Earned Value Management: How Project Managers Track Cost and Schedule Performance

Written by Coursera Staff • Updated on

Learn what earned value management is and how project managers use it to assess project health, communicate with stakeholders, and forecast whether you’ll finish projects within the allocated time and budget.

[Featured Image] A project manager reads earned value management results as they sit at a table with a laptop and designs, with two team members looking at designs in the background.

Key takeaways

Earned value management is a technique that compares planned work, completed work, and actual costs to measure whether key objectives are being met. 

  • Earned value management (EVM) is used to predict whether a project will be completed within the allocated time and budget.

  • The cost performance index (CPI) and schedule performance index (SPI) compare earned value with planned value and actual costs, with a CPI below one indicating overspending on a project.

  • You can use EVM to give stakeholders transparent and credible feedback, which can help you adjust resources and manage expectations. 

Learn more about what earned value management is, how you can use the formulas to measure progress, and why this method is still relevant today. Or, start learning with the Google Project Management Professional Certificate. In as little as six months, you can gain an immersive understanding of the practices and skills needed to succeed in an entry-level project management role. By the end, you’ll have a shareable certificate to add to your professional profile. 

What is earned value management, and what does it measure?

Earned value management (EVM) is a method used in project management to measure the team's progress on a project. It analyzes how much work has been completed and assesses whether the scope, schedule, and cost targets are on track to finish within the estimated time frame and budget. 

By comparing the planned work with the completed work, you can identify gaps in performance, delays, and changes in financial needs and address them early on.

Read more: What Is the Project Management Triangle? 

Earned value management in project management

You can use EVM in project management to make more accurate performance forecasts. Instead of assuming a project is running efficiently, you can detect problems early on and make adjustments. For example, if you find that the project exceeds its budget, you can take corrective actions.

You can also present performance forecasts to stakeholders to help them plan the distribution of resources and funds, explain delays with evidence, or show how corrective actions are working. This transparency can contribute to both organizational and project success.

Earned value vs. budget spend

While tracking how much of the budget has been spent is important, it doesn’t tell you how much work has been completed, and whether spending is higher or lower than expected. Values used in earned value management provide greater financial control and show you when a project is or isn’t going according to plan. Especially when working with stakeholders, you can evaluate risks more carefully and make decisions with transparency.

Core concepts behind earned value analysis and earned value management formulas

Three foundational metrics form the basis of all EVM calculations:

  • Planned value (PV): Total budget x Percentage of work planned for completion

  • Earned value (EV): Total budget x Percentage of work completed so far

  • Actual cost (AC): Total completed project costs

Understanding these three metrics enables you to perform earned value analyses effectively.

Planned value (PV): Performance baseline

The planned value (PV) is otherwise known as the budgeted cost of work scheduled (BCWS). The PV is a calculation that represents the budget allocated to complete a project within an allotted time frame. To measure the PV, you multiply the total budget by the percentage of work planned for completion:

PV = Total budget x Percentage of work planned for completion

For example, if you budgeted $100 to build a table in four hours and plan to finish 25 percent of the work after one hour, the PV for that hour is $25. 

The planned value acts as a performance baseline or a target to accomplish within a given time frame.

Earned value (EV): Measure actual progress 

The earned value (EV) is otherwise known as the budget cost for work performed (BCWP). While planned value (PV) is a plan or prediction of what you’ll complete, EV measures the actual progress of a project in budget terms. To measure the EV, you multiply the total budget by the percentage of work‌ completed:

EV = Total Budget x Percentage of work completed so far

In the case of the table, if 60 percent of the work has been completed within two hours, the EV is $60. 

This calculation allows you to assess project performance and determine whether the effort is on track or not. If the EV is low, problems may have arisen during the building process. However, if the EV is high, it indicates the work is progressing ahead of schedule.

Actual cost (AC): Track spending

The actual cost (AC) of a project is the money spent to complete the work. The formula for actual cost looks as follows:

AC = actual cost = direct costs + indirect costs + fixed costs + variable costs + sunk costs

If you budgeted $100 to build a table, but only spent $90, the actual cost is $90. This figure represents the sum of costs, which may include paid labor and materials used in this case.

How these values work together to show project health

The relationship between PV, EV, and AC reveals the health of the project to stakeholders. You can use calculations in earned value management to make predictions, communicate clearly with stakeholders, and optimize your project timelines.

Cost performance index (CPI) and schedule performance index (SPI)

By comparing EV and AC (i.e., dividing EV by AC), you can analyze a project’s cost performance, known as the cost performance index (CPI). This metric allows you to evaluate spending trends. If the EV is higher than the AC, less money is being spent than expected. However, if the EV is lower than the AC, more money is being spent than expected. 

You can also compare the EV and PV to measure if a project is on schedule to finish on time. The schedule performance index (SPI) equals the EV divided by the PV. If the EV is higher than the PV, the project is ahead of schedule. However, if the EV is lower than the PV, the project is behind schedule. 

In general, CPI and SPI values above 1.0 highlight favorable performance, while values below 1.0 indicate potential delays or overspending.

Cost variance (CV) and schedule variance (SV)

You can use other calculations to assess a project's health, including cost variance (CV) and schedule variance (SV). The CV indicates whether you are spending more or less than expected, while the SV determines whether you are ahead or behind schedule. 

Reading EVM results without overreacting to short-term variance

During the initial phase of a project, inefficiencies, onboarding activities, and project adjustments can make performance seem worse than expected. However, as the project progresses, efficiency and workflow typically improve, and team members become more familiar with their roles. In the final phase of a project, your team must adhere closely to variance thresholds. If this doesn’t happen, the project may not meet time and budget constraints. You can also make adjustments at different stages to account for short-term variance while maintaining a long-term objective.

Earned value management systems and tools

To measure project performance accurately and consistently, you can use various tools, many of which include built-in EVM capabilities that automatically calculate variances and performance indices. You can use these systems and tools to improve accuracy, plan, and optimize project performance. Some of these systems and tools include:

• ACE by AzTech International

• forProject by forProject Technology

• WebEVM by DecisionEdge

•  Oracle Primavera P6

• Cobra and Acumen by Deltek

• Empower by Encore Analytics

Using earned value management to make better decisions

When used accurately, you can use EVM to make informed decisions, spot risks early on, communicate project status, and adjust project plans.

Spotting risks early using earned value data

EVM allows you to spot early risks and warning signs, which you can use to inform corrective action. For example, if the cost performance index (CPI) is below one, you’re spending more money than expected, and you might need to reduce costs by adjusting scope, relocating resources, or improving efficiency.

Communicating project status to stakeholders

Many stakeholders want credible, consistent feedback on a project's health, such as whether it’s on schedule and within the designated budget. Project managers can approach conversations with stakeholders with transparency and accurate information, rather than estimates or assumptions.

Adjusting scope, schedule, or resources based on EVM insights

Instead of static plans, budgets, and resource allocations, you can adapt project plans to reflect the current stage or performance of a project. From there, you may reallocate resources or alter schedules. This approach allows for continuous project refinement, ensuring standards stay high, stakeholders are in the know, and corrective actions are taken. 

Why earned value management is still relevant today

Today, earned value management remains a valuable method for many types of projects, including housing development, defense initiatives, IT projects, and energy and utility efforts. Many of these initiatives are complex and require adaptable performance measures to stay on track. EVM also helps streamline project oversight, reducing risk and improving communication among team members, since everyone can clearly see how the project is progressing, what changes you need to make, and where you should focus your efforts.

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