How to Calculate Earned Value: A Clear Guide

[Guillermo Glaser]

How to Calculate Earned Value: A Clear Guide<br>Earned value is a project management technique that provides an objective measurement of project performance. It is a useful tool for tracking project progress, identifying potential problems, and making informed decisions. Earned value is calculated by comparing the actual cost and schedule performance to the planned cost and schedule performance.<br>

<br>To calculate earned value, project managers need to determine the planned value (PV), actual cost (AC), and earned value (EV) of the project. PV is the budgeted cost of the work scheduled to be completed, while AC is the actual cost of completing the work. EV is the value of the work actually completed. By comparing these three values, project managers can determine whether the project is on track, ahead of schedule, or behind schedule, and whether it is over or under budget.<br>
<br>Calculating earned value requires a thorough understanding of project management principles and techniques, as well as the ability to analyze and interpret project data. Project managers must be able to accurately estimate the cost and schedule of each task, track actual costs and progress, and adjust the project plan as needed. By using earned value, project managers can ensure that they are making informed decisions based on objective data, and that they are effectively managing resources and meeting project goals.<br>Fundamentals of Earned Value Management

<br>Earned Value Management (EVM) is a project management technique used to measure the progress and performance of a project. It helps to analyze the project’s performance by integrating scope, schedule, and cost. EVM is based on the concept of earned value, which is the value of the work that has been completed to date.<br>
<br>To calculate earned value, the project’s budget is divided into smaller work packages. Each work package is assigned a budgeted cost, and a schedule is created for completing the work package. As the work progresses, the earned value is calculated based on the percentage of the work that has been completed and the budgeted cost of the work package.<br>
<br>EVM provides a way to track the progress of a project and identify potential problems before they become major issues. It helps project managers to make informed decisions and take corrective actions to keep the project on track.<br>
<br>The following table shows the key terms used in EVM:<br>

TermDefinitionPlanned Value (PV)The budgeted cost of the work scheduled to be completed.Earned Value (EV)The budgeted cost of the work actually completed.Actual Cost (AC)The actual cost incurred to complete the work.Cost Variance (CV)The difference between the earned value and the actual cost.Schedule Variance (SV)The difference between the earned value and the planned value.Cost Performance Index (CPI)The ratio of earned value to actual cost.Schedule Performance Index (SPI)The ratio of earned value to planned value.
<br>By analyzing these values, project managers can determine whether the project is on track, over budget, or behind schedule. EVM provides a way to forecast the final cost and schedule of the project based on the current performance.<br>Defining Key Terms

Planned Value (PV)
<br>Planned Value (PV) refers to the estimated cost of the planned work scheduled to be completed by a specific date. It is also known as Budgeted Cost of Work Scheduled (BCWS). PV is an essential metric in earned value management (EVM) as it helps in determining the project’s progress against the planned budget. It is calculated by multiplying the total budgeted cost of the project by the percentage of the scheduled work that should have been completed by a particular date.<br>
Actual Cost (AC)
<br>Actual Cost (AC) is the total cost incurred for the work performed up to a specific date. It is also known as Actual Cost of Work Performed (ACWP). AC is a critical metric in EVM as it helps in determining the actual cost of completing the work. It includes all the costs associated with the project, such as labor, materials, and overhead. AC is calculated by adding all the actual costs incurred up to a particular date.<br>
Earned Value (EV)
<br>Earned Value (EV) is the value of the work completed up to a specific date. It is also known as Budgeted Cost of Work Performed (BCWP). EV is a critical metric in EVM as it helps in determining the value of the work completed to date. It is calculated by multiplying the total budgeted cost of the project by the percentage of the completed work.<br>
<br>In summary, PV, AC, and EV are essential metrics in EVM as they help in determining the project’s progress against the planned budget. PV helps in determining the planned work’s cost, AC helps in determining the actual cost of completing the work, and EV helps in determining the value of the completed work.<br>Calculating Earned Value

