How To Use Earned Value Management + Formulas & Examples

How often are you asked the following questions:

How are we doing on budget? Do you anticipate we’ll finish on budget? Are we spending as expected? How are we doing in regards to the project schedule? These questions and more can be answered by running earned value management calculations.

Earned value management (EVM) is a process taught by the PMI as part of the PMP. I know, this is considered an old school way of thinking to us digital project managers, but hear me out—I think this piece is super valuable!

In this article I’ll walk you through what earned value management is, what all its associated acronyms are, how to run some simple calculations to measure project performance, and what you can learn from these calculations so that you never feel disarmed by those questions about how your project is doing.

The bottom line for me? EVM can lead to a more accurate understanding of your project health using data, not just gut feelings.

In this article

• What Is Earned Value Management?
• Calculating Earned Value
• What Are CPI And SPI?
• Walk-Through: How To Calculate Earned Value
• 6 Formulas For Earned Value Management
• Useful Earned Value Management Tools
• Why Is Earned Value Management Important?

What Is Earned Value Management?

According to the Project Management Institute: earned value is a method of calculating project percent complete with a uniform unit of measure for all project work.

That is to say, earned value management allows you to report on both schedule and cost of the project using a dollar value as a base unit. It’s giving us an apples-to-apples approach to project reporting.

Earned value management answers the questions:

1. Where have we been?
2. Where are we now?
3. Where are we going?

Now I know you’re thinking:

My project management tool tells me how far I am through the project and I know how far I am through the budget. Isn’t that enough?

Short answer: Not always.

Long answer: Not always, and here’s why.

Let’s say you’re on Project ABC. The budget is $100,000 and it should take 6 months. We’ve just finished month two.

Simple logic would say that we should have spent 33% of the budget and should be 33% complete by this point, and that’s exactly what a lot of project management software will tell you by default, but that is NOT the full picture.

Looking at percentage of budget used and how far along the project is in the timeline don’t always tell the full story.

For example, I’m sure you can imagine a situation where a project team could use 33% of the budget by this point without necessarily being 33% complete. Maybe they were working with new technology and spent 33% of the budget and time on R&D, putting them behind on their planned progress.

You may also be able to imagine a situation where a project should not have spent 33% of its budget during the first third of the project schedule. A simple and obvious example would be if the first 33% of the project plan was research and requirements elicitation run by a team of 3 whereas the last 66% of the project plan was a team of 18 folks designing and building the solution.

So instead, what we need to do is get a better understanding of the value we have created in the context of the time and budget we’ve invested so that we know with greater certainty whether our project is “on track” or not.

Hold onto your hats as we dig into this, and a heads-up that there are A LOT of acronyms in here. They come in handy when it comes to looking at the equations, but consider yourselves warned.

What Do I Need To Calculate Earned Value?

To perform EVM and all its necessary calculations we need the following data sets:

1. Planned value (PV)
2. Actual cost (AC)
3. Earned value (EV)

You’re also going to need to create a few tables to put together the data sets.

Planned Value

Planned value (PV) is the time-based project spend of a project. It takes the budget and breaks it down to show how the budget will be spent across the length of the project. The sum total of all planned work should add up to the total budgeted cost (TBC).

Here is an example of the PV table for a sample project:

Planned value (PV) takes the budget and breaks it down to show how the budget will be spent across the length of the project.

A few things to note about the table:

• According to the PMBOK, your line items should line up with your work breakdown structure (WBS) itemized list. As a DPM, you may or may not have this. I have yet to come across a fleshed out WBS in my career, but if you do this will be helpful. I find it best to use the same line items as you have in the estimate as this will help you map everything back.
• My time “phases” are months as this is what makes sense for my projects. If you have shorter or more detailed plans, you can have this be weekly. If your project spans longer it may make sense to look at quarters.
• For us, project management costs are a percentage of work done. So the PM estimate is 20% of the sum of the other tasks’ hours. The monthly spend is therefore 20% of the sum of the budget for that month.
  • For example: March
    Planned work costs = $660 + $3300 + $6600 + $1980 = $12540
    PM time = $12540 x 20% = $2508
• Cumulative planned value has the (PV) next to it. Whenever we talk about PV in the larger formulas, we’ll be looking at the cumulative amount.

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Actual Cost

The actual cost (AC) is the budget spent to date on the project grouped in the same time-phased buckets. It’s important that the time phases are the same, to make sure we’re comparing apples to apples.

