Earned Value in Project Management: EVM Formulas

You’ll need to know what earned value in project management is to successfully manage your project budget and project scope.

Earned value is one of the key components in various project management metrics. EV supports project teams in optimizing project timelines and cost efficiency, but it can be confusing to understand how to calculate it in different formulas.

This article will explain the concept of earned value, its most common uses in key project status metrics, and other important aspects of earned value management.

Earned value is a key part of earned value management (EVM), a project management methodology that analyzes three main factors of project performance: schedule, cost, and scope.

To put it plainly, it usually refers to the amount of work actually completed at a particular point in time, or value achieved with the invested resources.

Earned value is commonly used in variance analysis and other performance indexes, usually to compare planned vs actual project progression, whether this is related to your scope or your costs.

The basic earned value (EV) formula is:

For example, if a project budget amounts to $10,000, and you’ve completed 15% of the work, your earned value is:

So, if you want to know your earned value, you’ll need to have a standardized method for tracking your project progress.

On an hourly-priced project, you can compare billable hours tracked out of the total hours estimated. For fixed-price engagement, completion is usually gauged by project milestones reached and finalized deliverables.

With project management tools such as Productive, you can monitor your actual progress by checking your data in real time, including time tracking, budgeting, employee availability and scheduling, and more — learn more about optimizing project performance with Productive.

Earned value is commonly used in four project management metrics to get a quantifiable measure of project performance. These are: cost variance, schedule variance, cost performance index, and schedule performance index.

Cost variance in project management examines the difference between planned and actual project cost at a particular period of time, expressed in monetary terms. Here’s the basic cost variance formula:

Cost variance can be calculated as variance at completion, which considers the full period of the project execution; point-in-time, which considers a particular period of time; or cumulative, which considers the budget from the start of the project up to a particular point.

Schedule variance in project management is similar to cost variance, but instead of the cost, it considers the project schedule. It’s also expressed in monetary terms, as it also takes the original budget into consideration. The formula is:

A negative result means you’re behind schedule, while a neutral or positive result means you’re on or ahead of schedule.

The cost performance index in project management (CPI) is a metric similar to cost variance, but instead of showing the exact difference between planned and actual costs, it uses an index to depict cost efficiency.

For example, an index of 0.7 means that you’re operating at 70% cost efficiency, while an index of 1.1 would mean that you’re at 110% efficiency. An index of 1.0 is neutral.

The schedule performance index (SPI) has similarities with schedule variance, as it depicts your scheduling efficiency:

So, an SPI of 0.7 means you’re 30% behind schedule, while an SPI of 1.3 means you’re 30% ahead of schedule.

Planned value is used in the schedule variance formula. It refers to the scheduled work to be completed by a certain point in time, expressed in monetary terms. The planned value formula looks like this:

For example, if the project’s original budget is $60,000, and at a certain point, it’s scheduled that 20% of work should be completed, the planned value amounts to:

Actual cost in project management is ideally tracked with project cost management software. Expected project costs depend on your project type and industry.

In professional services, this usually includes employee salaries and various types of overhead costs (facility costs, equipment and licenses, employee benefits, etc.).

For example, Productive uses an overhead algorithm to spread your overhead across projects for a more accurate insight into your profit. You can also control external expenses with Purchase Orders.

Learn how agencies can get reliable data with Productive.

Here’s a practical example of how you would calculate all of these formulas. For example, the project plan includes:

Let’s say you’ve reached your milestone at 6 months, and you want to analyze your progress.

By using data from your project management software, you know that you have spent $21,000 dollars up to this point — this is your actual cost. You also know that you’ve completed 40% of the work on your deliverables.

Starting with your earned value: 0.40 x $60,000 = $24,000.

Now that you have your earned value, you can calculate your cost variance and CPI.

This means that your project has saved $3,000 in costs and is 14% more cost-effective than expected. However, what about the schedule?

First, you’ll need to calculate the planned value. If at 6 months, you’ve planned to complete 50% of your work, your planned value would be: 0.5 x $60,000 = $30,000.

However, because only 40% of the work has been completed, your schedule variance and SPI look like this:

Your project is actually operating only at 80% scheduling efficiency, and the cost efficiency is a result of fewer hours being billed.

This is an example of a simple project with straightforward metrics, but earned value analysis (EVA) is important because it can provide a project manager with this type of clarity for more complex scenarios.

Here’s a summary of why variance analysis is beneficial to end to end project management:

The EVM methodology is a holistic approach to data-driven project management. It goes through each phases of the project lifecycle, including initiating, planning, executing, monitoring, and controlling, and closing, and provides project management techniques for keeping projects on track.

To summarize, projects using earned value project management should:

EVM is best suited for industries with so-called predictive or plan-driven projects. These are usually waterfall types of projects with more structured phases and less chance of significant changes during the management process.

Notably, this includes industries such as construction, engineering, IT, and defense.

However, EVM can be used for agile project management, though the implementation is usually more flexible than that described in EVM standards (for example, ANSI or AACE).

For agencies, a PSA software solution can be indispensable for making informed decisions based on reliable insights.

With Productive, you can monitor your budget, schedule, and scope in real time. Its biggest benefit is that it’s a unified platform for professional services, providing consolidated data and supporting efficient workflows.

Productive’s main agency management features include:

Productive uses data from all of your project activities to generate custom reports in real time. You can use one of the 50+ agency templates from the Reports Library or create your own from scratch.

Instead of manually crunching data and sharing reports, create custom dashboards or automate your sending with Productive’s Pulse.

With Productive’s Budgeting, you can also monitor your project budget without updating spreadsheets, including budget burn, revenue, and profit margins. You can even forecast them for upcoming periods of time to spot project risks and implement timely corrective measures.

Productive also includes a variety of supporting features, such as no-code automations, custom user permissions, third-party integrations, and much more.

Book a demo today to learn how Productive can support your agency’s operations.