Earned Value Management using Examples
Earned Value Analysis Example 1
Suppose you have a budgeted cost of a project at $900,000. The project is to be completed
in 9 months. After a month, you have completed 10 percent of the project at a total expense
of $100,000. The planned completion should have been 15 percent.
Now, let’s see how healthy the project is by computing the CPI and SPI.
From the scenario, you can extract the following:
BAC = $900,000
AC = $100,000
The Planned Value (PV) and Earned Value (EV) can then be computed as follows:
Planned Value = Planned Completion (%) * BAC = 15% * $ 900,000 = $ 135,000
Earned Value = Actual Completion (%) * BAC = 10% * $ 900,000 = $ 90,000
Compute the earned value variances:
Cost Performance Index (CPI) = EV / AC = $90,000 / $100,000 = 0.90. This means for
every $1 spent, the project is producing only 90 cents in work.
Schedule Performance Index (SPI) = EV / PV = $90,000 / $135,000 = 0.67. This means
for every estimated hour of work, the project team is completing only 0.67 hours
(approximately 40 minutes).
Interpretation: Since both Cost Performance Index (CPI index) and Schedule Performance
Index (SPI index) are less than 1, it means that the project is over budget and behind
schedule. This example project is in major trouble and corrective action needs to be
taken. Risks management needs to kick-in.
Earned Value Analysis – Example 2
Suppose you are managing a software development project. The project is expected to be
completed in 8 months at a cost of $10,000 per month. After 2 months, you realize that the
project is 30 percent completed at a cost of $40,000. You need to determine whether the
project is on-time and on-budget after 2 months.
Step 1: Calculate the Planned Value (PV) and Earned Value (EV)
From the scenario,
Budget at Completion (BAC) = $10,000 * 8 = $80,000
Actual Cost (AC) = $40,000
Planned Completion = 2/8 = 25%
Actual Completion = 30%
Therefore,
Planned Value = Planned Completion (%) * BAC = 25% * $ 80,000 = $ 20,000
Earned Value = Actual Completion (%) * BAC = 30% * $ 80,000 = $ 24,000
Step 2: Compute the Cost Performance Index (CPI) and Schedule Performance Index (SPI)
Cost Performance Index (CPI) = EV / AC = $24,000 / $40,000 = 0.6
Schedule Performance Index (SPI) = EV / PV = $24,000 / $20,000 = 1.2
Interpretation: Since Cost Performance Index (CPI) is less than one, this means the project is
over budget. For every dollar spent we are getting 60 cents' worth of performance. Since
Schedule Performance Index (SPI) is more than one, the project is ahead of schedule.
However, this has come at a cost of going over budget. If work is continued at this rate, the
project will be delivered ahead of schedule and over budget. Therefore, corrective action
should be taken.
Apart from computing the Cost Performance Index (CPI) and Schedule Performance Index
(SPI), you can calculate the earned value cost and schedule variance. In addition, you can
use earned value forecasting formula.
Earned Value Analysis Example 3
Compute Estimate At Completion (EAC) and Variance At Completion (VAC) if both SPI and
CPI influence the project work when given variables are
Budget At Completion (BAC) = $22,000
Earned Value (EV) = $13,000
Planned Value (PV) = $14,000
Actual Cost (AC) = $15,000
Solution to Problem 1
EAC (if the both SPI and CPI influence the project work) = AC + [(BAC – EV) / (CPI x SPI)]
1. Schedule Performance Index (SPI) = EV/PV = $13,000/$14,000 = 0.93 Since SPI is less
than 1, this indicates that the project is behind schedule
2. Cost Performance Index (CPI) = EV/AC = $13,000/$15,000 = 0.87 Since CPI is less than
1, this indicates that the project is over budget.
3. EAC = $15000 + [($22,000 – $13,000)/(0.93 X 0.87)] = $26,123
4. VAC = BAC – EAC = $22,000 – $26,123 = -$4,123 The project is experiencing a budget
overrun of -$4,123.