value calculation?

1. PV
2. BAC
3. AC
4. *EV

Answer: [shc_shortcode class=”shc_mybox”]Answer is 4 since money spent so far represents earned value.[/shc_shortcode]

You’re working on a project that has an EV of \$7,362 and a PV (BCWS) of \$8,232. What’s your SV?

1. –\$870
2. \$870
3. 0.89
4. Not enough information to tell

Answer: [shc_shortcode class=”shc_mybox”]The answer is 1 SV = EV – PV ie. 7,362 – 8,232 = -870[/shc_shortcode]

You are working on a project with an SPI of .72 and a CPI of 1.1. Which of the following BEST describes your project?

2. Your project is behind schedule and over budget.
3. Your project is behind schedule and under budget.

Answer: [shc_shortcode class=”shc_mybox”]The answer is 3 always remember when thinking about CPI and SPI remember Lower = Loser[/shc_shortcode]

A project has a BAC of \$4,522 and is 13% complete. What is the earned value (EV)?

1.  \$3,934.14
2. There is not enough information to answer.
3. \$587.86
4. \$4,522

Answer: [shc_shortcode class=”shc_mybox”]Answer is 3 ie. EV is work done so calculate 13% of work completed in money terms. 1% = 55.22 * 13 = 587.86[/shc_shortcode]

You are managing a project laying underwater fibre optic cable. The total cost of the project is \$52/meter to lay 4km of cable across a lake. It’s scheduled to take 8 weeks to complete, with an equal amount of cable laid in each week. It’s currently the end of week 5, and your team has laid 1,800 meters of cable so far. What is the SPI of your project?

1. 1.16
2. 1.08
3. .92
4. .72

Answer: [shc_shortcode class=”shc_mybox”]Answer is 4 ie.SPI = EV/PV. First calculate BAC (Budget at Completion) 52 * 4000 = 208,000. Next Calculate PV after 5 weeks which is 2500 (1 week expected 500m laid) * BAC = 520,000,000. EV = 1800 * BAC =  374400000. PV/EV = .72[/shc_shortcode]

You are managing a project with a BAC of \$93,000, EV (BCWP) of \$51,840, PV (BCWS) of \$64,800, and AC (ACWP) of \$43,200. What is
the CPI?
1. 1.5
2. 0.8
3. *1.2
4. \$9,000

Answer: [shc_shortcode class=”shc_mybox”]Answer is 3 ie. CPI = EV/AC ie.51840/43200 = 1.2[/shc_shortcode]

### Estimates at Completion (EAC)

As a project progresses there may be variations of the final actual cost versus what was originally planned. EAC is a way to forecast the planned cost based on the available data

Use Case #1: If the CPI would remain the same till end of project we divide the projected BAC by the CPI

Formula: Use Case #2: There was a delay by a unforeseen issue which will not occur again

Formula: Use Case #3: When both cost and schedule will impact future cost

Formula: Use Case #4:  If the original estimate is based on wrong data/assumptions or circumstances have changed

Formula: EAC = AC + Bottom-Up Estimate

### Variance at Completion (VAC)

Purpose: You use this formula when trying to determine the new estimate at completion and the original planned value.

Formula: ### To-Complete Performance Index (TCIP)

Purpose: To forecast whether or not you can stick to your budget.

Formula: ### Estimate to Completion (ETC)

Purpose: To determine how much work more money will it cost to complete the project you would simply subtract what you already spent from the expected total budget.

Formula: For Advanced Earned Value Management Take 15 Question Quiz by iZenbridge.

Some of the questions are from Head First PMP Book which you can purchase here.