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Earned value management
Short answer
Earned Value Management integrates scope, schedule, and cost by comparing planned value (PV), earned value (EV), and actual cost (AC). It calculates CPI and SPI to detect variances early, forecasts total cost with EAC, and supports objective cost control decisions and stakeholder reporting.
What do you mean by earned value management (EVM)? Define EVM and explain it with its contribution and role in the cost control process.
Earned Value Management (EVM) is a project performance measurement technique that integrates scope, schedule and cost to assess progress objectively. It compares the planned work, the work actually completed (its value) and the actual cost.
Key terms
- Planned Value (PV): budgeted cost of work scheduled to date.
- Earned Value (EV): budgeted cost of work actually performed (% complete × BAC).
- Actual Cost (AC): actual cost incurred for the work done.
- BAC: Budget at Completion, the total budget.
Formulas
| Measure | Formula | Meaning |
|---|---|---|
| Cost variance CV | EV − AC | Negative = over budget |
| Schedule variance SV | EV − PV | Negative = behind schedule |
| Cost performance index CPI | EV / AC | Below 1 = over budget |
| Schedule performance index SPI | EV / PV | Below 1 = behind |
| Estimate at completion EAC | BAC / CPI | Forecast total cost |
| Estimate to complete ETC | EAC − AC | Remaining cost |
| Variance at completion VAC | BAC − EAC | |
| TCPI | (BAC − EV)/(BAC − AC) | Efficiency needed for rest |
Worked example
BAC = Rs 100,000; PV = 40,000; EV = 35,000; AC = 45,000.
- CV = 35,000 − 45,000 = −10,000 (over budget)
- SV = 35,000 − 40,000 = −5,000 (behind schedule)
- CPI = 35,000/45,000 = 0.78
- SPI = 35,000/40,000 = 0.875
- EAC = 100,000/0.778 = 128,571
- ETC = 128,571 − 45,000 = 83,571
- VAC = 100,000 − 128,571 = −28,571
- TCPI = 65,000/55,000 = 1.18
Answer: The project is over budget and behind schedule; forecast cost is about Rs 1,28,571.
Contribution and role in cost control
- Gives early warning of cost and schedule problems through CPI and SPI.
- Allows objective forecasting (EAC, ETC) and trend analysis.
- Links cost control with scope and schedule; progress is measured against the baseline, not just spending.
- Supports corrective action decisions and reporting to stakeholders (S-curve).
- Standard for large and government contracts.
Cost
| ___ PV
| AC __/
| _/ EV (below PV and AC)
+---------------------- time
EVM needs a good WBS, a baseline and accurate progress measurement.
✓ Answer checked by Claude Opus 5.5 (high effort)
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