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How To Calculate Earned Value in Project Management

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Rajan Sharma
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35 views2 pages

How To Calculate Earned Value in Project Management

Uploaded by

Rajan Sharma
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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How to Calculate Earned Value in

Project Management
Earned value (EV) is a way to measure and monitor the level of work completed
on a project against the plan. Simply put, it’s a quick way to tell if you’re behind
schedule or over budget on your project. You can calculate the EV of a project by
multiplying the percentage complete by the total project budget. For example,
let’s say you’re 60% done, and your project budget is $100,000 — your earned
value is then $60,000. However, to properly use earned value, a few additional
calculations must be considered. The largest benefits of earned value result
from completing both cost and schedule variance analyses.

Earned value calculations in project


management
1. Schedule Variance (SV): Schedule variance is the difference between
your planned progress and your actual progress to date. The SV
calculation is EV (earned value) - PV (planned value). Let’s assume you
have a four-month-long project, and you’re two months in, but the project
is only 25% complete. In this case, your EV = 1 months (25% of four
months), and your PV = 2 months. Therefore your SV is 1 - 2 = -1. Since the
number is negative, it indicates you’re behind schedule.

2. Cost Variance (CV): Similar to SV, cost variance is the difference between


how much you planned on spending thus far and your actual costs to
date. The CV calculation is: CV = EV - AC (actual cost). Let’s use the earlier
example. Your project budget is $100,000 and you’re 60% done, which
means your EV is $60,000. If you’ve spent $70,000 so far to get to this
point in the project, your CV is -$10,000. You can tell you’re over budget
because the number is negative, which may indicate a problem with the
project or that the project could go over budget or run out of money.

3. Schedule Performance Index (SPI): This measure is similar to SV but is


often preferred as it translates the numbers into a value that is easily
compared across tasks or projects. The SPI calculation is: SPI = EV/PV.
When SPI is above 1.00, you’re ahead of schedule. If it’s below 1.00, you’re
behind. To take the example from above, SPI would be 1/2 = 0.5.
Using SPI is different than simply comparing your progress against your
baseline. Comparing your actual schedule against your plan may indicate
you’re behind on two tasks. So, you know where your immediate problem
is, but not necessarily how it impacts the overall project or your expected
completion date. Using earned value, you can calculate your SPI both by
task and for the project as a whole. When you take the SPI for each task
and look at the bigger picture, you can see that your project is ahead of
schedule, even with two late tasks. This helps you better understand the
overall impact of the late tasks on the project.

4. Cost Performance Index (CPI): As with SPI, CPI allows you to simplify the
answer for better analysis. The CPI calculation is: CPI = EV/AC. When CPI is
over 1.00, you’re under budget, and when it’s under 1.00, you’re
overspending. In the scenario above, CPI = 60,000/ 70,000 = 0.86,
indicating an overspend. CPI can be used to forecast your project’s
completion. For example, you can divide your total project budget by your
current CPI to get the expected total cost at completion. The formula is
Estimate at Completion (EAC) = Budget/ CPI. In the above example, this
would be $100,000/ 0.86 = $116,279.07. Meaning, that at this point in the
project, based on current trends, you will likely end up overspending your
budget by $16,279.07. Knowing this early allows you the time to either
find ways to cut costs or secure more funding.

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