Here is an example of the AC table for the same sample project:

The actual cost (AC) is the budget spent to date on the project grouped in the same time-phased buckets as the planned value (PV).

Some notes about the AC table:

• Like with the PV, the cumulative value is what we’ll be using for the calculations.
• It’s easiest if you can pull this data directly from your budget or time tracking tool. This ties into another best practice of mine, setting up my budgets in the same way across all tools. Estimate, budget report, and earned value report should all have the same line items.
• It’s highly unlikely that your AC will directly match up to your PV because people aren’t perfect, and that’s okay.

Earned Value

Earned value (EV) is the piece that ties all the calculations together. It allows you to put a dollar figure against the progress you’ve made through the project, in the same time-phased buckets which allows you to compare progress and dollar spend using the same base unit.

EV at its core is the product of the percent complete and budgeted cost of a task.

It is calculated using this formula: Earned Value EV = (PV)(%Complete)

For example:

If discovery & research has a budget of $13,200 and is 60% complete at the end of the month. We multiply 13200 x 60% = 7920.00

Task Name	Budget	% Complete	EV
Discovery & Research	$13,200.00	60%	$7,920.00

I’ll get into how to determine the EV of a line item further down, but here is an example of the EV table for that sample project.

Cumulative earned value can help illustrate the accrued value of each line item as it progresses.

Some things to note about the EV table:

• We’ve kept the same time-phases for consistency.
• Once an item is completed, it remains at 100% for the remainder of the project.
• Like with the PV and AV, the cumulative value is what we need for the calculations.

What Are CPI And SPI?

So now that we’ve talked about the data sets, let’s talk about what we can get out of them.

The cost performance index (CPI) and schedule performance index (SPI) are both indicators of the health of your project.

Both indexes, as seen in the above section, involve dividing the EV over either AC or PV. The result of the division is either between 0 and 1, or above 1. The closer the results are to 1, the closer we are to plan. The further away from 1 it is, the larger the discrepancy between the plan and current state.

For CPI we divide earned value by the actual cost. This allows us to look at what we’ve accomplished and if it matches up with actual dollars we’ve spent. An index of less than 1 indicates that the project is trending over budget. If it is over one, the project is under budget.

Let’s use an example.

Earned Value: 93,192.00
Actual Cost: 121,225.00

This tells us the project is over budget. The actual cost of our project is larger than the earned value.

Let’s use another example:

Earned Value: 93,192.00
Planned Value: 100,500.00

This tells us the project is behind schedule. The earned value is smaller than the planned value.

Walk-Through: How To Calculate Earned Value

As I mentioned above, earned value is EV = (PV)(% complete), but how do you know the % complete? This can be tough, especially if your budget line items don’t exactly line up to your task list.

When planning a project and building out a timeline, I always find it helpful to ensure the parent-level tasks match up with the budget.

For example:

 

Budget Line Items	Project Task List
Planning	Planning
	Kick-off
	Set up
Design	Design
	Style Guide
	Wireframes
	Design Round 1
	Design Round 2
Development	Development
	Sprint 1
	Sprint 2
	Sprint 3
QA	QA
	Test planning
	Sprint 2
	Sprint 3
	UAT

While your task list is more granular and allows you to track completion in digestible amounts, you can also roll the % complete up to the parent task. In an ideal scenario you have a tool (like MS Project) that can do this for you. That % complete of the parent task can then be used to calculate the EV associated with that line item.

So if we look at design, for example:

Planned Value	% Complete	Earned Value
Design $20,000	Design (62.5%)	$20,000*62.5%= $12,500
	Style Guide (100%)
	Wireframes (100%)
	Design Round 1 (50%)
	Design Round 2 (0%)

I know that it can be challenging to determine the % complete of a task. This is why it is generally helpful to have it map back to specific deliverables, but that’s a story for another blog post on project planning and Work Breakdown Structures (WBS).

There are times when you’ll have to go with your gut. You as the PM will have a handle on if you’re at 50% or 75% completion of a task on your list. This is where being close to the team and engaging in transparent honest conversations will provide a lot of benefit.

6 Formulas For Earned Value Management

Here’s a cheat sheet of all the formulas you need to calculate, report on, and understand your earned value.

