Earned value management (EVM) answers two questions every sponsor asks: are we on budget, and are we on schedule? It does it by comparing three numbers. Once you see how they fit together, the formulas stop being a list to memorize.
The three numbers
Imagine a project to fit out 10 offices, with a budget of $50,000 per office. BAC (budget at completion) is $500,000.
At the end of month 3:
- The plan said 4 offices would be done by now. PV (planned value) = 4 × 50,000 = $200,000.
- The team has actually finished 3.6 offices' worth of work. EV (earned value) = 3.6 × 50,000 = $180,000.
- The invoices so far total AC (actual cost) = $220,000.
EV is the key. It measures work done in budget terms, so you can compare it both with the plan (PV) and with the spend (AC).
Are we on schedule?
- SV = EV − PV = 180,000 − 200,000 = −$20,000. Negative means behind.
- SPI = EV ÷ PV = 0.90. For every dollar of work planned, the team delivered 90 cents' worth.
Are we on budget?
- CV = EV − AC = 180,000 − 220,000 = −$40,000. Negative means over budget.
- CPI = EV ÷ AC = 0.82. For every dollar spent, the team produced 82 cents of work.
A memory aid: the variance and index formulas always start with EV. "Earned" comes first.
Where will we finish?
The estimate at completion (EAC) depends on why the project is off track. This is the part the exam tests hardest.
If the overrun was a one-off, for example an emergency vendor replacement that will not recur, the remaining work should cost what was budgeted:
EAC = AC + (BAC − EV) = 220,000 + 320,000 = $540,000
If the current efficiency will continue, because the team is simply slower than estimated:
EAC = BAC ÷ CPI = 500,000 ÷ 0.82 ≈ $611,000
If both cost and schedule problems will continue, and schedule pressure is driving extra cost:
EAC = AC + (BAC − EV) ÷ (CPI × SPI) ≈ $655,000
If the original estimate is no longer valid, re-estimate the remaining work from the bottom up and add it to AC.
Same project, same numbers, four different forecasts. The story in the question tells you which one applies.
What efficiency do we need from now on?
TCPI is the cost performance the team must achieve on the remaining work.
To finish on the original budget: TCPI = (BAC − EV) ÷ (BAC − AC) = 320,000 ÷ 280,000 = 1.14. The team would need to be 14% more efficient than planned, which is unlikely given a CPI of 0.82.
If the sponsor approves a new target of $560,000: TCPI = (BAC − EV) ÷ (EAC − AC) = 320,000 ÷ 340,000 = 0.94. Much more achievable.
How the exam tests EVM
- Wrong trigger. You know all four EAC formulas, but choose the wrong one for the story.
- Stale target. The question says a new EAC was approved, but you compute TCPI on BAC.
- Inverted ratio. AC ÷ EV instead of EV ÷ AC. If CPI above 1 would mean "bad", you inverted it.
- Interpretation. No calculation at all: "CPI is 1.1 and SPI is 0.8. What should the project manager do?" Here you are under budget but late, so consider fast tracking or adding resources, which the budget can afford.
Agile and EVM
Agile teams can use EVM with story points: planned points to date act as PV, completed points as EV. Most agile questions on the exam, though, use burnup charts and velocity instead.
Earned value is one of the most reliable sources of points on the exam once you practice reading the story, not just the numbers. Try the calculation questions in our free quiz to test yourself.