Earned Value Example

In this example we will use a project with two tasks:

ID	Name
100	Set up Database
200	Build Application

We would like to produce a weekly project update to the Chief Technology Officer.  The earned value method will give us metrics that include:

• Schedule status
• Budget status
• End-of-project projections for both

For this project, because this is an example we will simply produce all of the earned value metrics in one table.

Project Planning

As we showed you during the introduction, earned value analysis requires four things to be set up during the project planning phase:

1. Dividing the project into tasks
2. Assigning each task a start and end date
3. Assigning each task a budget
4. Choosing a project status period

Here is what our example project might look like after project planning:

ID	Name	Start	End	Budget
100	Set up Database	Mar. 1	Mar. 10	$10,000
200	Build Application	Mar. 7	Mar. 20	$15,000
TOTAL				$25,000

At this point we also need to make a few assumptions.  Let’s assume it’s March 3 today and we are doing the analysis up to the current point (today).

The Earned Value Calculation

To recap, the earned value calculation at each predefined status point is a 5 step process.  Each step has several variables that are calculated during that step

1. Gather Work Performance Information (the inputs)
   • Budget at Completion (BAC)
   • Planned Value (PV)
   • Earned Value (EV)
   • Actual Cost (AC)
2. Determine Schedule Status
   • Schedule Variance (SV)
   • Schedule Performance Index (SPI)
3. Determine Cost Status
   • Cost Variance (CV)
   • Cost Performance Index (CPI)
4. Forecasting
   • Estimate to Complete (ETC)
   • Estimate at Completion (EAC)
   • Variance at Completion (VAC)
   • To Complete Performance Index (TCPI)
5. Reporting

Gather Work Performance Information

To start, the project manager gathers the inputs to the earned value analysis.

1. Budget at Completion (BAC)
2. Planned Value (PV)
3. Earned Value (EV)
4. Actual Cost (AC)

Budget at Completion (BAC)

The Budget at Completion (BAC) simply refers to the budget of each task.  Thus, we will rename the budget column ‘BAC’:

ID	Name	Start	End	BAC
100	Set up Database	Mar. 1	Mar. 10	$10,000
200	Build Application	Mar. 7	Mar. 20	$15,000
TOTAL				$25,000

Planned Value (PV)

Also called the Budgeted Cost of Work Scheduled (BCWS), the PV is the authorized, time-phased budget assigned to accomplish the work.  It is the amount that the project is supposed to be complete up to that status point.

Let’s say it’s March 3 today.  The planned percent complete is 30% based on the start and end dates.  Therefore,

Task 100:  PV = 30% x $10,000 = $3,000.
Task 200:  PV = $0.  (On March 3, no work is planned yet)

ID	Name	Start	End	BAC	PV
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000
200	Build Application	Mar. 7	Mar. 20	$15,000	$0
TOTAL				$25,000	$3,000

Earned Value (EV)

Also called the Budget Cost of Work Performed (BCWP), the EV is the measure of the work performed at a specific point in time, expressed in terms of the approved budget authorized for that work.  It is the amount that the project is actually complete up to that status point.

Let’s say that after discussions with the applicable project team members and inspection of the progress, we determine that the first task is 20% complete and the second task is 10% complete.

Task 100:  EV = 20% x $10,000 = $2,000.
Task 200:  EV = 10% x $15,000 = $1,500.

We will add another column to our table.

ID	Name	Start	End	BAC	PV	EV
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500
TOTAL				$25,000	$3,000	$3,500

Actual Cost (AC)

Also called the Actual Cost of Work Performed (ACWP), the AC is the realized cost for the work performed during a specific time period.  It is the actual cost of the work up to that status point.

After reviewing our time and expense software and compiling any miscellaneous expenses, we determine that the actual cost of the first task is $4,500 and the second task is $2,000.

ID	Name	Start	End	BAC	PV	EV	AC
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000
TOTAL				$25,000	$3,000	$3,500	$6,500

This is the end of the information gathering phase.  At this point the project manager transitions from gathering project information to calculating project status.

Determine Schedule Status

In order to determine the project’s status as it relates to the schedule, we will calculate two variables from the initial four we gathered from the project data, above:

1. Schedule Variance (SV)
2. Schedule Performance Index (SPI)

Schedule Variance (SV)

The schedule variance tells you how far ahead or behind schedule the task is in terms of the task budget.  The formula is:

• If SV is negative, the task is behind schedule.
• If SV is zero, the task is on schedule
• If SV is positive, the task is ahead of schedule.

