Earned value basics

Asking "how much have we spent?" isn't enough. You may have spent half the budget, but have you done half the work? Earned value management answers this by comparing three numbers at a given date: planned value (PV), the value of the work that should have been done by now according to the plan; earned value (EV), the value of the work actually done, measured at budgeted rates; and actual cost (AC), what has really been spent. Add to these the budget at completion (BAC), the total budget for the work.

From these we calculate variances. Cost variance: CV = EV − AC; if it's negative, we are over budget. Schedule variance: SV = EV − PV; if it's negative, we are behind schedule. Notice that EV always comes first in both formulas.

Then we calculate indexes, which are easier to compare. Cost performance index: CPI = EV ÷ AC. Schedule performance index: SPI = EV ÷ PV. The rule: above 1 is good (under budget or ahead of schedule), below 1 is bad (over budget or behind), and exactly 1 means right on plan. From the CPI we can forecast the final cost with the simplest formula: estimate at completion EAC = BAC ÷ CPI, assuming current performance continues.

Worked example: a project has BAC = 100,000. After four months the plan called for 40% complete, so PV = 40,000; but only 30% is done, so EV = 30,000; and spending is AC = 36,000. So CV = 30,000 − 36,000 = −6,000 (over budget) and SV = 30,000 − 40,000 = −10,000 (behind). CPI = 30,000 ÷ 36,000 ≈ 0.83, meaning each riyal spent produces only 83 halalas of work, and SPI = 30,000 ÷ 40,000 = 0.75. The forecast is EAC = 100,000 ÷ 0.833 ≈ 120,000.