Earned value without panic: the formulas you need for the PMP

Earned value looks like a wall of letters. It comes down to one question asked four ways: how much work did we do, what was it worth, what did it cost and what was planned.

Where earned value shows up

Earned value sits inside two of the exam's Process tasks: planning and managing finance, and evaluating project status. In a predictive or hybrid project, it is how a project leader measures progress against a baseline in money terms rather than in feelings.

You may meet it as a calculation, or as a judgement: given these numbers, what is the project's condition and what should you do next? Both need the same small set of ideas.

Three inputs

Planned value (PV). The budgeted cost of the work that should have been done by now, according to the baseline schedule.

Earned value (EV). The budgeted cost of the work that has been done by now. It values progress at the planned price, not at what you spent.

Actual cost (AC). What you have spent on the work done so far.

Also keep one more number in mind: budget at completion (BAC), the total approved budget for the whole project.

Four results

How to read them. A variance above zero is good, below zero is bad. An index above 1 is good, below 1 is bad. The trick is to remember that cost formulas use AC and schedule formulas use PV. Both are measured against EV.

A memory aid: EV is always first in the formula, because earned value is what you have produced. You compare it with what you spent, or with what you planned.

A worked example with every number

A project has a budget at completion of US$200,000. At the status date:

• Planned value is US$100,000
• Earned value is US$80,000
• Actual cost is US$90,000

Work out each result.

• CV = 80,000 minus 90,000 = minus US$10,000. The project is over budget.
• SV = 80,000 minus 100,000 = minus US$20,000. The project is behind schedule.
• CPI = 80,000 divided by 90,000 = 0.89. You get about 89 cents of value for each dollar spent.
• SPI = 80,000 divided by 100,000 = 0.80. You have done 80 per cent of the work planned to date.

The project is both over budget and behind. That is the kind of conclusion an exam question wants you to draw before it asks what to do next.

Forecasting the final cost

There are three common forecasts, and the question tells you which to use.

1. The past cost performance will continue. EAC = BAC divided by CPI. In our example: 200,000 divided by 0.889 = US$225,000.

2. The overrun was a one-off and the rest will go to plan. EAC = AC plus (BAC minus EV). In our example: 90,000 plus (200,000 minus 80,000) = US$210,000.

3. Both cost and schedule performance will affect the cost. EAC = AC plus (BAC minus EV) divided by (CPI multiplied by SPI). In our example: about US$258,750.

From the first forecast you can derive two more:

• Estimate to complete (ETC) = EAC minus AC = 225,000 minus 90,000 = US$135,000.
• Variance at completion (VAC) = BAC minus EAC = 200,000 minus 225,000 = minus US$25,000.

If the question says "assume the current variance is atypical" or "was caused by a one-off event", use forecast 2. If it says "assume the current trend continues", use forecast 1.

The TCPI, and when to reach for it

The to-complete performance index tells you how efficiently you must perform from now on to meet a target.

TCPI = (BAC minus EV) divided by (BAC minus AC), when the target is the original budget.

In our example: 120,000 divided by 110,000 = 1.09. The team must now earn 1.09 dollars of value for each dollar spent, which is harder than its record so far (0.89). That gap is a warning that the original budget may be unrealistic.

What to do once you have the numbers

The exam rarely stops at calculation. A typical question gives the figures and asks what the project manager should do. Think in the order that matches the five principles for situational questions: understand the cause, then act within your authority and follow the process.

With CPI at 0.89 and SPI at 0.80, the first step is to analyse the root cause of the variances and assess the impact on the forecast before proposing a recovery plan. Changing the baseline directly, or cutting quality to catch up, skips the analysis.

Common ways to get the numbers wrong

• Swapping PV and AC. Remember: cost uses AC, schedule uses PV.
• Using the wrong forecast. Read whether the variance is typical or atypical.
• Mixing up the sign. CV and SV are subtractions with EV first.
• Treating EV as money spent. EV is the planned value of work done, not the cash out.
• Forgetting agile. In agile teams, progress is shown through burn-up or burn-down charts and velocity rather than earned value, though hybrid projects may use both.

Practising the formulas

Do one worked example by hand each day for a week, using fresh numbers. Say the meaning out loud: "behind schedule, over budget". Within a few days the formulas become automatic, and the exam's calculation questions become the easiest marks you earn.

A final point on proportion. Earned value is one topic among 26 tasks. Give it a short, focused block of study and move on. The weights, not the novelty of a formula, should decide your hours.