TOPIC 6a

EARNED VALUE
MANAGEMENT (EVM)
1

EARNED VALUE MANAGEMENT

Is the best project control technique for early detection of

performance variances.
The technique was developed nearly 40 years ago for the
United States government to better manage contract
payments to vendors.
Ever since, it has grown in popularity and acceptance
across many industries, and now is regarded as the
preferred project control technique by PMI.
However, it has not been accepted as standard practice in
all industries, and it is usually a technique found in
organizations or industries that are relatively mature in
their management processes.

EARNED VALUE MANAGEMENT

Assess cost performance and schedule performance together

The main value of EVM is that it allows you to measure and track both
schedule and cost performance together. Evaluating project performance
on just one of these indicators DOES NOT always give you the true picture
and does not allow you to detect variances as early.
Each work package has a planned value
The planned value of any work package is the budgeted cost of the work
scheduled (BCWS) to complete the work package. The important point
here: Estimate the cost of each work package in your schedule. Also, this
means that the project as a whole has a baseline schedule and budget.
At any point, the project has an "earned" value
The earned value of a project is the budgeted cost of the work actually
completed (BCWP). In other words, how many work packages (or partial
work packages) have been completed at this time? The value is expressed
in budgeted cost terms, not actual costs. This allows you to perform cost
analysis by comparing budgeted versus actual costs for the work
completed (ACWP).
3

INTRODUCTION TO EARNED VALUE

SYSTEM (EVS)

The EVS is used to monitor the progress of work and

compare accomplished work with planned work.

There are several factors in the earned value report that

needs to be known in order to use it effectively.

The factors are the:

Budgeted cost of work scheduled (BCWS)
Budgeted cost of work performed (BCWP)
Actual cost of work performed (ACWP)

These three elements form the basis for the earned value
reporting system.

EQUIVALENT TERMS

Budgeted cost of work scheduled (BCWS)=Planned Value (PV)

Budgeted cost of work performed (BCWP)=Earned Value (EV)

Actual cost of work performed (ACWP)= Actual Cost (AC)

EARNED VALUE MANAGEMENT

EVM takes the planned value (PV), or what you planned to

do at an estimated cost, and compares it against the
estimated cost of the work performed (EV) and against the
actual cost of work performed (AC), or what actually got
done.
These metrics provides information about whether the
project tasks are taking longer than they should (schedule
variance, or SV), or whether they are actually requiring
more work effort to complete (cost variance, or CV).
In addition, the estimate-at-completion metric (EAC) helps
you forecast final project performance and determine if any
corrective action needs to take place.

Budgeted cost of work scheduled (BCWS)

Is the amount of money that was

planned, or budgeted, at each time
period in the project.
It is determined by cost loading the
CPM diagram to determine the
distribution of cost in accordance with
the project plan.
The S-curve for a project represents
the BCWS.
7

Actual cost of work performed (ACWP)

The ACWP is the actual amount of

money that has been spent at any
point in time during the project.
It is determined from accounting
records or the responsible party that
keeps records of actual expenditure
of money.

Budgeted cost of work performed

(BCWP)

The BCWP is the amount of money

earned based on the work that has
been completed.
It is determined by multiplying the
percentage of work completed by
the budgeted amount for the work.

What could you conclude from

the figure below?

10

Project tracking
without EVM

Figure 1 shows the cumulative budget for this project as a function

of time (the blue line, labeled PV). It also shows the cumulative
actual cost of the project (red line) through week 8.
To those unfamiliar with EVM, it might appear that this project was
over budget through week 4 and then under budget from week 6
through week 8.
However, what is missing from this chart is any understanding of
how much work has been accomplished during the project.
If the project was actually completed at week 8, then the project
would actually be well under budget and well ahead of schedule.
If, on the other hand, the project is only 10% complete at week 8,
the project is significantly over budget and behind schedule. A
method is needed to measure technical performance objectively
and quantitatively, and that is what EVM accomplishes.
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12

Project tracking with EVM

Figure 2 shows the EV curve (in green) along with the PV

curve from Figure 1.
The chart indicates that technical performance (i.e.,
progress) started more rapidly than planned, but slowed
significantly and fell behind schedule at week 7 and 8.
This chart illustrates the schedule performance aspect of
EVM.

13

14

Project tracking with EVM

Figure 3 shows the same EV curve (green) with the actual

cost data from Figure 1 (in red).
It can be seen that the project was actually under budget,
relative to the amount of work accomplished, since the
start of the project.
This is a much better conclusion than might be derived
from Figure 1.

15

16

Project tracking with EVM

Figure 4 shows all three curves together which is a typical

EVM line chart.
The best way to read these three-line charts is to identify
the EV curve first, then compare it to PV (for schedule
performance) and AC (for cost performance).
It can be seen from this illustration that a true
understanding of cost performance and schedule
performance relies first on measuring technical
performance objectively. This is the foundational principle
of EVM.

