Earned Value Management – Formulae and Facts

In getting to understand Earned Value Management there is frequently some confusion which relates to a mix of terminology and interpretation.

It is easy to get confused with so many formulae and is sometimes helpful to look at the rationale of what you are trying to measure.

Regarding the schedule: if you 'earn' more value than you planned, this is a good thing. So if EV > PV then the SV is positive and the SPI is >1. Both are good situations and indicate that the schedule variance is positive and the schedule performance index is more than 1.

Equally, if you 'earn' less value that you planned, that is bad. The SPI of less than 1 is therefore an indication that the project team is less efficient in utilising the time allocated to the project and there is a ("significant") schedule delay.

Even though both relate to scheduling, and both utilise earned value (EV) and planned value (PV) in their formula, SPI is an 'index' and different from SV which is a positive or negative number.

Similarly, the Cost Performance Index is different (but similar to) the Cost Variance. Both utilise the EV and AC measurements.

So if you 'earn' more value that it actually 'costs' you, that is also a good thing. If EV >AC then the CV is positive and the CPI is >1. Both are good situations indicated by a cost variance that is positive and a cost performance index of more than 1. Equally, if you 'earn' less value that the actual cost, that is bad 'value for money'. The CPI of less than 1 indicate an 'inefficiency' in utilising the resources allocated to the project and is not good as there is a cost overrun.

Even though both relate to cost, and both utilise earned value (EV) and actual cost (AC) in their formula, CPI is an 'index' and different from CV which is a positive or negative number.

Be careful to note that a positive cost variance does not mean that costs are higher than they should be, it is the opposite! It is actual cost relative to the 'earned' value.