For example,

• SV = -$500 means the project is behind schedule.
• SV = $0 means the project is right on schedule.
• SV = $500 means the project is ahead of schedule.

With the schedule variance, positive is good.

As before, we will add a column to the table for Schedule Variance.

Task 100:  SV = $2,000 – $3,000 = -$1,000.
Task 200:  SV = $1,500 – $0 = $1,500.

ID	Name	Start	End	BAC	PV	EV	AC	SV
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500	-$1,000
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000	$1,500
TOTAL				$25,000	$3,000	$3,500	$6,500	$500

As you can see, the project has a positive schedule variance because one task is ahead and the other is behind.

Schedule Performance Index (SPI)

The Schedule Performance Index (SPI) is similar to the Schedule Variance (SV).  It also tells you how far ahead or behind schedule the task is in terms of the task budget, but it is a relative measure rather than an absolute one.  It tells you the efficiency of the task.  The formula is:

• If SPI is less than 1, the task is behind schedule.
• If SPI is zero, the task is on schedule
• If SPI is greater than 1, the task is ahead of schedule.

For example,

• SPI = 0 means the project work has not started.
• SPI = 0.5 means the project has performed half the work it was supposed to at this point.
• SPI = 1.0 means the project is on schedule.
• SPI = 2.0 means the project has performed twice the work it was supposed to at this point.

With the SPI, greater than 1.0 is good.

We will add a column to the table for SPI.

Task 100:  SPI = $2,000 / $3,000 = 0.67.
Task 200:  SPI = $1,500 / $0 = N/A.

ID	Name	Start	End	BAC	PV	EV	AC	SV	SPI
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500	-$1,000	0.67
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000	$1,500	N/A
TOTAL				$25,000	$3,000	$3,500	$6,500	$500	0.67

It is easy to see that the first task has accomplished only two thirds of what it should have at this point.  Its efficiency is two thirds of that which was planned.  But task 200 did not have any planned value at this point, therefore its SPI is effectively infinity.  It can simply be ignored in the rest of the analysis.

Determine Cost Status

In order to calculate the project’s status as it relates to the budget, we will calculated two more variables:

1. Cost Variance (CV)
2. Cost Performance Index (CPI)

Cost Variance (CV)

The Cost Variance (CV) is the amount that the task is over or under its budget.  The formula is:

• If CV is negative, the task is over budget.
• If CV is zero, the task is on budget.
• If CV is positive, the task is under budget.

For example,

• CV = -$1,000 means the project is over budget.
• CV = $0 means the project is right on budget.
• CV = $1,000 means the project is under budget.

In the case of both CV and SV, positive is good.

We will add a column to the table for CV.

Task 100:  CV = $2,000 – $4,500 = -$2,500.
Task 200:  CV = $1,500 – $2.000 = -$500.

ID	Name	Start	End	BAC	PV	EV	AC	SV	SPI	CV
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500	-$1,000	0.67	-$2,500
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000	$1,500	N/A	-$500
TOTAL				$25,000	$3,000	$3,500	$6,500	$500	0.67	-$3,000

The project is $3,000 over budget on a project value of $25,000.  There is clearly a budget problem, but not a schedule problem.

Cost Performance Index (CPI)

The Cost Performance Index (CPI), like the Cost Variance, is a measure of the cost performance of the project, but it is a relative instead of an absolute measure.  It tells you the cost efficiency of the project.  The formula is:

• If CPI is less than 1, the task is over budget.
• If CPI is zero, the task is on budget.
• If CPI is greater than 1, the task is under budget.

For example,

• CPI = 0 means the project work has not started.
• CPI = 0.5 means the project has spent twice amount that it should have at this point.
• CPI = 1.0 means the project is on schedule.
• CPI = 2.0 means the project has spent half the amount that it should have at this point.

In the case of both CPI and SPI, greater than 1.0 is good.

We will add a column to the table for CPI.

Task 100:  CPI = $2,000 / $4,500 = 0.44.
Task 200:  CPI = $1,500 / $2,000 = 0.75.
TOTAL:  CPI = $3,500 / $6,500 = 0.54.

ID	Name	Start	End	BAC	PV	EV	AC	SV	SPI	CV	CPI
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500	-$1,000	0.67	-$2,500	0.44
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000	$1,500	N/A	-$,500	0.75
TOTAL				$25,000	$3,000	$3,500	$6,500	$500	0.67	-$3,000	0.54

The first task has spent more than twice what it should have at this point because CPI < 0.5.  The second task is better but has spent one quarter too much.  The project as a whole has spent just under twice what it was budgeted to at this point (CPI = 0.54).  Note that in the case of SPI and CPI, the ‘total’ is an average, not a total.

