Monitoring and Control (LOs: 5c)
Introduction to Earned Value Management (EVM)
Monitoring the Schedule and Budget During the Project
A project leader must regularly compare the amount of money spent with the budgeted amount and report this information to key stakeholders. In addition, project leaders must also compare the progress of the actual work completed with the estimated durations in the project schedule.
The value of EVM can be highlighted through a few scenarios.
Let us assume that a project leader of a medium complexity project is reviewing the schedule with their team and concludes that they are achieving the project's milestones. The team feels they are on track as a result. Therefore, the project leader confirms the project is on track.
Is the project on track?
We cannot truly know upfront if a project is on track. It may appear that milestones are being achieved, but perhaps this is so because the external resources on the team are spending a considerable amount of time outside their regular business hours to achieve these milestones. This would only become evident if the project leader reviewed the invoices paid to date.
Now, let us assume that the same project leader is reviewing the budget with their team and concludes that the invoices received are for the expected amounts. The team feels they are on track as a result. Therefore, the project leader confirms the project is on track.
Is the project on track?
Again, we cannot truly know if the project is on track. It is possible that actual costs incurred are as expected, but perhaps the work is not being completed as planned. This would become evident if the project leader reviewed the schedule.
It is important to integrate our schedule and budget and this is the value of the EVM approach.
Reporting Budget Progress on John's Move
John estimated that the move would cost about $1,500 and take about 16 days. However, eight days into the project, John has spent $300. John reports to his friends that the project is going well because he is halfway through the project while only having spent 20% ($300/$1,500) of his budget. John's friend, Carlita, points out that his report is not sufficient because he did not compare the amount spent to the budgeted amount for all the activities that should be done by the eighth day.
A budget report must compare the amount spent with the amount that is expected to be spent by that point in the project. Basic measures, such as percentage of activities completed, percentage of budget spent, and percentage of material units consumed, are adequate for less complex projects, but more sophisticated techniques, such as EVM, are used for projects with higher complexity.
Let us assume John's move was a medium complexity project, so John has decided that EVM was required to truly understand whether his project is on track.
| Description | Quantity | Total Item Cost (Planned Value) |
| Lunch | 3 | $45.00 |
| Small Boxes | 10 | $17.00 |
| Medium Boxes | 15 | $35.25 |
| Large Boxes | 7 | $21.00 |
| Extra Large Boxes | 7 | $26.25 |
| Short Hanger Boxes | 3 | $23.85 |
| Box Tape | 2 | $7.70 |
| Markers | 2 | $3.00 |
| Mattress/Spring Bags | 2 | $5.90 |
| Life Straps per Pair | 1 | $24.95 |
| Bubble Wrap | 1 | $19.95 |
| Furniture Pads | 4 | $31.80 |
| Total: $261.65 |
Table 7.4.1: Planned Value for Lunch and Packing Materials
If you sum the budgeted cost of work performed (BCWP) values up to a specified point in the project schedule, you have the earned value (EV). Due to the fact that projects occur in ever-changing environments, the amount spent on an item is often more or less than its estimated budgeted amount. The actual cost (AC) is the sum of the amounts actually spent on the items as opposed to their planned value (PV).
Comparing PV, EV, and AC in John's Move on Day Six
John decided to offer to buy Dion and Carlita lunch. Although this was not part of his original plan, he believed it would be a nice gesture of gratitude. He estimated lunch would cost $45. As it turns out, Dion and Carlita only wanted a nice salad. Consequently, the lunch cost less than expected. John makes a stop at a store that sells moving supplies at discount rates. They do not have all the items he needs, but the prices are lower than those quoted by the moving company. They have a very good price on lifting straps, so he decides to buy an extra pair. He returns with some of the items on his list, but this phase of the job is not complete by the end of day six. John bought half of the small boxes, all of five other items, twice as many lifting straps, and none of four other items. John is only six days into his project, and his costs and performance are starting to vary from the plan. As demonstrated below, earned value analysis provides the project with a method for reporting variations in the progress. Note: quantity of each item is in brackets in the cost column.