1. Earned Value

Used for: assessing project progress based on the estimated value of the work being done

Formula: EV = (PV)(%Complete)

How to interpret the results:

• A widget worth $2,000 that is 75% complete represents $1,500 of earned value $2,000 x 75% = $1,500

2. Schedule Variance

Used for: determining whether your project is behind, ahead of, or on schedule (as a dollar amount)

Formula: SV = EV – PV

How to interpret the results:

• If this result is negative it means your project is ahead of schedule
• If the result is positive it means your project is behind schedule
• If the result is zero it means your project is on schedule

3. Cost Variance

Used for: understanding whether the project is over, under, or on budget (as a dollar amount)

Formula: CV = EV – AC

How to interpret the results:

• If the number is negative it means your project is over budget
• If the number is positive it means your project is on/under budget
• If the result is zero it means your project is on budget

4. Cost Performance Index

Used for: determining whether your project is over or under budget (as a percentage of effort)

Formula: CPI = EV ÷ AC

How to interpret the results:

• If the result is less than 1 it means your project is over budget.
• If the result is greater than 1 it means your project is under budget.
• If the result is 1, then your project is on schedule.

5. Schedule Performance Index

Used for: understanding whether a project is behind or ahead of schedule (as a percentage of effort)

Formula: SPI = EV ÷ PV

How to interpret the results:

• If the result is less than 1 it means your project is behind schedule.
• If the result is greater than 1 it means your project is ahead of schedule.
• If the result is 1, then your project is on schedule.

6. Estimated Cost at Completion

Used for: estimating the variance between the planned and actual costs when the project reaches its end

Formula: EAC = TBC ÷ CPI

How to interpret the results:

• If the result is greater than your planned budget at completion, that is the forecasted overage that you need to plan to correct or prepare to incur.

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Useful Earned Value Management Tools

I know what you’re thinking: you’re thinking “Mackenzie, do I have to memorize all these formulas? Aren’t there tools that do this?”

The answer is yes.

In general, many modern project management tools with reporting capabilities can be configured to perform these calculations. The key ingredients are that the tool needs to have the schedule data, the budget data, the % completion data or tracked time, and a simple math engine to create a custom report.

And while there are also dedicated earned value management systems (EVMS) out there, I have to be honest and say that my preferred method of performing EVM calculations is in a spreadsheet like Google Sheets or Excel. Here’s how you can start using my method today:

1. Set up multiple tabs in Google Sheets or Excel to house the data and run the report. I’d recommend one tab per calculation. Example: one tab for planned value, one for earned value, and one for actual costs.
   1. Bonus: check out my template.
   2. If you haven’t already, learn to use and love pivot tables! : )
2. Export the appropriate data from your project management tool—this can give you the % complete at the task or project level
3. Export the appropriate data from your time tracking tool—this can give you the actual costs
4. Presto-change-o, you’ve got EVM data at your fingertips!

Why Is Earned Value Management Important In Digital Projects?

As a digital project manager, I’ve always found it hard to know how early to raise the flag for how we’re progressing through the project budget. Earned value management allows you to know early how you’re trending against the plan in terms of hours, but also in terms of where you should be for your schedule.

You do not need a lot of data to do these calculations, but you do need some data points to measure. If you have a project estimate (no matter how high level), a project timeline (no matter how rough), and some form of actual cost data, you can report on the earned value of your project.

Yes, this will take longer than just exporting from your project management tool of choice.

Yes, it will take time to set up at first.

Yes, it will take time to learn.

No, this won’t remove the need for analysis and interpretation.

The digital space can often be a bit of a wild west when it comes to process and reporting. EVM is an easy way to implement some old school PMP rigor to the digital landscape.

What Do You Think?

Introducing earned value management to my department and project management life finally gave me consistent reporting across all projects. I was no longer reporting on a personal feeling. That being said, it wasn’t the most natural concept for people on my team to wrap their heads around. It felt a bit too math-y for some, while others worried that it was overly transparent for client work.

My take is that transparency is the best policy, and that data gives us something to work towards instead of just blindly trying to “recover”. If your project is 20% off its ideal SPI, then the problem to solve is how might we move 20% faster to catch up, and the answer to that is what you are telling your client.

Today, we’ve overcome those initial reservations about EVM, and it’s part of the vernacular we teach our clients so that we can all speak the same language in our conversations about project performance. The result has been increased trust, measurable process optimizations, and project-level decisions based on data rather than a feeling.

But I’d love to know what you think about all this. Is earned value management a misfit in the digital project management landscape? Or is it the missing link that can finally anchor our conversations with clients and stakeholders about how our project is “doing”? Let me know in the comments below!

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