Planned Value (PV)

This is the first element of earned value management. Planned Value is the approved value of the work to be completed
in a given time. It is the value that you should have been earned as per the schedule. As per the PMBOK Guide, “Planned
Value (PV) is the authorized budget assigned to work to be accomplished for an activity or WBS component.” You
calculate Planned Value before actually doing the work, which also serves as a baseline. Total Planned Value for the
project is known as Budget at Completion (BAC). Planned Value is also referred to as Budgeted Cost of Work Scheduled
(BCWS).

Formula for Planned Value (PV)

The formula to calculate Planned Value is simple. Take the planned percentage of the completed work and multiply it by
the project budget and you will get Planned Value. Planned Value = (Planned % Complete) X (BAC)

Example of Planned Value (PV)

You have a project to be completed in 12 months. The budget of the project is 100,000 USD. Six months have passed and
the schedule says that 50% of the work should be completed. What is the project’s Planned Value (PV)?

Given in this question.

= (50/100) X 100,000

= 50,000 USD

Application of Planned Value (PV)

Planned Value is used to calculate Schedule Variance and Schedule Performance Index.

Actual Cost (AC)

This is the second element of earned value management. Actual Cost is the total cost incurred for the actual work
completed to date. Simply put, it is the amount of money you have spent to date. As per the PMBOK Guide, “Actual Cost
(AC) is the total cost actually incurred in accomplishing work performed for an activity or WBS component.” Actual Cost is
also known as Actual Cost of Work Performed (ACWP).

Formula for Actual Cost (AC)

Finding Actual Cost is the simplest of all. There is no special formula to calculate Actual Cost. It is an amount that has been
spent and you can find it easily in the question.

Example of Actual Cost (AC)

You have a project to be completed in 12 months. The budget of the project is 100,000 USD. Six months have passed and
60,000 USD has been spent, but on closer review, you find that only 40% of the work has been completed so far.

What is the project’s Actual Cost (AC)? The project’s Actual Cost is 60,000 USD.

Application of Actual Cost (AC)

Actual Cost is used to calculate Cost Variance and Cost Performance Index.
Earned Value (EV)
This is the third and last element of earned value management. Earned Value is the value of the work actually completed
to date. If the project is terminated today, Earned Value will show you the value that the project has produced. As per the
PMBOK Guide, “Earned Value (EV) is the value of work performed expressed in terms of the approved budget assigned to
that work for an activity or WBS component.” Although all three elements have their own significance, Earned Value is
more useful because it shows you how much value you have earned from the money you have spent to date. Earned
Value is also known as Budgeted Cost of Work Performed (BCWP).

There is a difference between Planned Value and Earned Value. Planned Value shows you how much value you have
planned to earn in a given time, while Earned Value shows you how much value you have actually earned on the project.

Formula for Earned Value (EV)

The formula to calculate Earned Value is also simple. Take the actual percentage of the completed work and multiply it by
the project budget and you will get the Earned Value. Earned Value = % of completed work X BAC (Budget at Completion).

Example of Earned Value (EV)

You have a project to be completed in 12 months. The budget of the project is 100,000 USD. Six months have passed and
60,000 USD has been spent. On closer review, you find that only 40% of the work has been completed so far. What is the
project’s Earned Value (EV)?

Earned Value = 40% of the value of total work

= 40% of 100,000

= 40,000 USD

Therefore, the project’s Earned Value (EV) is 40,000 USD.

Application of Earned Value (EV)

Earned Value is used to calculate Schedule Variance, Cost Variance, Schedule Performance Index, Cost Performance
Index, Estimate at Completion, and To Complete Performance Index.

Summary
Earned Value, Planned Value, and Actual Cost are basic elements of earned value management. They can be used to
generate a basic overview of your project status. Earned Value is the value of the work actually completed to date,
Planned Value is the value that you should have earned as per the schedule, and Actual Cost is the amount spent on the
project to date. Once you have this information on hand, you can find the current status and compare it with the planned
progress.

Schedule Variance and Cost Variance are two important parameters in earned value management, helping you analyze
the project’s progress, i.e. how are you performing in terms of schedule and cost. Earned value is the value of the work
actually completed to date, planned value is the money you should have spent as per the schedule, and actual cost is the
amount spent on the project to date.
Schedule Variance helps determine if you are behind or ahead of schedule, and Cost Variance helps determine if you are
under budget or over budget. These variances give you important information about the project’s progress. It is your job
to monitor these variances regularly.

Variance analysis is a key to the success of any project. A successful project must finish on time and within the approved
budget. With the help of these variances, you can easily monitor your project performance and take corrective action
whenever required. Variance analysis will inform you if you are going in the correct direction or not.

Schedule Variance (SV)

It is very important for you to keep your project on schedule. Not only does it help you complete your project on time, but
it also helps you avoid unnecessary cost overruns due to slippage of schedule, because as you go over the stipulated time,
your costs start rising exponentially. Schedule Variance is a very important analytical tool for you. This tool gives you the
information needed to determine if you are ahead of schedule or behind the schedule in terms of dollars.

Formula for Schedule Variance (SV)

Schedule Variance can be calculated by subtracting planned value from earned value.Schedule Variance = Earned Value –
Planned Value SV = EV – PV From the above formula, we can conclude that:

 If Schedule Variance is positive, this means you are ahead of schedule.

 If Schedule Variance is negative, this means you are behind schedule.
 If Schedule Variance is zero, this means you are on schedule.
When the project is completed, Schedule Variance becomes zero, because at the end of the project all Planned Value has
been earned.