| Planned Value | Earned Value | Actual Cost (AC) | |
| Description | Cost | Cost | Cost |
| Lunch | $45.00 (3) | $45.00 (3) | $35.00 (3) |
| Small Boxes | $17.00 (10) | $8.50 (5) | $9.50 (5) |
| Medium Boxes | $35.25 (15) | $35.25 (15) | $28.00 (15) |
| Large Boxes | $21.00 (7) | ||
| Extra-Large Boxes | $26.25 (7) | ||
| Short-Hanger Boxes | $23.85 (3) | ||
| Box Tape | $7.70 (2) | $7.70 (2) | $5.50 (2) |
| Markers | $3.00 (2) | $3.00 (2) | $2.00 (2) |
| Mattress/Spring Bags | $5.90 (2) | $5.90 (2) | $7.50 (2) |
| Life Straps per Pair | $24.95 (1) | $24.95 (1) | 38.50 (2) |
| Bubble Wrap | $19.95 (1) | ||
| Furniture Pads | $31.80 (4) | $31.80 (4) | 28.50 (4) |
| $261.65 | $162.10 | $154.50 |
Table 7.4.2: Planned Value, Earned Value, and Actual Cost
Note: a time-phased budget is often created to depict the project's
expenditures over time. The time-phased budget for John's move could
depict daily costs leading up to the completion of the move. The
time-phased budget is created by combining the duration of the tasks
with their cost. The cost of the task would be spread out over the
duration of the task. However, for the purposes of this course, the
table above is sufficient.
The original schedule called for spending $261.65 (PV) by day six. Based on the estimates, the value of work completed was $162.10 (EV), but the actual cost was only $154.50 (AC).
Using the above analysis, John can now determine how far off he is from his original plans. Let us examine how variances are determined in EVM.
Schedule Variance
The difference between planned and actual progress is the schedule variance. The schedule variance (SV) is the difference between the EV and the PV. It can be expressed as a formula:
SV = EV − PV
If less value has been earned than was planned, the schedule variance is negative, which means the project is behind schedule. Negative numbers indicate a negative situation whereas a positive variance indicates a positive situation (ahead of schedule).
The Schedule Variance on John's Move
Planning for John's move calls for spending $261.65 by day six, which is the PV. The difference between the PV and the EV is the SV.
Therefore, John's SV = $162.10 – $261.65 = -$99.55
Since a negative schedule variance indicates the project is behind schedule, John's move is behind schedule.
Cost Variance
The difference between EV and AC is the cost variance (CV). It can be expressed as a formula:
CV = EV – AC.
If the cost variance is a negative number, this indicates a negative situation or quite simply, the project is over budget. If the cost variance is a positive number, this indicates a positive situation and the project is under budget.
The Cost Variance on John's Move:
The difference between the EV of $162.10 and the AC of $154.50 is the CV.
Therefore, John's CV = $162.10 – $154.50 = $7.60
Since this is a positive number, John's move is under budget.
When significant variances occur, this signals that corrective action is required from the project leader to bring the project back on track, and deliver it within the original schedule and budget. When presenting the results of EVM to key stakeholders, they are less interested in the numbers themselves and more interested in their meaning. Due to this, summarizing data succinctly is an important skill for the project leader. In addition, the project leader must be able to provide recommendations to get the project back on track.
The schedule variance provides the team with the amount of time that the project activities are behind (or ahead of) schedule while the cost variance provides the team with the amount that the project is exceeding (or not fully using) its budget. However, these variances do not provide the team with an idea of how the amounts compare to the total budget and total project duration. Let us examine the role of indexes in EVM.
Cost and Schedule Performance Indexes
Indexes measure efficiency. In the context of project budgets, the cost performance index (CPI) measures the cost efficiency of the work accomplished to date. The schedule performance index (SPI) measures the scheduling efficiency. Indexes are expressed as ratios.
The CPI uses the same variables as the CV but expresses them as a ratio. The ratio of EV to AC gives an indication of how much of the budget has been consumed.
