Earned Value Management – Formulas, Calculations & Examples

Any project needs a constant monitoring of time, material and cost usage. If you see your team falling behind on schedule, you can add more resources to stay on track. But that could result in increase of project cost (Unless you are not paid overtime!). This concept is commonly known as triple constraint in the Project Management world and it means that if either one or more constraints (time, cost or schedule) change in positive or negative direction, the other constraints will be affected as well.

To stay on track we universally use the tried and tested Earned Value management calculations. Not only are they used for monitoring and control of a project; they are a valuable set of tools for reporting performance to the stakeholder or sponsors or your program manager.

Here is an example of a Project Performance Report.

Performance Report sample

Changes in project baselines can occur due to either internal reasons or external factors; for example internal reason could be resource turnover and external reason could be change in requirement by business)

Lets assume there is a change in requirement and we invoke change management to have those changes approved and added to the project baselines. That will cause an increase in budget & time and they would need to be recalculated. Now we might also need to forecast “If” situations such as what if the schedule is immovable then how many more resources would I need to add and what would be the additional cost incurred?

These questions and analysis can be easily done via EV calculations.

Here are the terms and formulas that are most commonly used. I created this diagram depicting the terms in pictorial form for easier understanding.

Earned value management Diagram

  • Planned Value (PV): This is the estimated value of work that is planned to be done.
  • Earned Value (EV): EV is where you are currently in the project. i.e, earned value of work completed.
  • Actual Cost (AC): This is the actual cost of the work completed.
  • Budget at Completion (BAC): This is the project’s total budget that is determined by the P.O.
  • Estimate at Completion (EAC): This is a forecasting term that will help in determining expected total cost in the end. EAC = AC + (BAC – EV)
  • Estimate to Complete (ETC): This is expected remaining cost. (from now until the end) ETC = EAC-AC
  • Cost Variance (CV): EV-AC. You want your earned value higher than the actual cost.
  • Schedule Variance (SV): You again want to keep your SV positive.
  • SV=EV-PV
  • Variance at Completion (VAC): This is the variance calculation to determine whether the project is running over or under budget.

Here is an example , let’s say we hired a coder with billing rate of $50/hour to code 500 lines of code in 5 days (total of 40 hours). The coder is expected to code 100 lines/day and work 8 hours/day.

Scenario on Day 1:  Coder worked 6 hours and finished 200 lines of code

  1. PV = $400    (per 100 lines of code or 8 hours of work at $50/hour)
  2. EV = 200 lines of code x $4/line of code = $800
  3. AC = 6 hours x $50/hour = $300
  4. CV = EV – AC = $800 – $300 = $500
  5. SV = EV – PV = $800 – $400 = $400
  6. CPI = EV/AC = $800/$300 = 2.67
  7. SPI = EV/PV = $800/$400 = 2
  8. BAC = Total Project Budget = $400/day x 5 days = $2000
  9. EAC = AC + (BAC – EV) = $300 + ($2000 – $800) = $1500     — Atypical, that is, variable work each day by ignoring the past. To be used when all future work will be accomplished at the budgeted rate. –
  10. EAC = BAC / CPI = $2000 / 2.67 = $750  — Typical, that is, assuming same amount of work per day and same spending per day will continue. –
  11. EAC = AC + [(BAC – EV) / (CPI x SPI)] = $300 + [($2000-$800)/(2.67 x 2)] =  $525   -Used when dealing with poor cost performance and the completion date is firm.
  12. ETC = EAC – AC = $1200
  13. VAC = BAC – EAC = $500
  14. TCPI = (BAC – EV) / (BAC – AC) = 70.59%

Perform same calculations for the following daily scenarios:

Scenario on Day 2:  Coder worked 8 hours and finished 50 lines of code

Scenario on Day 3:  Coder worked 6 hours and finished 100 lines of code

Scenario on Day 4:  Coder worked 10 hours and finished 50 lines of code

Scenario on Day 5:  Coder worked 10 hours and finished 100 lines of code

Earned Value Management Formulas and Calculations example

 

EVM Formula graph

I created this spreadsheet that will perform all the calculations for you and also give you budget status on daily basis(See “Over or Under Budget?” column). Just input the cells highlighted in Yellow.

And here is the attachment for the Excel sheet –> Excel Spreadsheet for EVM Formulas and Calculations