<br>Earned Value Management (EVM) is a project management technique that helps to measure project performance by comparing the planned and Suburban Paycheck Calculator (see this page) actual work completed. The process involves calculating earned value, which is the value of the work completed to date. In this section, we will discuss the three steps to calculate earned value.<br>
Determine Planned Value
<br>The first step in calculating earned value is to determine the planned value (PV), also known as the budgeted cost of work scheduled (BCWS). PV is the budgeted cost of the work scheduled to be completed at a specific point in time. It is the authorized budget assigned to scheduled work and is usually expressed in monetary terms.<br>
<br>To calculate PV, you need to multiply the budgeted cost of the project by the percentage of the work scheduled to be completed at a specific point in time. The formula for PV is:<br>
<br>PV = Budget at Completion (BAC) x Planned Percentage of Work Completed<br>
Record Actual Costs
<br>The second step in calculating earned value is to record actual costs (AC), also known as actual cost of work performed (ACWP). AC is the total cost incurred in completing the work scheduled at a specific point in time. It includes all direct and indirect costs associated with the work performed.<br>
<br>To calculate AC, you need to add up all the costs incurred to date for completing the scheduled work. This includes labor costs, material costs, equipment costs, and any other costs associated with the work performed.<br>
Measure Work Performance
<br>The third step in calculating earned value is to measure work performance. This involves calculating the percentage of work completed (PC) and multiplying it by the budgeted cost of the work scheduled (PV). The formula for earned value (EV) is:<br>
<br>EV = Planned Percentage of Work Completed x Budget at Completion (BAC)<br>
<br>Once you have calculated EV, you can use it to determine if the project is on track or behind schedule. If the EV is greater than the actual cost (AC), the project is progressing well. However, if the EV is less than the AC, the project is behind schedule, and corrective action may be necessary.<br>
<br>In conclusion, calculating earned value is an essential part of project management. By following the three steps outlined above, project managers can measure project performance and make informed decisions about the project’s progress.<br>Analyzing Project Performance

<br>Once the earned value has been calculated, the next step is to analyze the project performance. This can be done by calculating various indices such as cost variance, schedule variance, cost performance index, and schedule performance index.<br>
Cost Variance (CV)
<br>Cost variance (CV) is the difference between the earned value (EV) and the actual cost (AC) of the work performed. A positive value indicates that the project is under budget, while a negative value indicates that the project is over budget.<br>
<br>CV = EV – AC<br>
Schedule Variance (SV)
<br>Schedule variance (SV) is the difference between the earned value (EV) and the planned value (PV) of the work performed. A positive value indicates that the project is ahead of schedule, while a negative value indicates that the project is behind schedule.<br>
<br>SV = EV – PV<br>
Cost Performance Index (CPI)
<br>Cost performance index (CPI) is the ratio of the earned value (EV) to the actual cost (AC) of the work performed. A CPI greater than 1 indicates that the project is under budget, while a CPI less than 1 indicates that the project is over budget.<br>
<br>CPI = EV / AC<br>
Schedule Performance Index (SPI)
<br>Schedule performance index (SPI) is the ratio of the earned value (EV) to the planned value (PV) of the work performed. An SPI greater than 1 indicates that the project is ahead of schedule, while an SPI less than 1 indicates that the project is behind schedule.<br>
<br>SPI = EV / PV<br>
<br>By analyzing these indices, project managers can identify areas where the project is performing well and areas where improvements can be made. This information can be used to make informed decisions and take corrective actions to keep the project on track.<br>Forecasting Project Performance

