Earned Value Management sounds complicated until you see it applied to a real project. In this article we build the EVM of a building project step by step, with numbers, so you understand what each indicator means, how it is calculated and, above all, what decision to make with it.
The three variables that explain everything
EVM rests on three numbers measured at the same cutoff date. If you understand them, you understand everything else.
| Acronym | Name | The question it answers |
|---|---|---|
| PV | Planned Value | How much work value should I have executed today? |
| EV | Earned Value | How much work value did I actually execute? |
| AC | Actual Cost | How much did it cost me to execute that value? |
The mental trick: EV is "what I did is worth, at budget price". If a column budgeted at $1,000 is at 50%, its EV is $500, regardless of what it actually cost to build. That "regardless of what it cost" is what separates EV from AC.
The example: a 10-story building
Total budget (BAC) = $1,000,000. Duration = 10 months. By month 4, according to the plan we should have completed 40% of the work. We make the cutoff and measure:
| Variable | Value at month 4 | How it was obtained |
|---|---|---|
| PV | $400,000 | 40% planned × $1,000,000 |
| EV | $320,000 | 32% actual physical measured × $1,000,000 |
| AC | $380,000 | Cumulative actual cost (invoices, payroll) |
With just these three numbers we already know that the project is behind schedule (we did 32% when we should have done 40%) and over cost (we spent $380,000 to produce only $320,000 of value). Let's put numbers to that intuition.
The variances: SV and CV
The Schedule Variance (SV) is negative: we are $80,000 of work behind the plan. Negative always = behind schedule.
The Cost Variance (CV) is negative: we spent $60,000 more than the executed work is worth. Negative always = over cost.
The indices: SPI and CPI
The variances give amounts; the indices give efficiency (useful for comparing and projecting).
SPI = 0.80 means we are advancing at 80% of the planned pace: for every day of plan, we produce 0.8 days of work. Less than 1 = behind schedule.
CPI = 0.84 means that for every $1 spent we get only $0.84 of value. Less than 1 = cost-inefficient. The CPI is, by far, the indicator a board looks at most.
| Index | > 1 | = 1 | < 1 |
|---|---|---|---|
| SPI (schedule) | Ahead of schedule | On plan | Behind schedule |
| CPI (cost) | Under budget | On budget | Over cost |
The million-dollar question: how much will it cost to finish? (EAC)
The EAC (Estimate at Completion) projects the final cost of the project. There are several formulas depending on the assumption; the most used one assumes that the current inefficiency will continue:
Translation for the board: "If we keep spending at today's efficiency, this project budgeted at $1,000,000 will end up costing ~$1.19 million, almost $190,000 of cost overrun." That message, in month 4, is worth more than a thousand meetings.
Practical tip: The EAC with CPI works if the deviation is structural (productivity, prices). If the cost overrun came from a single event that is already resolved, use EAC = AC + (BAC − EV), which assumes the rest will be executed according to the original budget. Always report which assumption you used.
The indicator nobody uses but should: the TCPI
The TCPI tells you what efficiency you need from now on to finish within budget:
We had been working at a CPI of 0.84 and now we would need to work at 1.10 to avoid overrunning. When the required TCPI moves far away from the current CPI, the budget target is already practically unreachable: it is time to renegotiate the budget, not to promise that "we'll recover it".
Executive summary of the example
- SPI 0.80 → 20% delay in pace.
- CPI 0.84 → each dollar yields 84 cents.
- EAC $1.19M → projected cost overrun of ~19%.
- TCPI 1.10 → recovering the budget demands an unrealistic efficiency jump.
Four numbers, one clear decision. That is EVM done right.