What is Earned Value Management and Why is it Important?

Earned value management (EVM) is a project management technique that integrates scope, schedule, and cost to assess project performance and progress. How often do you find that the estimated cost to complete a project is too low and in fact, goes over budget? Or have you ever needed to pivot a project’s trajectory?

By providing quantitative data, EVM helps managers objectively measure how much work has been completed, how much is planned, and therefore how best to optimize outputs risks and changes.

The strength of EVM lies in its ability to connect three fundamental project elements—cost, schedule, and scope into a single integrated system of performance measurement. This level of visibility takes project management to a new level by keeping initiatives on track, identifying risks early, and prioritising data-driven decisions.

EVM provides a structured approach to project tracking and forecasting as well as the following benefits:

EVM helps you track a project's performance in real-time. By providing a clear picture of the project's current status in terms of scope, time, and cost, this allows partners and stakeholders to make timely and informed decisions.

EVM relies on quantitative metrics rather than subjective assessments— so say goodbye to project estimations based on gut feelings. This objectivity ensures that all stakeholders are aligned in their understanding of the project's status.

EVM metrics can be easily visualized and communicated through charts and reports, which is why it has grown popular within leadership dashboards. By displaying EVM metrics in a way that’s easy to obtain and interpret, this clarity helps foster trust and improves collaborative decision-making.

By examining current performance trends, EVM allows for more accurate forecasting of project outcomes, such as final costs and completion dates. This forecasting supports better strategic planning and resource allocation.

One of the key advantages of EVM is its ability to detect performance issues early. By analysing variances and performance indices, managers can identify potential delays or budget overruns before they become critical.

Going one step further, EVM also supports proactive risk mitigation strategies. Potential risks can be identified through trend analysis and performance metrics, which takes us to our final EVM benefit…

Organizations can use EVM data for benchmarking across projects. Over time, this helps refine project management processes and enhance overall efficiency.

To understand EVM, it's essential to be familiar with a few foundational concepts: planned value, earned value, and actual cost. If you’re intimately familiar with project management terminology, then these words will be familiar to you. Below are definitions that will help us navigate further EVM calculations.

Planned Value (PV): The approved estimated cost of work scheduled to be completed by a certain date.

This measurement may also be known as budgeted cost of work scheduled (BCWS), however more and more professionals are adopting the shorter term and acronym PV. As a general rule, PV should be calculated by individual tasks and then summed together to find the project’s total PV. Let’s use the following scenario to calculate the PV:

Task A needs to create 100 gadgets in 4 weeks. By the second week, 50 gadgets have been made. If the cost to create one gadget is $200, then what is the planned value?

To find the planned value, take the percentage of completed work (50% in this case) multiplied by budgeted cost ($20,000).

• 50% x $20000 = $10,000.
• PV= $10,000

From this simplified scenario, you can assume that $10,000 will be allotted to make the remaining 50 gadgets.

As such, planned value helps answer the question: “How much should the work cost?”

Earned Value (EV): Otherwise known as budgeted cost of work performed (BCWP), this is the estimated cost of work actually completed.

This value helps to answer, “how much of the work has been done?” Based on the project budget, EV can be found with the following formula:

• EV = % Complete (Actual) x Task Budget
• EV= 75% x $10,000
• EV= $7,500

Stated differently, EV is the ‘worth of work done to date’ and can help project managers when reporting progress and accomplishments associated with a project.

Actual Cost (AC): The actual cost incurred for the work completed. You may also have heard this value called actual expenditures (AE), or actual cost of work performed (ACWP). This helps answer the question, “how much did this work actually cost?”

As a formula, AC is simply the summation of expenses:

• AC= sum of task associated expenditures*

*This amount should include items like materials, equipment, labor, and other fixed expenses.

Combined, these three elements form the basis of all EVM calculations and analyses. Planned value (PV) is determined by the cost and schedule baseline; earned value (EV) tells you, in physical terms, what the project accomplished; and actual cost (AC) is determined by the actual cost incurred on the project.

By comparing them, project managers can evaluate whether a project is ahead or behind schedule and over or under budget.

Understanding how to calculate key EVM metrics is crucial for applying the method effectively. Using the same scenario above involving 100 gadgets, here are the essential calculations used in earned value management:

Schedule variance shows whether a project is ahead or behind schedule. It is the pace of the project and shows whether you are working faster or slower than planned, accelerating or decelerating.  A positive SV means the project is ahead of schedule, while a negative SV indicates it is behind.

Formula:

SV = EV - PV

Example: If EV = $7,500 and PV = $10,000:

SV = $7,500 - $10,000 =- $2,500*

SV= - $2,500

*The project is BEHIND schedule by $2,500 worth of work.

Schedule variance can help you detect the acceleration or slippage of a project, either in terms of money or time.

Schedule Performance Index (SPI) measures schedule efficiency. A value above 1 indicates better-than-planned performance, and below 1 indicates a lag.

Formula:

SPI = EV / PV

Example: If EV = $7,500 and PV = $10,000:

SPI = $7,500 / $10,000 = .75*

*The project is operating at 75% schedule efficiency. Slower than planned.

