How to Calculate Earned Value for Projects

Earned value management (EVM) is a project management technique that objectively measures project performance and progress. It integrates scope, time, and cost measurements into a single system. EVM is a versatile tool for various project types and sizes, especially for complex projects where monitoring progress and predicting outcomes can be challenging. This technique helps project managers understand if a project is on track, forecast future performance, and make informed decisions.

Core Concepts for Earned Value

Earned value relies on three fundamental concepts.

Planned Value (PV), or Budgeted Cost of Work Scheduled (BCWS), represents the budgeted cost of work scheduled to be completed by a specific point. It serves as a baseline for planned accomplishment.

Actual Cost (AC), or Actual Cost of Work Performed (ACWP), is the total cost incurred for work actually performed. This figure encompasses all expenses, such as labor, materials, equipment, and overhead, tied to the completed work.

Earned Value (EV), or Budgeted Cost of Work Performed (BCWP), quantifies the budgeted cost of work actually completed to date. It measures the value of physical work accomplished, regardless of what was spent or time passed.

Gathering Project Data

Collecting accurate project data is a preparatory step for earned value calculations. To establish Planned Value (PV), a comprehensive project budget is required, detailing allocated costs for each task or work package over the project timeline. This budget should be time-phased, outlining when specific portions of work are expected to be completed and their associated costs.

To determine Actual Cost (AC), meticulous tracking of all expenditures incurred throughout the project is necessary. This involves capturing real-time spending on labor, materials, subcontractors, and any other direct or indirect costs as they occur.

Measuring work progress or completion is important for calculating Earned Value (EV). Project teams must have a defined method to quantify how much work has been accomplished. Common approaches include using a percentage complete, where a task or project is assigned a percentage based on physical work achieved. For instance, physical measurement methods can be used for tasks delivering measurable units, such as miles of road laid or lines of code written. Alternatively, progress can be tied to the completion of specific milestones, where a predefined percentage of value is earned upon reaching each milestone.

Calculating Earned Value

Calculating Earned Value (EV) is straightforward once data points are available. The fundamental formula for Earned Value multiplies the total project budget, often called Budget at Completion (BAC), by the actual percentage of work completed. This calculation translates physical project progress into a monetary value. For example, if a project has a total budget of $100,000 and 60% of the work has been completed, the Earned Value would be $60,000 (0.60 $100,000). This $60,000 represents the budgeted cost of the work actually performed.

Consider a smaller task, such as developing a software module with a budget of $10,000. If the development team reports the module is 50% complete, the Earned Value for this task would be $5,000 (0.50 $10,000). This figure objectively indicates the value of the work accomplished for that module.

Another illustration is a construction project with a total budget of $500,000. If, at a certain reporting period, 25% of the construction work has been finished, the Earned Value for the project at that point would be $125,000 (0.25 $500,000). This calculation provides a clear, measurable indication of the project’s progress in terms of its allocated budget.

Interpreting What Earned Value Reveals

The calculated Earned Value figure is insightful when compared against Planned Value (PV) and Actual Cost (AC). These comparisons provide immediate insights into a project’s schedule and cost performance. When Earned Value is greater than Planned Value, the project is ahead of schedule relative to what was originally planned. Conversely, if Earned Value is less than Planned Value, the project is behind schedule, meaning less work has been accomplished than anticipated. Comparing Earned Value to Actual Cost reveals the project’s cost efficiency.

If Earned Value is greater than Actual Cost, the project is under budget, meaning more work has been completed for less expenditure than planned. This suggests efficient resource use and favorable financial performance. However, if Earned Value is less than Actual Cost, the project is over budget, indicating more money has been spent than the value of the work accomplished. These direct comparisons help project managers quickly identify areas needing attention and make timely adjustments to keep the project on track.