---
title: "Cost control need; earned value; EVA approach"
subject: "Project Engineering"
chapter: 4
key: "semester_7/project_engineering:cost-control-necessary-eva-approach"
source: https://www.bctengineer.com/q/semester_7/project_engineering/cost-control-necessary-eva-approach
site: BCT Engineering
---

# Cost control need; earned value; EVA approach

Project Engineering · Chapter 4: Project Implementation and Controlling

- Asked in: 2070 Chaitra (old course), 2+2+4 marks
- Video: [What is Earned Value Management - EVM? PM in Under 5](https://www.youtube.com/watch?v=sAZZ5av9kk0) — Online PM Courses - Mike Clayton
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/project_engineering/cost-control-necessary-eva-approach
- Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-4

## Question

Why is cost control necessary in a project? What is earned value? Explain the EVA approach of cost control.

## Short answer

Cost control is necessary because budgets are limited, costs change, and early warning prevents overruns. Earned value is the budgeted cost of work completed, EV = % complete x BAC. EVA uses PV, EV, AC to compute SV, CV, SPI, CPI, and EAC = BAC/CPI to forecast final cost and guide corrective action.

## Answer

#### Why cost control is necessary

- The budget is limited, and overspending can make the project unviable.
- Costs change with price rises, wastage, variations and delay, so they must be watched.
- It gives early warning of an overrun while correction is still possible.
- It helps funding and cash-flow planning, and satisfies the client and the lender.
- It improves the efficiency and profit of the contractor.

#### Earned value

**Earned value (EV)** is the budgeted cost of the work actually completed at the status date: $EV = \%\ \text{complete} \times BAC$. It tells what the completed work is worth according to the budget.

#### EVA approach of cost control

At each review the following quantities are used:

| Term | Other name | Meaning |
|---|---|---|
| BAC | Budget at completion | Total approved budget of the project |
| PV | BCWS (planned value) | Budgeted cost of the work scheduled up to the date |
| EV | BCWP (earned value) | Budgeted cost of the work actually completed = % complete x BAC |
| AC | ACWP (actual cost) | Actual money spent for the work done up to the date |

$$
\begin{aligned} SV &= EV - PV, \qquad CV = EV - AC \\ SPI &= \frac{EV}{PV}, \qquad CPI = \frac{EV}{AC} \\ EAC &= \frac{BAC}{CPI}, \qquad ETC = EAC - AC, \qquad VAC = BAC - EAC \end{aligned}
$$

| Indicator | Value | Meaning |
|---|---|---|
| SV, SPI | SV > 0, SPI > 1 | Ahead of schedule |
| | SV = 0, SPI = 1 | On schedule |
| | SV < 0, SPI < 1 | Behind schedule |
| CV, CPI | CV > 0, CPI > 1 | Under budget (cost efficient) |
| | CV = 0, CPI = 1 | On budget |
| | CV < 0, CPI < 1 | Over budget (cost inefficient) |

CV and CPI show cost performance; SV and SPI show schedule performance. EAC forecasts the final cost. If CPI < 1, the manager looks for the cause (low productivity, wastage, high rates) and acts to bring the cost back to the budget; the forecast is updated every month.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Which is a key reason cost control is needed during a project?
   A. It removes the need for a budget
   B. It gives early warning of overrun while correction is still possible
   C. It guarantees the project finishes earlier
   D. It lets the contractor change the contract price
   Answer: B. Regular cost monitoring shows overruns early, when corrective action can still work. (Key point: Early warning)

2. Earned value (EV) is best defined as:
   A. The actual money spent up to the date
   B. The budgeted cost of work scheduled up to the date
   C. The budgeted cost of the work actually completed, = % complete x BAC
   D. The total approved budget of the project
   Answer: C. EV is the budgeted worth of the work actually done; actual spending is AC and scheduled work is PV. (Key point: Definition of earned value)

3. At a review, CPI < 1 and CV < 0 mean:
   A. The project is under budget
   B. The project is on budget
   C. The project is behind schedule only
   D. The project is over budget (cost inefficient)
   Answer: D. CPI below 1 or negative CV means each rupee spent earns less than a rupee of value, so the project is over budget. (Key point: Cost indicators)

4. In the EVA approach, how is the final cost forecast (EAC) found?
   A. EAC = BAC / CPI
   B. EAC = BAC x SPI
   C. EAC = EV - AC
   D. EAC = PV / EV
   Answer: A. EAC = BAC/CPI forecasts the final cost if the present cost efficiency continues. (Key point: EAC forecast)

## Related in Project Engineering

- [Cost control; EVA 15 houses in 3 months](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeva-houses-15-in-3-months) — Project Engineering, chapter 4
- [Cost control; EVA 50 doghouses in 90 days](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeva-doghouses-50-in-90-days) — Project Engineering, chapter 4
- [Short note: Earned value analysis](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aearned-value-analysis-note) — Project Engineering, chapter 4
- [How EVA controls cost; three examples](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeva-cost-control-three-examples) — Project Engineering, chapter 4
- [EVA; earthquake monasteries reconstruction project](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeva-monasteries-reconstruction-c75) — Project Engineering, chapter 4
- [EVA; 10 days, 50 labour days at Rs 1000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeva-numerical-labour-days-1000) — Project Engineering, chapter 4, asked 2×

## Related in other subjects

- [Earned value analysis for performance control](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Aeva-performance-control) — Construction Management, chapter 7, asked 6×
- [Earned value management](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Aevm) — ICT Project Management, chapter 9
- [Decision procedure by critical value approach](https://www.bctengineer.com/question.md?key=semester_5%2Fprobability_and_statistics%3Adecision-critical-value-approach) — Probability and Statistics, chapter 6
- [Cost vs value; factors affecting valuation](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Acost-vs-value-factors) — Construction Management, chapter 13