Shashank Shastri
Picture this: You are six months into a project. From a budgetary perspective, the value of the actual spend is reasonable, and the effort of the team is commendable, yet the project feels like it is behind. This is the problem with tracking costs in isolation. It tells you what you have spent, but it does not tell you what you have earned. EVA addresses this issue by integrating cost, time, and scope into a singular, cohesive picture of performance. If you are interested in mastering this element of the profession for the sake of your career or PMP exam, EVA is covered in great detail with the other PMBOK frameworks at Techademy's PMP certification training.
Earned Value Analysis (EVA): Definitive Guide to PMP
What is EVA in Project Management?
Earned Value Analysis considers the planned work, the actual work completed, and what was spent, and is therefore a measure of quantitative performance. The PMBOK's 6th edition considers EVA to be one of the data analytics techniques that fall under the Monitoring and Controlling processes, particularly under Control Cost, Control Schedule, and Control Procurements.
The key concept is that EVA is not just related to money. EVA answers 3 questions at once. Are you doing enough work? Are you on target? Are you keeping to your budget?
EVA vs. EVM: Distinctions You Need Early
People often confuse these terms. They are not interchangeable.
- EVA (Earned Value Analysis) is a technique used to assess a quantifiable level of performance
- EVM (Earned Value Management) is the collection of methodologies that uses EVA to manage, predict, and control the performance of a project
- EVMS (Earned Value Management Systems) refers to the processes, tools, and templates that comprise the EVM in a particular organization
You can perform EVA calculations on any project. But if you do not have a complete EVM in conjunction with a fully integrated project plan, then your calculations will not be useful.
The Core 4 Metrics Every PM Must Start With
Even before you begin to do your calculations, you will need to identify these 4 figures first. The PMP equations related to all the EVA calculations stem from these 4 figures.
| Metric | Definition | Formula |
|---|---|---|
| PV (Planned Value) | Budgeted cost of work scheduled to date | % Planned Complete x BAC |
| EV (Earned Value) | Budgeted cost of work actually completed | % Actual Complete x BAC |
| AC (Actual Cost) | Real money spent on work performed | Recorded actual spend |
| BAC (Budget at Completion) | Total authorized project budget | Fixed at the planning stage |
Quick example: If your project budget (BAC) is $500,000 and you planned to be 50% done by now, your PV = $250,000. But if you've only completed 40% of the work, your EV = $200,000. Even if you've spent $220,000 already, EV tells you exactly how much of that spending produced real results.
Variance Analysis: Reading the Warning Signs
These metrics can show the gaps in plans versus actions taken. Once you know the triple-constraining factors of a metric, it will become clear how each of these metrics relates to time, cost, and scope.
| Variance | Formula | Positive Means | Negative Means |
|---|---|---|---|
| CV (Cost Variance) | EV - AC | Under budget | Over budget |
| SV (Schedule Variance) | EV - PV | Ahead of schedule | Behind schedule |
| VAC (Variance at Completion) | BAC - EAC | Will finish under budget | Will finish over budget |
Using our example: CV = $200,000 - $220,000 = -20,000 (over budget). SV = $200,000 - $250,000 = -50,000 (behind schedule). This project is in trouble, and EVA caught it at Month 6.
The Efficiency Ratios That Measure Project Health
Variance tells you the gap. Indices tell you the efficiency rate. These are the most frequently examined KPI in project management theories on the PMP.
CPI (Cost Performance Index) = EV / AC: A CPI of 0.91 indicates you are getting $0.91 worth of work for every $1 spent. Studies indicate that a cumulative CPI demonstrates considerable stability within 20 to 30% of the project, establishing it as a strong early indicator of the final cost.
SPI (Schedule Performance Index) = EV / PV: For example, an SPI score of 0.80 means that for every dollar of work scheduled, only 80 cents worth of work is being accomplished. Remember to consider the critical path when reviewing SPI, as it's possible for teams to achieve SPIs of 1.0 or above by completing tasks that are not critical, while the work on the critical path is lagging.
Important rule of thumb: Anything above 1.0 is good, and anything below 1.0 is bad and needs work.
Forecasting: What Will This Project Actually Cost?
This is where EVA gets predictive. The three EAC formulas are the ones most frequently tested on scenario-based PMP questions, which is why a solid PMP study plan always includes forecasting as a separate section.
| Forecasting Method | When to Use |
|---|---|
| Using the Original Budget | When the original estimate is still valid |
| Using the Cost Performance Index | When will the current cost performance continue |
| Using Cost and Performance Variance | When both cost and schedule impact remaining work |
| Using Value Performance Variance | When schedule variance impacts the remaining work |
Predictive Metrics:
ETC (Estimate to Complete) = EAC - AC
TCPI (To Complete Performance Index) = (BAC - EV) / (BAC - AC)
A TCPI of 1.07 indicates your team needs to work 7% more efficiently for the remaining life of the project. When the TCPI is greater than 1.10, it is usually unrealistic to expect the project to meet the TCPI target, and the EAC needs to be updated.
EVA in PMBOK and Its Relation to the PMP Exam
EVA spans four PMBOK processes under monitoring and controlling: Monitor and Control Project Work, Control Schedule, Control Costs, and Control Procurements. When combining EVA with the 49 processes of the PMP, it allows for greater accuracy while answering scenario questions. This is due to the fact that you understand the purpose of EVA in a context rather than just the calculation of the EVA.
Creating a concise PMP cheat sheet with all EVA formulas is one of the quickest ways to achieve formula fluency before the exam. Along with Techademy's PMP certification training, you will be able to understand both the calculations and the interpretation of the scenarios that the exam tests.
Understanding EVA's Effectiveness and Weaknesses
EVA is effective because:
- It combines the cost, schedule, and scope of a project into one measurement
- It provides indications of potential problems before they become irreparable
- It allows for data-based predictions and effective communication with stakeholders
EVA is ineffective when:
- There are insufficient project details before the planning starts
- Subjective estimates are used for progress reporting instead of measurable milestones
- There is a delay in invoicing, resulting in inadequate actual cost data in your cost control system
- Management encourages teams to report progress that is overly optimistic
An honest tool is only as honest as the data you input into it. EV, when used in conjunction with a well-functioning control chart, will help identify when the data is biased to the point of being skewed.
"Project stakeholders value earned value analysis because it showcases project performance, as it offers scope, schedule, and cost status." — Joseph A. Lukas, PMI Global Congress 2012
Shashank Shastri is a PMP trainer with over 14 years of experience and co-founder of Oven Story. He is an inspiring product leader who is a master in product strategies and digital innovation. Shashank has guided many aspirants preparing for the PMP examination thereby assisting them to achieve their PMP certification. For leisure, he writes short stories and is currently working on a feature-film script, Migraine.
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