Earned Value Management (EVM) Formula Lesson
Essential Metrics for Project Performance Assessment | OPEX INSTITUTE
This lesson provides a comprehensive overview of the core metrics used in Earned Value Management (EVM). As a PMP, you know EVM is the standard methodology for assessing project performance by integrating scope, schedule, and cost. It uses a set of fundamental terms and powerful formulas to provide a clear, objective picture of project health.
🔑 Part 1: Foundational EVM Metrics (The Pillars)
These three monetary values are measured as of a specific status date in the project.
| Metric | Full Name / Old Terminology | Definition |
|---|---|---|
| PV | Planned Value / BCWS (Budgeted Cost of Work Scheduled) | The budget for the work **planned** to be completed by the status date. *(How much work should have been done?) |
| EV | Earned Value / BCWP (Budgeted Cost of Work Performed) | The budget for the work **actually completed** by the status date. *(What is the value of the work done?) |
| AC | Actual Cost / ACWP (Actual Cost of Work Performed) | The money **spent** to achieve the work actually completed by the status date. *(How much money was spent?) |
Note on Terminology:
- BCWP (Budgeted Cost of Work Performed) is the older term for EV (Earned Value). They are the same.
- ACWP (Actual Cost of Work Performed) is the older term for AC (Actual Cost). They are the same.
📈 Part 2: Performance Indices (Efficiency Ratios)
These ratios tell you the efficiency of the work performed. A value greater than 1.0 is considered favorable (good).
| Index | Formula | What It Measures | Interpretation |
|---|---|---|---|
| CPI | $$\text{CPI} = \frac{EV}{AC}$$ | Cost Efficiency | If CPI > 1.0: Under budget. For every dollar spent, you earned more than one dollar's worth of value. |
| SPI | $$\text{SPI} = \frac{EV}{PV}$$ | Schedule Efficiency | If SPI > 1.0: Ahead of schedule. You earned more value than you planned to by this date. |
🔮 Part 3: Forecasting (The Future)
These metrics use current performance to forecast the final budget and time needed to complete the project.
| Metric | Formula (Most Common) | What It Predicts | Key Assumption |
|---|---|---|---|
| EAC | $$\text{EAC} = \frac{\text{BAC}}{\text{CPI}}$$ | Estimate At Completion: Predicted total cost. | Default Assumption: Current cost performance ($\text{CPI}$) will continue for the rest of the project. |
| ETC | $$\text{ETC} = \text{EAC} - \text{AC}$$ | Estimate To Complete: Remaining cost needed. | Directly related to the calculated EAC. |
| BAC | BAC | Budget At Completion: Original, total approved budget. | - |
Alternative EAC Formulas (Scenario-Based)
It's critical for certification preparation to understand alternative EAC formulas based on different project realities:
Scenario 1: Variances are Non-Recurring
If you believe past variances were non-recurring and future work will meet the original budget (future $\text{CPI}=1.0$):
Scenario 2: Both Cost and Schedule Influence Remaining Work
If you believe both cost and schedule performance will influence the remaining costs: