Earned Value Management Explained With Worked Examples
PV, EV, AC, CPI, SPI, EAC and VAC set out plainly, with a full worked example, interpretation guidance, and the reporting habits that make the numbers useful.
The three inputs everything derives from
Planned Value is the budgeted cost of the work scheduled to be complete by the reporting date. Earned Value is the budgeted cost of the work actually completed. Actual Cost is the money genuinely spent to complete it.
Every other earned value measure is arithmetic on those three numbers, which is why the discipline lives or dies on how honestly you assess percentage complete. A team that reports optimistic progress produces an inflated Earned Value and a reassuring report describing a project in trouble.
Use objective completion rules wherever possible: fixed formula milestones, weighted deliverables, or units completed. Subjective percentage estimates drift upward under pressure with impressive reliability.
The derived measures
Cost Variance is EV minus AC, and Schedule Variance is EV minus PV. Both are expressed in currency, and negative means unfavourable. The index forms are usually more useful for trending: CPI equals EV divided by AC, and SPI equals EV divided by PV.
A CPI of 0.85 means you are receiving 85 pence of budgeted value for every pound spent. An SPI of 1.05 means you are ahead of the planned schedule in value terms, though note that SPI converges to 1.0 at project end regardless of lateness, so pair it with a critical path view.
Estimate at Completion is most commonly BAC divided by CPI, which assumes current cost performance continues. Variance at Completion is BAC minus EAC and gives the projected overrun in currency, which is generally the number a sponsor actually wants.
A worked example
Take a project with a Budget at Completion of £400,000 over ten months. At the end of month four, the plan said £160,000 of work should be complete, so PV is £160,000. The team has actually finished work worth £140,000 of budget, so EV is £140,000. The invoices to date total £168,000, so AC is £168,000.
Cost Variance is £140,000 − £168,000 = −£28,000. Schedule Variance is £140,000 − £160,000 = −£20,000. CPI is 0.83 and SPI is 0.875. The project is both over budget and behind, and the cost problem is the larger of the two.
Estimate at Completion is £400,000 ÷ 0.83, roughly £481,900, giving a Variance at Completion of about −£81,900. That is the sentence to lead the report with, and it is far more actionable than 'we are slightly behind'.
Reporting habits that make it stick
Report indices as a trend across at least four periods. A single CPI reading is noise; three consecutive declining readings is a finding that justifies intervention.
Always accompany the numbers with the one or two causes behind them. Executives do not act on an index — they act on 'the integration workstream has consumed 40 percent more effort than planned because the vendor API changed'.
Finally, keep the baseline under change control. Rebaselining to make the variance disappear is technically easy and destroys the entire value of the method.
Frequently Asked Questions
- What does a CPI below 1 mean?
- You are spending more than the budgeted value of the work completed, so the project is over budget for its current progress.
- What is BAC?
- Budget at Completion — the total approved cost baseline for the authorised scope of the project.
- Does EVM work on agile projects?
- Yes, with adaptation. Use completed story points or delivered features as the basis for Earned Value and keep the reporting cadence aligned to the sprint boundary.
Published by AgilePro.info under our Editorial Policy. Guidance is based on established delivery practice and is general information, not professional advice for a specific project.