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120 PROJECTMANAGEMENTTECHNIQUESTable 3Earned Value FormulasTERM FORMULA
Earned Value (EV) EV=budgeted cost
of work performed
Cost Variance (CV) CV=EV–AC
Schedule Variance (SV) SV=EV–PV
Cost Performance Index (CPI) CPI=EV/AC
Schedule Performance SPI=EV/PV
Index (SPI)
Estimate at Completion Budget at completion
(BAC)/CPI
Estimated Time to Complete Target time estimate/
SPINote: From Schwalbe (2002).©c 2002 by Course Technology,
a division of Thompson Learning. Reprinted with permission.
PV=planned value.approved changes. Actual information includes whether a
WBS item was completed or approximately how much of
the work was completed, when the work actually started
and ended, and how much it actually cost to do the work
that was completed.
Earned value management involves calculating three
values for each activity or summary activity from a
project’s WBS. Table 3 summarizes important earned
value formulas. Note that having a good WBS is an im-
portant prerequisite for using earned value management,
just as it is for critical path analysis.- The planned value (PV), formerly call the budgeted cost
of work scheduled (BCWS), also called the budget, is
that portion of the approved total cost estimate planned
to be spent on an activity during a given period. - The actual cost (AC), formerly called the actual cost
of work performed (ACWP), are the total direct and
indirect costs incurred in accomplishing work on an
activity during a given period. - The earned value (EV), formerly called the budgeted
cost of work performed (BCWP), is the value of the
physical work actually completed.
Note that in general, negative numbers for cost and
schedule variance indicate problems in those areas. Neg-
ative numbers mean the project is costing more or taking
longer than planned. Likewise, CPI and SPI less than one
or less than 100% also indicate problems.
Earned value calculations for all project activities (or
summary level activities) are required to estimate the
earned value for the entire project. Some activities may
be over budget or behind schedule, but others may be un-
der budget and ahead of schedule. By adding all of the
earned values for all project activities, one can determine
how the project as a whole is performing.
The project manager can graph earned value informa-
tion to track project performance. Figure 14 shows an
earned value chart for a 1-year project after 5 months.
Viewing earned value information in chart form helpsFigure 14: Sample earned value chart.to visualize how the project is performing. For example,
one can see the planned performance by looking at the
planned value line. If the project goes as planned, it will
finish in 12 months and cost $100,000, represented by the
budget at completion (BAC) point. Notice in this example
that the actual cost line is always right on or above the
earned value line. When the actual cost line is right on or
above the earned value line, costs are equal to or more
than planned. The planned value line is pretty close to the
earned value line, just slightly higher in the last month.
This relationship means that the project has been right
on schedule until the last month, when the project got a
little behind schedule.
Senior managers overseeing multiple projects often
like to see performance information in a graphical form
like this earned value chart. Earned value charts allow
one to see quickly how projects are performing. If there
are serious cost and schedule performance problems, se-
nior management may decide to terminate projects or
take other corrective action. The estimates at comple-
tion are important inputs to budget decisions, especially
if total funds are limited. Earned value management is
an important technique because, when used effectively, it
helps senior management and project managers evaluate
progress and make sound management decisions. Many
Government projects use earned value, and more private
corporations are starting to use this powerful tool (Office
of Undersecretary of Defense, n.d.).OTHER IMPORTANT TOOLS
AND TECHNIQUES
As mentioned earlier, there are several project manage-
ment tools and techniques for each of the nine project
management knowledge areas. There are also many
tools and techniques used in general management and
in application areas that can be applied to projects. This
chapter describes just a few of the most common project
management tools and techniques. Table 4 lists these and
some other common tools and techniques for managing
projects. There are many more. Consult PMI (2000b),
Schwalbe (2002), or other resources for additional
information.