- What earned value management (EVM) is
- Visual map: PV, EV, AC, CPI and SPI
- The three base values
- Variances and indexes
- Worked example: a $100,000 project
- Forecasts: what it will cost at the end
- Reading CPI and SPI together
- How to measure EV for each work package
- Common mistakes and limitations
- Frequently asked questions
What earned value management (EVM) is
Earned value management (EVM) measures project schedule and cost on the same scale: money. It compares what was planned, what was actually accomplished (in value) and what was spent, and produces indexes that show whether the project is ahead or behind schedule, over or under budget.
The S curve is the cumulative plot of those values over time. The “S” shape comes from the typical pace: slow start, fast middle, slow finish.
Visual map: PV, EV, AC, CPI and SPI
The map gathers the three base values, the variance and index formulas, the $100,000 example and the forecasts.
The three base values
- PV (planned value): the budget of the work that should be finished by the status date, according to the schedule baseline.
- EV (earned value): the budget of the work actually completed by that date. It measures progress in money, not money spent.
- AC (actual cost): what was actually spent to do that work.
- BAC (budget at completion): the total baseline budget, the sum of all planned PV.
To spread PV by deliverable, start from a good work breakdown structure (WBS): each work package gets a budget and a planned date.
Variances and indexes
CV = EV − AC | SV = EV − PV | CPI = EV ÷ AC | SPI = EV ÷ PV
| Measure | Formula | Reading |
|---|---|---|
| CV (cost variance) | EV − AC | Negative: spent more than the value delivered |
| SV (schedule variance) | EV − PV | Negative: delivered less than planned |
| CPI (cost performance index) | EV ÷ AC | Below 1: cost above plan |
| SPI (schedule performance index) | EV ÷ PV | Below 1: pace below plan |
Worked example: a $100,000 project
Fictional example: a 6-month project with a BAC of $100,000. The table shows the cumulative figures through month 3, the status date.
| Month | Cum. PV ($) | Cum. EV ($) | Cum. AC ($) | CPI | SPI |
|---|---|---|---|---|---|
| 1 | 10,000 | 8,000 | 12,000 | 0.667 | 0.800 |
| 2 | 25,000 | 22,000 | 28,000 | 0.786 | 0.880 |
| 3 | 40,000 | 35,000 | 42,000 | 0.833 | 0.875 |
The planned PV for the remaining months is 65,000 (month 4), 85,000 (month 5) and 100,000 (month 6). At month 3:
- CV = 35,000 − 42,000 = −$7,000: over cost.
- SV = 35,000 − 40,000 = −$5,000: behind schedule.
- CPI = 35,000 ÷ 42,000 = 0.833: each $1.00 spent produced $0.83 of value.
- SPI = 35,000 ÷ 40,000 = 0.875: 87.5% of the planned work was done.
On the S curve, the three cumulative lines are in this order at month 3: AC (42,000) on top, PV (40,000) in the middle and EV (35,000) at the bottom. That is the classic picture of a project that is late and over budget.
Forecasts: what it will cost at the end
EAC = BAC ÷ CPI | ETC = EAC − AC | VAC = BAC − EAC | TCPI = (BAC − EV) ÷ (BAC − AC)
| Forecast | Assumption | Calculation | Result |
|---|---|---|---|
| EAC (cost trend) | Current performance continues | 100,000 ÷ 0.833 | $120,000 |
| ETC (estimate to complete) | Same assumption | 120,000 − 42,000 | $78,000 |
| VAC (variance at completion) | Same assumption | 100,000 − 120,000 | −$20,000 |
| EAC (one-off variance) | The overrun was a one-time event, the rest follows plan | 42,000 + (100,000 − 35,000) | $107,000 |
| EAC (cost and schedule) | Cost and schedule weigh together | 42,000 + 65,000 ÷ (0.833 × 0.875) | $131,143 |
| TCPI (to finish at BAC) | Finish within budget | (100,000 − 35,000) ÷ (100,000 − 42,000) | 1.121 |
A TCPI of 1.121 says that from now on every $1.00 spent would have to return $1.12 of value. If the team has been returning $0.83, that target is unrealistic, and the conversation becomes about asking for more budget or cutting scope. Choose the EAC formula by the cause of the variance, not by the most optimistic one.
