WTF is EVM?
EVM, CPI, SV, BAC….it can all seem a little much. If you’re preparing for the PMP certification or starting out in Project Management, you’re probably seeing more acronyms than in a teenagers text messages.
If you ask me, a lot of these things just get over complicated in their explanations.
Sometimes you just want to yell, explain it to me like I’m five! I do think that sometimes in an effort to be thorough, appeal to being ‘credible’, and a desire to sound ‘professional’, many of the courses and study preps/explanations that are out there end up making these terms much more complicated sounding than they need to be. You’re probably already familiar with these calculations, indexes, and values. Hell - you’re probably already doing them by simply trying to figure things out in your daily life. If you’ve ever had to do something on a budget and in a timeline - you’ve probably casually done these calculations. Let’s take a quick look and simplify - wtf is EVM?
EVM is Earned Value Management. It’s a quick way for us to know:
How much work we’ve done
How much money we’ve spent
How much money is left
How much work is left
Are we on schedule?
Are we on budget?
Based on where we are now, do we have enough money to get it done in time?
All of this simply let’s us know If we need to make any adjustments to course correct. Let’s get into it.
BAC: Budget at Completion
How much we expect to spend on this project before we’ve started, based on our informed estimates. I need to bake and decorate four cakes. Each cake takes 1 day to complete and I expect all of the ingredients/labor to cost $20 per day. So, 4 cakes per 1 day = 4 days to complete my cakes. 4 days x $20/day = $80 total. My BAC = $80.
PV: Planned Value
This is how much I expect to spend at a certain point in the project. Yes, it’s called planned value, but really? It’s sometimes easier to understand if you just think of it as our planned spend. What was our budget for our current amount of work that we’ve done? For our cakes: I expected to have 1 cake done at the end of day 1 and to have spent $20. My PV is $20 for 1 day ( the planned spend to make 1 cake).
EV: Earned Value
This is how much I was allotted to spend in order to finish the amount of work I actually did at a given point in time. Earned value is simply how much was I supposed to spend to get this much work done? So, let’s say at the end of day 1, I’ve finished one cake and managed to get half of a second done. For 1.5 cakes, I was expected to spend $30. Where did I get 30? If you had to figure this out without Project Management or the PMP in mind - what would you do? I’ve made 1.5 cakes and the cakes cost $20/each…so I would say 1.5 x $20 is my Earned Value. That’s exactly right! EV = BAC x % work done. Let’s check our common-sense math using the actual EV formula. After 1 day, I’ve completed 1.5 of the 4 cakes (37.5% of the total work). My EV = $80 x 37.5%. EV = $80 x .375. EV = $30. Earned Value in this example is simply saying - I have made $30 worth of cake based on my budget and total work I need to do.
AC: Actual Cost
How much have we actually spent? For the cake example, let’s say after day 1, I’ve spent $40.
Let’s do a quick review of what we have so far at the end of day 1 before moving into the Indexes and other Values:
BAC = $80 (We plan on spending $80 to make 4 cakes in 4 days)
PV = $20 (At the end of 1 day, we planned on making 1 cake and spending $20)
EV = $30 or 1.5 (At the end of 1 day, we ended up making 1.5 cakes which should have cost us $30 of our planned budget)
AC = $40 (At the end of day 1, we’ve actually spent $40)
Now we can start getting into the crux of finding out how we’re doing in terms of schedule and budget by using CV, SV, SPI, CPI, EAC, and ETC. No, those are not Law & Order spin-offs.
SV: Schedule Variance (SV = EV-PV)
How does the value of the work that we’ve done relate to our plan? Are we behind or ahead of schedule? Your Schedule Variance is the difference between your Earned Value and Planned Value.
If SV is a negative number, we’re behind schedule.
A positive number means we’re ahead of schedule.
An SV of 1 means we’re right on schedule.
SV = EV-PV. SV = $30-$20. SV = $10. We’re ahead of schedule.
CV: Cost Variance (CV = EV-AC)
How does the value of the work we’ve done compare to how much we’ve actually spent. This one can sound confusing — wouldn’t the value of our work and our actual spend be the same? Well, that’s the idea! This variance let’s us see if we’re spending too much compared to the value of our work.
Positive CV = Under Budget.
Negative CV = Over Budget.
CV = 1? We’re right on target.
Our CV for the cakes after 1 day = $30 worth of cakes - $40 spent making the cakes.