<br>After calculating the earned value (EV) of a project, the project manager can use the results to forecast the future performance of the project. There are three main calculations that can be used to forecast project performance: Estimate at Completion (EAC), Estimate to Complete (ETC), and To-Complete Performance Index (TCPI).<br>
Estimate at Completion (EAC)
<br>The Estimate at Completion (EAC) is a forecast of the total cost of the project when it is completed. It is calculated by taking the Actual Cost (AC) and adding the Estimate to Complete (ETC). The ETC is the estimated cost of completing the remaining work on the project. The EAC is important because it helps the project manager to determine if the project is likely to be completed within budget.<br>
Estimate to Complete (ETC)
<br>The Estimate to Complete (ETC) is the estimated cost of completing the remaining work on the project. It is calculated by taking the Budget at Completion (BAC) and subtracting the Earned Value (EV) and the Actual Cost (AC). The ETC is important because it helps the project manager to determine if the project is likely to be completed within budget.<br>
To-Complete Performance Index (TCPI)
<br>The To-Complete Performance Index (TCPI) is a forecast of the performance that will be required to achieve the desired project outcome. It is calculated by taking the Budget at Completion (BAC) and subtracting the Earned Value (EV), then dividing the result by the Estimate to Complete (ETC). The TCPI is important because it helps the project manager to determine if the project is likely to be completed within budget and on time.<br>
<br>In summary, forecasting project performance is an important aspect of earned value management. By using the Estimate at Completion (EAC), Estimate to Complete (ETC), and To-Complete Performance Index (TCPI), project managers can gain valuable insights into the future performance of their project and make informed decisions to keep the project on track.<br>Reporting and Stakeholder Communication
<br>Once the earned value calculations have been completed, it is important to communicate the results to stakeholders in a clear and concise manner. This allows stakeholders to understand the progress of the project and make informed decisions about any necessary adjustments.<br>
<br>One effective way to communicate earned value data is through the use of tables or graphs. These visual aids can help stakeholders quickly understand the project’s progress and identify any potential issues. For example, a table could display the planned value, earned value, and actual cost for each task or work package, along with the corresponding variances.<br>
<br>Another important aspect of reporting earned value is to provide context for the data. This means explaining what the numbers mean and why they are important. For example, if the cost variance is negative, it is important to explain why the project is over budget and what actions are being taken to address the issue.<br>
<br>It is also important to tailor the reporting to the audience. Senior management may require a high-level overview of the project’s progress, while project team members may require more detailed information about specific tasks or work packages. By understanding the needs of each stakeholder, the earned value data can be presented in a way that is relevant and useful to them.<br>
<br>Overall, effective communication of earned value data is essential for project success. By providing clear and concise information to stakeholders, the project team can make informed decisions and take appropriate actions to keep the project on track.<br>Frequently Asked Questions
What steps are involved in calculating the earned value of a project?
<br>To calculate the earned value of a project, there are three essential steps involved: determining the planned value (PV), the actual cost (AC), and the earned value (EV). The planned value is the budgeted cost of the work scheduled to be done. The actual cost is the actual amount spent on the work completed. The earned value is the estimated value of the work completed. Once these values are determined, you can use the formulas to calculate the earned value of the project.<br>
Can you explain how to determine earned value using Excel?
<br>Yes, Excel can be used to calculate earned value. To determine earned value using Excel, you need to input the budgeted cost of the work scheduled to be done, the actual amount spent on the work completed, and the estimated value of the work completed. Once these values are entered, you can use the formulas to calculate the earned value of the project.<br>
What are the key formulas for Earned Value Management?
<br>There are three key formulas for Earned Value Management: Planned Value (PV) = Budget at Completion (BAC) x % of Planned Work Completed; Actual Cost (AC) = Total Cost of Work Completed to Date; Earned Value (EV) = Budget at Completion (BAC) x % of Completed Work. These formulas are used to determine the planned value, actual cost, and earned value of a project.<br>
How is earned value differentiated from planned and actual costs?
<br>Earned value is the estimated value of the work completed, whereas planned and actual costs are the budgeted and actual cost of the work completed, respectively. Earned value is used to determine the progress of a project, while planned and actual costs are used to determine the budget and actual cost of the project.<br>
Could you provide an example to illustrate the calculation of earned value?
<br>Sure! Let’s assume that a project has a budget of $10,000, and after a certain period, the percentage of work completed is 50%, and the actual cost is $6,000. To calculate the earned value, you would multiply the percentage of work completed (50%) by the budget ($10,000), which equals $5,000.<br>
What essential components must be understood to calculate earned value accurately in project management?
<br>To calculate earned value accurately in project management, you must understand the planned value, actual cost, and earned value of the project. You must also have a clear understanding of the formulas used to calculate these values. Finally, you must have accurate data on the budgeted cost of the work scheduled to be done, the actual amount spent on the work completed, and the estimated value of the work completed.<br>

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