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18

Question

Suppose a project is in progress and as of today the

planned expenditures for the project were to have been
$500,000. Suppose also that there were five tasks and the
tasks had budgets of $30,000, $100,000, $250,000,
$100,000, and $20,000, respectively. The actual cost of
each of the tasks that were worked on was $11,000,
$120,000, $230,000, $105,000, and $20,000. Tasks 1, 2, 3,
and 4 are complete.

What are the BCWS, ACWP, and BCWP (PV, AC, and EV)?

19

Answer

BCWS is $500,000.
ACWP is $486,000.
BCWP is $480,000.

From these figures we can see that the accomplishments of the project as
of today are somewhat less than what was planned for. This is the
difference between the earned value and the planned value to date. The
planned value is the BCWS and the earned value is the BCWP. This means
that we are $20,000 behind schedule.
We can also see that the actual cost is $14,000 less than the planned
expenditures to date. This means that we are somewhat under budget.
Unfortunately we are $14,000 under budget but also $20,000 behind
schedule. If we add the $20,000 of work that should have been completed
but was not, we find ourselves projecting a $6,000 over budget condition. It
could be that things are actually worse than they appear at first glance. If
the performance to date continues, the amount over budget will probably
be even higher at the end of the project. This is usually considered a bad
situation.

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Variances & Indices

Variances:

CV = BCWP ACWP (Cost variance=Earned-Actual)

SV = BCWP BCWS (Schedule variance=Earned-Planned)

Indices:

CPI=(BCWP/ ACWP)
Cost Performance Index=(Earned/ Actual)
Cost variance related as a ratio instead of a dollar amount.
A ratio less than 1.0 indicates that the value of the work that has been
accomplished is less than the amount of money spent.

SPI=(BCWP/ BCWS)
Schedule Performance Index=(Earned/Planned)
Schedule variance related as a ratio instead of a dollar amount.
A ratio less than 1.0 indicates that work is being completed slower than
planned.

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Variances & Indices

Ratios are used in the earned value system to predict the

cost to complete a project.
The CPI is used to predict the magnitude of a possible cost
overrun or under run. It adjusts the budget based on past
performance.
The SPI is used to predict the magnitude of a possible time
advance or delay. It adjusts the schedule based on past
performance.

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23

In the schedule below, Project A has a CPI greater than 1.00. This
shows us that the project has been earning value faster than it has
been accruing costs.
However, Project A also has a SPI value that is less than 1.00.
Although Actual Costs are low, Task 1 is behind schedule, so the
project has not earned as much value as was planned.

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Forecasting
BAC=Original project estimate (Budget at completion)
ETC=[(BAC-BCWP)/CPI] Estimate to complete
EAC=(ACWP + ETC) Estimate at completion

25

EXAMPLE 1 (Q)

Provide an earned value analysis to evaluate the progress

of the sewer and water lines project. The original budget is
RM147, 500 and the project is scheduled to be completed in
94 working days. A status report after 10 working days into
the project includes the following information:

Activity 10, 100% complete as scheduled, actual cost=RM1, 500

Activity 20, 100% complete as scheduled, actual cost=RM2, 200
Activity 30, 100% complete as scheduled, actual cost=RM4, 000
BCWP=RM7, 600
ACWP=RM7, 700
BCWS=RM7, 600
BAC=RM147, 500
The BCWS and BCWP shown above are the same values as shown on
the tenth working day because activity 10, 20 and 30 were all
completed according to the original planned schedule.
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EXAMPLE 1 (A)
Cost and schedule deviations:
Cost variance, CV=BCWP-ACWP
= RM7, 600-RM7, 700
= -RM 100

A negative value of CV represents a cost

overrun. Based on the status report the actual
cost is greater than earned by RM 100.

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EXAMPLE 1 (A)
Schedule variance, SV

=BCWP-BCWS
= RM7, 600-RM7, 600
=0

Since the SV is zero, the project is progressing as

planned. The project is not ahead of or behind the
planned schedule.

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EXAMPLE 1 (A)
Cost and schedule performance:
Cost Performance Index, CPI=(BCWP/ACWP)
= (RM7, 600/RM7, 700)
= 0.987
The CPI is less than 1.0, which indicates a poor cost
performance. The earned value is less than the actual costs.
Schedule Performance Index, SPI=(BCWP/ BCWS)
= (RM7, 600/ RM7, 600)
= 1.0
The SPI equals to 1.0, which indicates the schedule performance
is progressing precisely as planned.

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EXAMPLE 1 (A)
Forecasting cost at completion
Estimate to complete, ETC=[(BAC-BCWP)/ CPI]
= [(147, 500-7, 600)/0.987]
= RM141, 743
Based on the analysis of the statues report, the remaining cost
to complete the project is RM141, 743.
Estimate at completion, EAC=ACWP + ETC
= 7, 700 + 141, 743
= RM 149, 443
Based on the analysis of the status report, the estimated cost
of the project at completion is RM149, 443, which is RM1,
943 over the original budget of RM147, 500.
Check EAC = 147,500/0.987 = BAC / CPI = 149,443 (Scenario 1
previous variances are expected to continue for the rest of the project)
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31

Some definition and

formula

1) EVA = Earned Value Analysis

2) EVM = Earned Value Management

3) BCWS (Budgeted cost of work scheduled) = PV (Planned Value)..e.g.

amount stated in tender sum / contract amount
4) BCWP (Budgeted cost of work performed) = EV (Earned Value)..actual
value of work completed to date
5) ACWP (Actual cost of work performed) = AC (Actual Cost)..cannot obtain
from any document other than actual amount spent.
6) CV (Cost variance) = BCWP ACWP (Earned Actual)
7) SV (Schedule variance ) = BCWP BCWS (Earned Planned)
8) CPI (Cost Performance Index) = BCWP/ ACWP. It indicates cost overrun or
under run. If CPI<1 means project is over budget
9) SPI (Schedule Performance Index) = BCWP / BCWS. It indicates the projects
is ahead or behind the schedule. If SPI<1 means project is behind schedule
10)CV% (cost variance percent) = (CV / BCWP) * 100
11)SV% (schedule variance percent) = (SV / BCWS) * 100
12)CSI: Cost Schedule Index (CSI=CPI x SPI). The further CSI is from 1.0, the
less likely project recovery becomes.
32

Some definition and formula

13)BAC (Budget at completion) = Original project estimate
14)ETC (Estimate to complete) = (BAC BCWP) / CPI. (scenario 1) ETC =
estimate of the cost of the remaining work on the project (task)
15)EAC (Estimate at completion) = ACWP + ETC. EAC = comprise of the
cumulative to date the actual cost of work performed plus the estimate to
complete the remaining work. It is the project managers estimate of what
the final cost of the project (task) will be.
16)VAC (Variance At Completion) = Forecast of final cost variance = BAC EAC

33

EAC and ETC

Frequently asked project management questions
"How much will this project really cost to complete it? (ETC)
"How much will this project final cost? (EAC)
Initially @ at beginning of project, both answer are BAC. In order to have the final project cost, the
EAC, we need to calculate the ETC; since EAC = ACWP + ETC. The four widely accepted methods of
estimating ETC are:

Scenario 1--variances will be present in the future, current variances are typical
current variances will be continue to be present in the future; extrapolate the trend
through to the end of the project.
ETC1 = (BAC - EV) / CPI
EAC = AC + ETC1 (Actual to date plus remaining budget modified by performance)
Scenario 2--past estimated assumptions are not valid, past estimate was
fundamentally flawed
we convince that original estimate is so far off, the past assumptions are not valid,
variances are neither isolated or clear trends, thus fresh estimates are needed. It is often
applicable when schedule acceleration are such as crashing or fast-tracking are used.
ETC2 = New estimate for the remaining work
EAC = AC + ETC2
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EAC and ETC

Scenario 3--current variances are atypical
variances occurred are typical and are not expected to occur in the future; cost
variance occurred is an isolated event, it is not a trend. Thus ETC is the original
estimate for the remaining work which is unchanged.
ETC3 = BAC EV
EAC = AC + ETC3 (Actual to date plus remaining budget)
Scenario 4--current variances are typical, accelerate to complete project on
time
there is a need to complete the project on time, accelerate the remaining tasks will
cost money; therefore the remaining work is divided by the SPI. The estimate for the
remaining work is based upon the Scenario 1 approach of considering any over-run or
under-run trend.
ETC4 = (BAC - EV) / (CPI * SPI)
EAC = AC + ETC4

Either method is personal judgment call based upon their understanding of the project
35

BCWS, ACWP, BCWP

(example)

Work Breakdown Structure

(WBS)
1 Preliminaries (lump sum)
site clearence
Site set up
mobilization
2 Earth work
Excavation
Earth filing
Earth disposal
3 Substructure
Piling works
Pile cap
Foundation
Stump
4 Ground work
Grd slab
Grd beam
Column
5 Superstructure
First flr slab
1st flr beam
col to roof
6 Roof
Rafter & Purlins
Heat proof sheet
Prebabricated roof sheet
7 End

BCWS

ACWP

% of BCWS (BQ)