This can be useful to understand just how quickly you’re completing work according to the plan. As a relative measure, SPI is also useful for executive dashboards and comparing projects over time.

Cost Variance indicates whether a project is under or over budget. A positive CV means the project is under budget, and a negative CV means it is over budget.

Formula:

CV = EV - AC

Example: If EV = $7,500 and AC = $20,000:

CV = $7,500 - $20,000 = -$12,500*

*The gadgets project is over budget by $12,500.

At any given point during the project, you can assess whether you’re under or over budget. Many find this value helpful for compiling budget reviews or when determining if a course correction is necessary for a project.

Similar to SPI, the cost performance index (CPI) assesses cost efficiency. A CPI above 1 means the project is performing more efficiently than budget; below 1 means it is less efficiently than budget.

Formula:

CPI = EV / AC

Example: If EV = $7,500 and AC = $20,000:

CPI = $7,500 / $20,000 = .375*

*The project is operating at 37.5% cost efficiency which is poor efficiency.

This helps you better understand how much value you’re acquiring against the effort it takes. This measure is also useful for portfolio-level decisions when leveraged in project health reports.

Variance at completion (VAC) forecasts the cost variance at the end of the project. It represents the amount that a project is expected to overrun (negative VAC) or underrun (positive VAC). To find this value, you will need the budget at completion (BAC) and the estimate at completion (EAC), as shown below:

• BAC: The total budget for the project; in our scenario: $20,000
• EAC:
  • Formula for EAC = AC + (BAC – EV)*
    • EAC = $20,000 + ($20,000 - $7,500)
    • EAC = $32,500

*Note: the provided EAC does not adjust for ongoing performance trends.. If you need to revise the budget, you’ll need to take the project schedule and cost performance into account. For a more comprehensive forecast, use the following formula:

EAC = AC + [(BAC – EV) / (CPI × SP)

EAC= $20000 + [($20000 - $7500) / (.375 x .75)]

$20000 + $12500 /,28

$20000 + $44444

$64444

Bringing the two values together, we will weigh the BAC against the EAC using the following

Variance at Completion (VAC) Formula:

VAC = BAC - EAC

Example: If BAC = $20,000 and EAC = $6 $64444:

VAC = $20,000 - $64444 = -$44444*

*The project is expected to finish $44444 over budget.

EVM metrics are most powerful when used together. For example, a high SPI and low CPI indicate the project is ahead of schedule but spending more than planned. Managers can use this information to rebalance resources or revisit the project scope.

Data visualisation is key. Whether submitting a report or maintaining a dashboard, having the trend or overall trajectory of a project converted into a table can communicate complex information at a glance.

When reviewing your data and how it appears on a Y axis (cost) and X axis (time), there are a few tips to quickly understand what the charted lines are communicating.

For instance, the steeper that the EV line is, the faster work is being completed. If the line plateaus, that means production stalled.

Additionally, if your AC line appears to be climbing faster than your EV line, then you’re spending more than planned to do the work. This may indicate inefficiencies in scope or resource allocation, but it is a clear indicator that a project’s financial performance is slipping.

EVM is all about balance. Ideally, this would mean your earned value line stays close to your planned value (PV) line and similarly for your actual cost (AC) line.

Earned value management is more than a set of formulae—it's a comprehensive approach to understanding project health in real-time. It combines cost, scope, and schedule data into an unified integrated system that enables informed decisions and proactive management.

By leveraging EVM:

• Project managers are more likely to deliver projects on time and within budget.
• Organizations can improve forecasting and strategic planning.
• Teams can collaborate more effectively with clear, objective performance metrics.

In today’s fast-paced and complex project environments, adopting EVM is not just beneficial—it's essential. Whether you're managing large-scale infrastructure or agile software development, EVM provides the insight needed to succeed.

For professionals looking to advance their careers, mastering EVM is a game-changer. Earning a certification in earned value management not only deepens your understanding of project performance analysis but also demonstrates a high level of competence to employers.

Additionally, certified professionals are often better positioned to lead complex projects, communicate more effectively with stakeholders, and deliver results aligned with business objectives.

Explore how to apply these calculations in real-world scenarios, interpret trends, and lead successful projects through our comprehensive Earned Value Management certification program.

In this foundational training, you will receive a comprehensive overview of EVM terminology and methods. This course is primarily for Project Managers, managers, department heads, and others who need a better understanding of the elements of EVM.

• The concepts of Earned Value.
• Selecting and deploying Earned Value formulae.
• The Earned Value Process.

Advance your career with the skills that today’s top project managers rely on. Earned Value Management isn’t just a tool—it’s a competitive advantage. This course is designed for professionals who have worked (and are working) in an Earned Value Management environment for a period of two years. This will include a wide range of people working on EV-based projects including project managers, control account managers, project planners and project analysts.

• How to establish a Performance Measurement Baseline for a project.
• How to design and evaluate Earned Value data collection processes for a specific project.
• Interpreting Earned Value data for a given scenario and make recommendations on appropriate action.
• Managing changes to a Performance Measurement Baseline appropriately.
• Allowing for risk in the planning, execution, and evaluation of an Earned Value project.
• How to apply methods to review the integrity, validity and performance of an Earned Value Management System.