Our CV is -$10. Uh ohhhh. We’ve got a negative CV: our project is over budget.
SPI: Schedule Performance Index (EV/PV) and CPI: Cost Performance Index (EV/AC)
SV and CV give us values. What’s the variance amount between where we are an our plan? SPI and CPI are numbers that give us an at-a-glance way to know where we are in relation to both our schedule and our budget. The overall idea is that if everything is going exactly how we planned it, then both would be at 1. Having SPI and CPI at or greater than 1 means that our project is on schedule and within our budget.
If CPI is > 1, we’re within our budget
If CPI is < 1, we’re over budget
If SPI > 1, we’re on of ahead of schedule
If SPI < 1, we’re behind schedule
Let’s look at our cakes.
SPI is EV/PV. We’ve made $30 worth of cakes in 1 day, but planned on making $20 worth. Our SPI is 30/20 = 1.5.
CPI is EV/AC. We made $30 worth of cake but spent $40 to do it. Our CPI is 30/40 = .75.
This means we’re ahead of schedule, but over budget.
EAC: Estimate at Completion
This is how much the project will cost if we continue spending at the current spending rate. There are four different ways we can figure this out depending on the situation and it’s important to know which one to use since it can drastically change your EAC. Steady performance vs random problems vs totally obsolete numbers.
Performance is steady, and we haven’t veered too far off of our initial estimates
EAC = BAC/CPI
This essentially takes our original budget, and compares it to our Cost Performance in order to see where we will end up if we continue on our current spending trend. To the cakes:
EAC = $80 / .75
EAC = $106.67
There have been a few small performance issues or a one-time problem, but you expect the rest of the original plan/budget to be on point
EAC = AC + (BAC - EV)
For this estimate we’re just taking the current Earned Value ($$ worth of work we’ve done so far), taking it out of our original budget (BAC), and adding what we’ve actually spent so far (AC). This is the one I would actually use for our cakes. We’re only one day in, and our increased spend was probably/hopefully a one-time kick-off cost spike.
EAC = $40 + ($80 - $30)
EAC = $40 + $50
EAC = $90
Do we need to account for deviations in both cost and schedule in order to figure out how much this thing is going to end up costing us? To get an updated budget forecast, we need to use both our Cost AND Schedule Indexes.
EAC = AC + (BAC-EV)/(CPI x SPI)
EAC = $40 + ($80 - $30)/(1.5 x .75)
EAC = $40 + ($50/1.125)
EAC = $40 + 44
EAC = $84.44
ETC: Estimated to Complete
How much more are we going to need to spend in order to finish our project at our current spending levels? Using our $90 EAC, we can simply say ETC = EAC-AC. Our estimated total cost, minus what we’ve actually spent so far gives us how much we need to spend to finish. Here, that’ $90-$40. Our ETC is $50.
Ok so now what? We’ve got all of this information and now we can make some decisions. Do we need to contact whoever asked us to make the cakes and gave us our budget/ordered the 4 cakes by this date (the Project Owner/Project Scope) and see if we can make an adjustment to the order (submit a change request)? Did they account for the possibility that it would cost more than expected (risk mitigation) and put aside some extra cash just in case (contingency reserves)? Before we start going down that road, there’s one really important question we need answered: Is it even possible for us to finish these cakes on time and within our current budget?
Enter: TCPI.
TCPI: To Complete Performance Index
This is basically the ‘can it be done’ index. It looks at the amount of work left to be done as a function of cost. Essentially - given the current situation, is this project even in budget?
A TCPI over 1 means that the project is out of budget.
A TCPI less than or equal to 1 means that our project is still within our budget.
Let’s do the math for our cake project. Our $80 budget, less the $30 worth of work we’ve already done gives us the value of the work left to do. The $80 budget, less the $40 we’re already spent gives us the total funds we have left.
TCPI = (BAC - EV) / (BAC - AC)
TCPI = ($80 - $30) / ($80 - $40)
TCPI = $50 / $40
TCPI = 1.25
Our TCPI is over 1 and our cake project is out of budget.
Looks like we need to schdeule a meeting with our cake-orderer. We should probably figure out what went wrong first, though (root-cause analysis).
Hopefully this helped you understand some of EVM and it’s calculations. Sometimes we need to take the jargon and clutter out of it and just put things into real-life terms. Almost everyone at some point has had to figure out ‘ do we have enough money and time to do this based on how much we’ve already spent? That’s really all this is!