Reading CPI and SPI together
| CPI | SPI | Situation |
|---|---|---|
| Above 1 | Above 1 | Ahead of schedule and under cost |
| Above 1 | Below 1 | Behind schedule, but spending less than the value delivered |
| Below 1 | Above 1 | Ahead of schedule, but over cost |
| Below 1 | Below 1 | Behind schedule and over cost (the example) |
Set action thresholds beforehand, for example investigate below 0.90 and escalate below 0.80. The numbers belong to the company, not to theory. To understand a delay, cross the SPI with the critical path: a low SPI on an activity with float may be harmless; on a critical activity, it is not.
How to measure EV for each work package
- 0/100: worth 0 until finished and 100% on completion. Good for short packages.
- 50/50: 50% at start, 50% at completion. Fits medium packages.
- Weighted milestones: each milestone releases a share of the budget. Best for long packages.
- Percent complete: avoid where you can, because “90% done” is subjective and tends to stall.
To plan for uncertainty in durations and costs before you start, see Monte Carlo simulation and the risk matrix.
Common mistakes and limitations
- Confusing EV with money spent: EV is the value of the work done.
- A weak baseline: without well-defined scope and budget, the indexes mean nothing.
- Trusting SPI late in the project: since EV ends up equal to PV, the cost-based SPI tends to 1 even for a late project. At that stage also use the remaining time and the critical path, or the earned schedule method.
- Measuring late: the CPI of a project far along rarely recovers.
- Ignoring approved changes: update the baseline when scope changes.
In construction, the logic of short planning cycles with reliable promises appears in the Last Planner System; in plant costing, variance analysis is a relative of standard costing and variances.
Frequently asked questions
What is EVM?
A method that integrates scope, schedule and cost by comparing planned value (PV), earned value (EV) and actual cost (AC).
What is the S curve?
The cumulative plot of PV, EV and AC over time; the S shape comes from a slow start, a fast middle and a slow finish.
How do you calculate CPI and SPI?
CPI = EV ÷ AC and SPI = EV ÷ PV. In the example: 35,000 ÷ 42,000 = 0.833 and 35,000 ÷ 40,000 = 0.875.
Is a CPI below 1 bad?
It means cost is above the value delivered. The earlier it appears and the further from 1, the higher the risk of a budget overrun.
How do you calculate the estimate at completion (EAC)?
By trend: EAC = BAC ÷ CPI. In the example, 100,000 ÷ 0.833 = $120,000.
What is the difference between EV and AC?
EV is the budget of the completed work; AC is what was spent to complete it. The difference between them is the cost variance.
Sources
- PROJECT MANAGEMENT INSTITUTE. A Guide to the Project Management Body of Knowledge (PMBOK Guide). PMI.
- PROJECT MANAGEMENT INSTITUTE. Practice Standard for Earned Value Management. PMI.
- FLEMING, Q. W.; KOPPELMAN, J. M. Earned Value Project Management. Project Management Institute.
- LIPKE, W. Schedule is Different. The Measurable News, 2003.
Keep studying: trusted sources and links
- PMI: Standards and publications (PMBOK Guide)
- Sebrae: gestão, custos e finanças para empresas (in Portuguese)
- Wikipedia: Project management
Save this address: Manufatura Enxuta is your school for lean manufacturing. Come back whenever you need to study, with a complete article, a visual map and trusted sources. Follow one of the learning paths or check the A–Z glossary.
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About the author
Lean Manufacturing & Behavioral Management Specialist
Over 20 years in the automotive and metalworking industries (GM and Dana), Lean Manufacturing practitioner since 2006. SENAI instructor and mentor in Brazil’s Brasil Mais Produtivo program, delivering consulting, training and audits for 50+ companies, combining quality, productivity and people development.