BCWP

17,280

7,200
7,200
7,200

5,400
1,440
3,600
5,400

7,200
7,200
7,200

7,200
3,600
1,440

5,450
3,200
2,500
99,710

16,470

7,470
7,290
7,290

3,960
810
4,050
4,320

5,670
3,240
7,830

7,110
3,960
810

0
0
0
80,280

100

100
100
100

100
100
100
100

100
100
75

50
20
0

0
0
0
79

17,280

7,200
7,200
7,200

5,400
1,440
3,600
5,400

7,200
7,200
5,400

3,600
720
0

0
0
0
78,840

36

Q2
Base on the S-Curve of BCWS, BWCP and ACWP. Identify the following elements on week
3, Week 4 and week 8. Comment on the data. Remember that they are cumulative
data.
1)BCWS
2)BCWP
3)ACWP
4)CV
5)SV
6)CPI
7)SPI
8)CV%
9)SV%
10)CSI
13)BAC
14)ETC (Estimate to complete) = (BAC BCWP) / CPI. (scenario 1)
15)EAC (Estimate at completion)
16)VAC (Variance At Completion)

37

Q2
Week
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

BCWS/PV
0
1,000
2,500
4,500
6,000
10,000
14,000
23,000
30,000
38,000
48,000
60,000
72,000
86,000
101,000
120,000
156,000
171,300
175,500
182,000
185,000

BCWP/EV
0
1,500
3,000
5,600
7,500
13,000
17,000
20,000
28,000
35,000
45,000
53,000
68,500
88,000
105,000
125,000
150,000
165,000
172,000
183,000
185,000

ACWP/AC
0
1,800
3,500
6,000
7,000
11,320
15,500
25,450
32,150
43,160
46,670
55,660
70,000
82,500
95,000
117,500
140,000
154,000
168,000
186,000
190,000
38

Example Q2

39

Example Q2

40

Example Q2

41

Example Q2

42

Example Q2
Base on the S-Curve of BCWS, BWCP and ACWP. Identify the following elements on week
3, Week 4 and week 8. Comment on the data. Remember that they are cumulative data.

1)BCWS

week 3

week4

week8

1)BCWP

1)ACWP

1)CV

1)SV

1)CPI

1)SPI

1)CV%

1)SV%

1)CSI

13)BAC

13)ETC

13)EAC

13)VAC

1)

2)

3)

comment :

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1)BCWS
2)BCWP
3)ACWP
4)CV
5)SV
6)CPI
7)SPI
8)CV%
9)SV%
10)CSI
13)BAC
14)ETC
15)EAC
16)VAC
comment :
1)
2)
3)

week 3
2,000
2,600
2,500
100
600

week4
1,500
1,900
1,000
900
400

week8
7,000
8,000
6,700
1,300
1,000

1.04

1.90

1.19

1.30

1.27

1.14

3.85
30.00
1.35
185,000
175384.62

47.37
26.67
2.41
185,000
96368.42

16.25
14.29
1.36
185,000
148237.50

177,884.62

97,368.42

154,937.50

7,115.38

87,631.58

30,062.50

CPI>1, COST
PROJECT IS UNDER
BUDGET
SPI >1, PROJECT IS AHEAD OF
SCHEDULE

REMAINING COST TO COMPLETE

THE PROJECT IS STILL UNDER THE
ORIGINAL COST

44

Some example

45

Earned Value: Example

Today
18
8
14

On Day X:

PLANNED VALUE (Budgeted cost of the work scheduled, BCWS) =

18 + 10 + 16 + 6 = 50

EARNED VALUE (Budgeted cost of the work performed, BCWP) =

18 + 8 + 14 + 0 = 40

ACTUAL COST (of the work performed , ACWP) =

45 (from your project tracking - not evident in above chart)
46

Cost (Person-Hours)

Earned Value: Example

Actual Cost:
Cost what you
have actually spent to this
point in time.

i ng
d
n
pe
S
al
u
t
Ac

Today

g
d in
n
e
Sp

)
ed
n
n
Pla
(
d
e te
g
d
Bu
Planned Value:
Value what your
plan called for sending on the
tasks planned to be completed
by this date.

lue
a
V
ed
n
r
Ea

Earned Value:
Value value (cost)
of what you have
accomplished to date, per the
base plan.

Time (Date)
47

Cost (Person-Hours)

Earned Value: Example

Today

)
ed
n
n
Pla
(
d
e te
g
d
Bu

Over
Budget

i ng
d
n
pe
S
al
u
t
Ac

lue
a
V
ed
n
r
Ea

g
d in
n
e
Sp

Behind
Schedule

Time (Date)
48

Earned Value & Variance:

Example
18
8
14

On Day X:

PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50

EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40

ACTUAL COST (ACWP) = 45 (from your project tracking)

Therefore:

Schedule Variance = BCWP BCWS = 40 - 50 = -10 (behind schedule)

Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best)

Cost Variance = BCWP - ACWP = 40 - 45 = -5

Cost Performance Index = 40/45 = .89, or youre getting an 89 return on

every $1.00 (or, person-hour) spent on this project
49