Using Earned Value Management

Earned Value Management is a good method for identifying schedule and cost variances. Table 7.1 summarizes the key elements of Earned Value Management.

Table 7.1. Elements of Earned Value Management

Element	Definition
Planned value	Previously known as budgeted cost of work scheduled (BCWS). This involves an estimation of how much a project will cost before it occurs.
Earned value	Previously known as budgeted cost of work performed (BCWP). This is the actual physical work that is accomplished and includes an estimate of how much the work is valued at.
Actual costs	Previously known as actual cost of work performed (ACWP). This calculation includes the total expenditures for the project.
Cost variance (CV)	The comparison between actual costs and budgeted costs. A negative number means you are over budget. BCWP ACWP = CV
Schedule variance (SV)	The comparison between the actual project duration and the estimated duration. A negative number means you are behind schedule. BCWP BCWS = SV
Cost Performance Index (CPI)	Used to calculate performance efficiency. Less than 1 means your project is costing you more than you planned. Greater than 1 means you are taking less money to do the project. BCWP / ACWP = CPI
Schedule Performance Index (SPI)	Used to calculate the efficiency level of the budgeted versus actual schedules. Less than 1 means you are behind schedule. Greater than 1 means you are ahead of schedule. BCWP / BCWS = SPI
Budget at completion (BAC)	This is the difference between the remaining budget and the work that has been completed. EAC = (AC + BAC) EV VAC = BAC EAC
Estimate at completion (EAC)	This calculation includes the actual project cost to date plus the expense of the remaining work. BAC / CPI = EAC
Estimate to complete (ETC)	This estimate includes the actual cost to date plus the estimated cost of work still left. EAC ACWP = ETC

Earned value takes the planned value, or what you planned to do and how much that planned activity costs, and matches it against the actual costs, or what actually got done. These two metrics (measurements of value) provide a wealth of information about whether the project tasks are taking longer than they should (schedule variance, or SV), or whether they are actually requiring more work effort to complete (cost variance, or CV). The combination of the two provides you with the earned value. Budget at completion (BAC) and estimate at completion (EAC) are both metrics that help you determine whether your project will be on budget or whether you will need more money and time to complete the project. These metrics are used in performance reporting to help identify whether corrective action needs to take place.

Many of the project management software tools, such as Microsoft Project, include these calculations for you as features.

The formulas are key to actual performance reporting, and some questions on the exam require you to know the differences between them.

Be familiar with the schedule variance (SV) and cost variance (CV) formulas. Also, know what a negative value means (that you're behind schedule or over budget, respectively).

PMI changed the definitions of the earned value terms in the 2000 PMBOK. The following list contains the new terms you need to be aware of:

• BCWS is now planned value.

• BCWP is now earned value.

• ACWP is now actual costs.