This is the end of the metrics that tell you the current status.  The last four variables give you projections (forecasts) to the end of the project.

Forecasting

There are four variables which allow the project manager to forecast the future performance of the project:

1. Estimate to Complete (ETC)
2. Estimate at Completion (EAC)
3. Variance at Completion (VAC)
4. To Complete Performance Index (TCPI)

Estimate to Complete (ETC)

ETC represents the expected cost required to complete the project.  It measures only the future budget needed to complete the project, not the entire budget (that’s the EAC, next).  It allows the project manager to compare the funding needs to finish the project with funding available.

There are two ways to calculate ETC:

1. Based on past project performance:
   ETC = (BAC – EV) / CPI
2. Based on a new estimate
   This is called a Management ETC.  This means that a new estimate is created for the remaining tasks in the project.

In our example task we will calculate the ETC based on the past performance of the project.  Again, we will add a column to the table for ETC.

Task 100:  ETC = ($10,000 – $2,000) / 0.44 = $18,182.
Task 200:  ETC = ($15,000 – $1,500) / 0.75 = $18,000.

ID	Name	Start	End	BAC	PV	EV	AC	SV	SPI	CV	CPI	ETC
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500	-$1,000	0.67	-$2,500	0.44	$18,182
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000	$1,500	N/A	-$500	0.75	$18,000
TOTAL				$25,000	$3,000	$3,500	$6,500	$500	0.67	-$3,000	0.54	$36,182

Many project managers wouldn’t concern themselves too much about this project yet.  It has spent $6,500 out of a project budget of $25,000.  It’s still early, so there’s plenty of time to make up for it, right?

Wrong.  The ETC of $36,182 is the expenditure to complete the project assuming the prior efficiency levels (a safe assumption).  It also does not include the money already spent.  If this project is not brought under control soon, it will go wildly over budget and schedule.

Often there are unique circumstances which don’t allow for a simple extrapolation to the end of the project.  That’s where the Estimate at Completion (EAC) comes in.

Estimate at Completion (EAC)

The EAC is the full task or project cost expected at completion (the new project budget).  There are multiple ways to calculate it based on how you expect the future of the performance of the project to be:

1. Future performance will be based on the budgeted cost
   If you think the existing variance was a unique event and the rest of the project should go according to plan, simply add the remaining project budget to the actual cost incurred to date (AC).  This method does not assume the project finishes on budget.  Rather it takes into account the one time event and adjusts the whole project plan upward or downward to determine the final result.
   EAC = AC + (BAC – EV)
2. Future cost performance will be based on past cost performance
   If you think the past performance is not unusual and there is no reason to expect the project to perform any differently than it already has, you would use this formula.
   EAC = AC + [(BAC – EV) / CPI]
3. Future cost performance will be influenced by past schedule performance
   Since schedule and cost performance are usually related, there could be a reason to adjust the cost performance by the schedule performance.  In this case an average of the CPI and SPI are used to extrapolate the final project cost.
   EAC = AC + [(BAC -EV) / (CPI x SPI)]

   You could also use a combination of the past schedule or cost performance to extrapolate the final project cost.  You could use only the schedule performance (SPI).  Or you could figure in a small influence of the schedule performance.  In the formula below, 20% of the SPI and 80% of the CPI has been used to determine the final project cost.

   EAC = AC + [(BAC -EV) / (0.8·CPI x 0.2·SPI)]
4. A new estimate is produced
   In this case a Management ETC can be added to the to-date cost (AC) to determine the final EAC.
   EAC = AC + ETC

In our example we will predict that the current problems were caused by a one time event that isn’t likely to repeat itself.  Thus, the EAC will use formula #1.

Task 100:  EAC = AC + (BAC – EV) = $4,500 + ($10,000 – $2,000) = $12,500.
Task 200:  EAC = AC + (BAC – EV) = $2,000 + ($15,000 – $1,500) = $15,500.

The table now looks like this:

ID	Name	Start	End	BAC	PV	EV	AC	SV	SPI	CV	CPI	ETC	EAC
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500	-$1,000	0.67	-$2,500	0.44	$18,182	$12,500
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000	$1,500	N/A	-$500	0.75	$18,000	$15,500
TOTAL				$25,000	$3,000	$3,500	$6,500	$500	0.67	-$3,000	0.54	$36,182	$28,000

Now it looks alot better.  The assumption of a one time cost expenditure near the beginning of the project results in a final project budget of $28,000 versus the $25,000 original budget.

Variance at Completion (VAC)

The VAC is a forecast of what the variance, specifically the Cost Variance (CV), will be upon the completion of the project.  It is the size of the expected cost overrun or underrun.  In many situations the project manager must request additional funding as early as possible, or at least report the potential for an overrun.  The VAC represents the size of this request.

The formula is:

This one is relatively simple.  If you’ve calculated the EAC you’ve done the big math already, and the ‘new budget’ can simply be subtracted from the ‘old budget’ to determine the cost overrun or underrun.

The Variance at Completion is simply a future projected Cost Variance.  It has the same units as CV.  It is the same type of element.

We will once again add another column to the table:

Task 100:  VAC = $10,000 – $12,500 = -$2,500.
Task 200:  VAC = $15,000 – $15,500 = -$500.

ID	Name	Start	End	BAC	PV	EV	AC	SV	SPI	CV	CPI	ETC	EAC	VAC
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500	-$1,000	0.67	-$2,500	0.44	$18,182	$12,500	-$2,500
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000	$1,500	N/A	-$500	0.75	$18,000	$15,500	-$500
TOTAL				$25,000	$3,000	$3,500	$6,500	$500	0.67	-$3,000	0.54	$36,182	$28,000	-$3,000

Hence, the projected variance is -$3,000, and the project manager could obtain approval for the expected overrun as early as possible, if necessary.

To Complete Performance Index (TCPI)

The TCPI represents the efficiency level, specifically the CPI, that will make the project finish on time.  It can be a powerful indicator because it is generally easy to ascertain if your people will be as productive as the indicator tells you.  This indicator tends to be a bigger red flag than other indicators.  If it says your people need to be twice as efficient as the schedule, it tends to make you take notice that action needs to be taken.

There are two ways to calculate the TCPI:

1. To achieve the original budget
   If the goal is to achieve the original project budget, that is, the overrun or underrun has not resulted in a change to the project schedule and/or budget, the following formula applies:
   TCPI = (BAC – EV) / (BAC – AC)
2. To achieve the revised budget
   If the goal is to achieve the project’s EAC, that is, the budget has been revised and an approved change to the project schedule/budget has occurred, use this formula.  If additional funds covering the cost overrun have been requested and approved by the project sponsor, the EAC becomes the target of the project, and this scenario applies.
   TCPI = (BAC – EV) / (EAC – AC)

Obviously, the closer the project is to completion the higher the CPI that will be necessary to complete on budget.  It can become extreme near the end.

Also, if the project has already spent more than its budget the TCPI will be negative.

TCPI is the last column in the table.  We will assume the project budget has not been revised (EAC is simply a projection) and the goal is still the original project budget (formula #1, above).

Task 100:  TCPI = ($10,000 – $2,000) / ($10,000 – $4,500) = 1.45.
Task 200:  TCPI = ($15,000 – $1,500)  / ($15,000 – $2,000) = 1.04.
TOTAL:  TCPI = ($25,000 – $3,500) / ($25,000 – $6,500) = 1.16.

ID	Name	Start	End	BAC	PV	EV	AC	SV	SPI	CV	CPI	ETC	EAC	VAC	TCPI
100	Set up Database	Mar. 1	Mar. 10	$10,000	$3,000	$2,000	$4,500	-$1,000	0.67	-$2,500	0.44	$18,182	$12,500	-$2,500	1.45
200	Build Application	Mar. 7	Mar. 20	$15,000	$0	$1,500	$2,000	$1,500	N/A	-$500	0.75	$18,000	$15,500	-$500	1.04
TOTAL				$25,000	$3,000	$3,500	$6,500	$500	0.67	-$3,000	0.54	$36,182	$28,000	-$3,000	1.16

This project team must be 16% more efficient than they have been to finish on budget.

This table can be reported directly to management.  They might need some training on what the numbers mean but this is not an onerous task.

Conclusion

Congratulations, you have now completed our earned value management tutorial.  We hope you’ve broadened your knowledge base and can use this information to get better results on real projects.  Drop us a line in the Contact Us section to let us know how you’re applying this information, and we wish you good luck and much success.

Navigation

• Previous Page:  Earned Value Reporting
• Home:  Earned Value Tutorial