Earned Value Management – Basic Calculations

Introduction

Earned Value Management provides numerous metrics and indices for analysis to enable predictions of likely out-turn costs.

This article runs through the basic calculations involved in generating Earned Value data.

Schedule variance (SV)

This value is the difference between the work achieved to date (BCWP or EV) and the work planned to be achieved to date (BCWS or PV). The number generated will indicate if things are behind or ahead of where they should be. A negative value indicates that things are running behind schedule and a positive value indicates that things are running ahead of schedule.

SV= BCWP – BCWS

or

SV= EV – PV

Cost Variance (CV)

This value is the difference between the work achieved to date (BCWP or EV) and the cost to achieve that work (ACWP or AC). The number generated will indicate if things are underspent or overspent against the work achieved to date. A positive value indicates that there is an underspend and a negative value indicates that there is an overspend.

CV = BCWP – ACWP

or

SV= EV – AC

Schedule Performance Index (SPI)

The SPI is an indicator that is calculated by dividing the work achieved to date (BCWP or EV) by the work planned to be achieved to date (BCWS or PV). The value generated will either be above, equal or below one. A value above one indicates that things are progressing ahead of the planned position, tracking on one indicates that things are progressing as planned and below one indicates that the things are running behind the planned position.

SPI = BCWP/BCWS

or

SPI = EV / PV

Cost Performance Index (CPI)

The CPI is an indicator that is calculated by dividing the work achieved to date (BCWP or EV) by the cost to achieve that work (ACWP or AC). The value generated will either be above, equal or below one. A value above one indicates that for every one unit invested in the project there is a return greater than the investment. Tracking on one indicates that for every one unit invested that one unit is being returned and below one indicates that for every one unit invested the return is less than the investment.

CPI = BCWP/ACWP

or

SPI = EV / AC

Estimate at Complete (EAC)

The EAC is a forecasted position on completion, this is generated by adding the actuals spent to date (ACWP or AC) with the remaining work to go also known as the Estimate To Complete (ETC). The remaining work to go or ETC can be auto-generated but is more realistic to have members of the project team estimate the remaining work to go rather than subtract spend to date from the to total budget.

EAC = ACWP + ETC

or

EAC = AC + ETC

Independent Estimate at Complete 1 (IEAC1)

The IEAC1 generates a forecasted cost on completion by subtracting performance to date (BCWP or EV) from the total budget known as the Budget At Complete (BAC). This is the divided by the Cost Performance Index (CPI) and the actual spend to date (ACWP or AC) is then added. Using the CPI provides an optimistic view on the likely out turn cost based on past performance.

IEAC1 = ACWP + (BAC – BCWP)/CPI

or

IEAC1 = AC + (BAC – EV)/CPI

Independent Estimate at Complete 2 (IEAC2)

The IEAC2 generates a forecasted cost on completion by subtracting performance to date (BCWP or EV) from the total budget known as the Budget At Complete (BAC). This is the divided by the Cost Performance Index (CPI) which is multiplied by the Schedule Performance Index (SPI). The actual spend to date (ACWP or AC) is then added. Using the CPI multiplied by the SPI provides a pessimistic view on the likely out turn cost based on past performance.

IEAC2 = ACWP + (BAC – BCWP)/(CPI x SPI)

or

IEAC2 = AC + (BAC – EV)/(CPI x SPI)

To Complete Performance Index (Estimate) (TCPI(E))

The TCPI(E) provides an indices that indicates if the EAC is likely to be achieved. It should be used in conjunction with the Cost Performance Index (CPI) to indicate if historically this value has been achieved. If the TCPI(E) is higher than the historical CPI trends then it is unlikely that the forecasted completion cost will be achieved and the EAC value may have to be revised to a larger out turn cost. If the TCPI(E) value is lower than the historical CPI trends then the final outturn cost may be too ambitious and warrant a reduction. If the TCPI(E) and CPI figures are relatively close then the EAC could be considered a reasonable reflection given historical performance.

TCPI(E) = BAC-BCWP/EAC-ACWP

or

TCPI(E) = BAC-EV/EAC-AC

To Complete Performance Index (Budget) (TCPI(B))

The TCPI(B) provides an indices that indicates if the Budget At Complete (BAC) is likely to be achieved. It should be used in conjunction with the Cost Performance Index (CPI) to indicate if historically this value has been achieved. If the TCPI(B) is higher than the historical CPI trends then it is unlikely that the for BAC will be achieved. If the TCPI(B) value is lower than the historical CPI trends then the final outturn cost will be lower than the BAC. If the TCPI(E) and CPI figures are relatively close then the BAC is likely to be met.

TCPI(B) = BAC-BCWP/BAC-ACWP

or

TCPI(B) = BAC-EV/BAC-AC

Variance At Complete (VAC)

The Variance At Complete (VAC) is the difference between the Budget At Complete (BAC) and the Estimate at Complete (EAC). If the value is negative then there is likely to be an overspend on completion of the project, however if the value is positive then there is likely to be an underspend on completion.

VAC= BAC – EAC

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