CV = EV – AC
CPI = EV/AC
The SPI uses the same variables as the SV but also expresses them as a ratio. The ratio of EV to PV gives an indication of how much of the project is completed.
SV = EV – PV
SPI = EV/PV
Since indexes are a measure of efficiency, once the indexes have been calculated, we will be able to draw the following conclusions:
| Index | Cost Performance Index (CPI | Performance Index (SPI) |
| > 1.00 | Under budget | Ahead of schedule |
| 1.00 | On budget | On schedule |
| <1.00 | Over budget | Behind schedule |
The Cost Performance Index on John's Move
In the John's move example, at the end of day six, EV = $162.10 and AC = $154.50.
CPI = $162.10 ÷ $154.50 = 1.05. Since the value is greater than one, John is more efficient than planned and, as a result, the project is under budget. This is aligned with the conclusion from the CV which was $7.60 (recall that a positive number means a positive outcome and in this case, it means under budget). John is getting more value for his money than planned for the tasks scheduled by day six.
The Schedule Performance Index on John's Move
At the end of day six, PV is $261.65.
SPI = EV/PV or $162.10 ÷ $261.65 = 0.62. Since it is less than one, this indicates the project is behind schedule. This also aligns with the conclusion from the SV which was -$99.55, (recall that a negative number signals a negative situation and in this case, it means behind schedule).
Exhibit 7.2: Graph representing that the variance between PV and EV is the SV while the variance between AC and EV is the CV.
Estimated Cost to Complete the Project
Partway through the project, the project leader evaluates the accuracy of the cost estimates for the completed activities and uses that experience to predict how much money will be required to complete the unfinished activities. This is called the estimate to complete (ETC).
To calculate the ETC, the project leader must decide whether the CVs observed in the estimates to date are representative of the future. For example, if unusually bad weather causes increased cost during the first part of the project, the same weather patterns may not be expected for the remainder of the project. If the project leader decides that the cost variance up to a certain point in the project is atypical (not typical), then the estimate to complete is the difference between the original budget for the entire project, known as budget at completion (BAC) and the EV up to that point. It can be expressed as a formula:
ETC = BAC − EV.
Estimate to Complete John's Move
For his move, John was able to buy most of the items at a discount house that did not have a complete inventory, and he chose to buy an extra pair of lift straps. He knows that the planned values (PVs) for packing materials were obtained from the price list at the moving company where he will have to buy the rest of the items, so those two factors are not likely to be typical of the remaining purchases. The reduced cost of lunch is unrelated to the future costs of packing materials, truck rentals, and hotel fees. John decides that the factors that caused the variances are atypical.
In Section 5.5, John used the bottom-up method to estimate the total cost of the project at $661.25 (the BAC). The estimate to complete (ETC is the BAC minus the EV after 6 days.
Expressed as a formula:
ETC = BAC – EV
ETC = $661.25 − $162.10 = $499.15
If the project leader decides that the CV is caused by factors that will affect the remaining activities, such as higher labour and material costs, then the ETC must be adjusted by dividing it by the CPI.
In John's move example, if we concluded the factors leading to the CV were typical, we would adjust the ETC by dividing it by the CPI, the formula is ETC = (BAC − EV) ÷ CPI.
Adjusted ETC for John's Move
($661.25 – $162.10) ÷ 1.05 = $475.38Since we determined the project was trending under budget with a CPI of 1.05, if we expect the factors causing the project to be under budget to continue, we expect the adjusted ETC to be lower than the unadjusted ETC. In our John's move example, the adjusted ETC is $23.77 lower ($499.15 – $475.38).
Estimating Final Project Cost
The estimate to complete (ETC) can be used to determine the new final project cost, which is the estimate at completion (EAC). This is done by adding the actual costs (AC) incurred to the ETC. It can be expressed as a formula: EAC = AC + ETC.
Estimate at Completion for John's Move
The revised EAC for John's move after 6 days is:
EAC = $154.50 + $499.15 = $653.65.
This is good news for John as his move will cost less than originally planned.
Estimating Final Project Completion Date
Let us assume John's detailed planning work led to the conclusion that his move would take 15 days. After day six, he used EVM to determine that he is behind schedule. As noted above, the SPI is 0.62. If we assume that the lost time cannot be recovered, a simple way to predict the project's new duration is to use the SPI as a measure of future schedule efficiency and apply it to the project's original duration.
New time estimate = original time estimate (15 days) ÷ SPI (0.62) = 24 days
| Term | Description | Formula | John's Move |
| Actual Cost (AC) | The money actually spent on projects up to the present. | – |
$154.50 |
| Budget at Completion (BAC) | Original budget for the entire project (same as the total BCWS) | – |
$661.25 |
| Planned Value (PV) | Sum of the estimates for work done up to the present | – |
$261.65 |
| Earned Value (EV)* | Sum of estimates for work actually done up to the present | – |
$162.10 |
| Cost Variance (CV) | Difference between earned value and actual cost | EV − AC | $7.60 |
| Cost Performance Index (CPI) | Ratio of earned value to actual cost | EV ÷ AC | 1.05 |
| Schedule Variance (SV) | Difference between earned value and planned value | EV − PV | -$99.55 |
| Schedule Performance Index (SPI) | Ratio of earned value to planned value | EV ÷ PV | 0.62 |
| Estimate to Complete (ETC) | Money to complete the project if early cost variance is atypical | (BAC − EV) ÷ CPI | $499.15 |
| Estimate at Completion (EAC) | Revised estimate of total project cost | AC + ETC | $653.65 |
Table 7.4.4: Summary of Terms and Formulas for Earned Value Analysis
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* Earned Value is the % complete (for the task) multiplied by the total planned value (for the task)
To summarize the table above:
- Extra money is allocated in a contingency fund to deal with activities where costs exceed estimates. These overruns may have been identified while creating the risk management plan. Funds are allocated in a management reserve in case a significant, unanticipated opportunity or challenge occurs that requires change of scope, but funds are needed immediately before a scope change can typically be negotiated.
- Schedule variance (SV) is the difference between the part of the budget that has been spent at a specific point in time (EV) versus the part that was planned to be spent at that point in time (PV). Similarly, the cost variance is the difference between the EV and the actual cost (AC).
- The schedule performance index (SPI) is the ratio of the earned value and the planned value. The cost performance index (CPI) is the ratio of the earned value (EV) to the actual cost (AC).
- The formula used to calculate the amount of money needed to complete the project (ETC) depends on whether or not the cost variance to this point is expected to continue (typical) or not (atypical). If the cost variance is atypical, the ETC is simply the original total budget (BAC) minus the earned value (EV). If they are typical of future cost variances, the ETC is adjusted by dividing the difference between BAC and EV by the CPI.
- The final budget is the actual cost (AC) to this point plus the estimate to complete (ETC).
Corrective action on John's Move:
EVM is a means to an end. The end is knowing which action needs to be taken as a result of the analysis performed. For example, John's move is behind schedule and under budget. Before any action is taken, it is important to understand the priorities of the project. In this case, John would like to be in his new home in advance of beginning his new job. Therefore, he would prioritize the schedule over the budget if a trade-off was essential. Fortunately, in his current situation, since he is under budget, he could use some of the savings he has generated to make up for the schedule delays. His first step would be to revisit his future estimates and confirm whether he should anticipate any further delays and/or cost savings. Revising his estimates based on the new information he has received in the first six days of his move allows him to maintain realistic plans.
John has options. For instance, he may decide to use the existing savings he has generated and hire an assistant to help him buy the remaining items needed. The assistant would help him get things done much faster. Since he has not generated much savings, he may decide that it is worthwhile to spend more on his move than initially planned in order to achieve his timeline objective. In this case, he would be intentionally be planning to go over budget. Since he is only accountable to himself, gaining stakeholder approval would be easy. This is often not the case, so project leaders must use effective change management processes when similar situations occur.
In conclusion, earned value management gives project teams the ability to take corrective action before it is too late.