Cost Variance (CV)

Cost Variance is as important as Schedule Variance. You must complete your project within the approved budget.
Exceeding planned budget is bad for you and your stakeholders.

It is all about the money, and clients are very cautious about what they are spending. Organizations are sensitive towards
it because any deviation from the cost baseline can affect their profit, and, worst case, they may have to put more money
into the project to complete it. This is especially detrimental if the contract is a fixed price.

Cost Variance deals with the cost baseline of the project. It provides you with information about whether you are over
budget or under budget, in terms of dollars. Cost Variance is a measure of cost performance of a project.

Formula for Cost Variance (CV)

Cost Variance can be calculated by subtracting the actual cost from earned value.Cost Variance = Earned Value – Actual
Cost CV = EV – AC

From the above formula, we can conclude that:

 If Cost Variance is positive, this means you are under budget.

 If Cost Variance is negative, this means you are over budget.
 If Cost Variance is zero, this means you are on budget.
Summary
Schedule Variance and Cost Variance are great tools to analyze project health. If both variances are positive, this means
that your project is progressing well. However, if either variance is negative, this means that something is wrong and you
have to take corrective action to bring the project back on track. In specific, SPI and CPI help you analyze the efficiency of
schedule performance and cost performance of any project.

Schedule Performance Index (SPI)

The Schedule Performance Index indicates how efficiently you are actually progressing compared to the planned project
schedule. As per the PMBOK Guide, “The Schedule Performance Index (SPI) is a measure of schedule efficiency, expressed
as the ratio of earned value to planned value.”The Schedule Performance Index gives you information about the schedule
performance of the project. It is the efficiency of the time utilized on the project. The Schedule Performance Index can be
determined by dividing earned value by planned value. Schedule Performance Index = (Earned Value) / (Planned Value)

With the above formula, you can conclude that:

If the SPI is greater than one, this means more work has been completed than the planned work. In other words, you are
ahead of schedule.

If the SPI is less than one, this means less work has been completed than the planned work. In other words, you are
behind schedule.

If the SPI is equal to one, this means work is being completed at about the same rate as planned, you are on time.

Cost Performance Index (CPI)

The Cost Performance Index helps you analyze the efficiency of the cost utilized by the project. It measures the value of
the work completed compared to the actual cost spent on the project. As per the PMBOK Guide, “The Cost Performance
Index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost.”
The Cost Performance Index specifies how much you are earning for each dollar spent on the project. The Cost
Performance Index is an indication of how well the project is remaining on budget. The Cost Performance Index can be
determined by dividing earned value by actual cost. Cost Performance Index = (Earned Value) / (Actual Cost)

With the above formula, you can conclude that:

If the CPI is less than one, you are earning less than the amount spent. In other words, you’re over budget.

If the CPI is greater than one, you are earning more than the amount spent. In other words, you are under budget.

If the CPI is equal to one, this means earning and spending are equal. You can say that you are proceeding exactly as per
the planned budget spending, although this rarely happens.

A consistently high or low value of SPI or CPI is an indication that something is wrong with your planning and/or cost
estimates. If this is the case, check all assumptions and estimates for accuracy and take corrective action as needed.

What is the difference between Cost Variance, Schedule Variance and Cost Performance Index, and Schedule
Performance Index?

After studying the variances and indexes, you might be thinking that if both sets of equations (i.e. variances and indexes)
provide the same information, why not discard one set of equations? Why not take only variances into account, or just
performance indexes? In fact, both are required, because there is a difference between variances and indexes. With
variances, you find the difference between the two values. With indexes, you get the ratio between the two values.
In cost or schedule variance, the result comes in dollar form. If this number is negative, you say that the project is in bad
shape. However, if this number is positive, you say that the project is in good shape. The problem with variance is that you
cannot compare the health of the project with another project if your organization has many projects. Therefore, you use
the Performance Indexes to compare the health of the project among many projects. The Performance Index is the ratio
between the parameters, and only a glimpse of these ratios will be sufficient to determine the health of the project. This
makes it easier for you to compare the relative health of all projects. Moreover, to get the efficiency, you need indexes.

Summary
As with variances, indexes help you analyze the progress of a project. With the help of indexes, you can quickly find out
whether you are performing well or poorly. If the ratio is greater than one, you are doing well, and if the ratio is less than
one, there is a problem with the project and you should take corrective action. In specific, SPI and CPI help you analyze
the efficiency of schedule performance and cost performance of any project.

Forecasting
We commonly use three techniques in project management for forecasting:
1. Estimate at Completion (EAC)
2. Estimate to Complete (ETC)
3. To Complete Performance Index (TCPI)
4.
Forecasting Technique #1: Estimate at Completion (EAC)
We know that real world situations do not always go as planned. There are many circumstances beyond your control that
may alter your expected path and require a change in your planning. As a project manager, it will be your responsibility to
manage these changes and evaluate their impact on the project objectives. Now, the question is: how will you evaluate
the impact of these changes? You will evaluate it with the help of project forecasting tools, such as the Estimate at
Completion (EAC). The Estimate at Completion (EAC) gives you the forecasted value of the project when it is completed.
With this data, it can forecast how much you may have to spend to complete the project. In other words, it is the amount
of money the project will cost. The Estimate at Completion can be determined by four methods depending on the way the
project is performing. However, from a PMP Certification exam point of view, the first method is more important than the
rest, and there is less chance you will see questions based on the other cases.

Case 1: EAC = BAC / CPI

In this scenario, you assume that the project will continue to perform to the end as it was performing until now. Simply
put, your future performance will be the same as past performance; i.e. the CPI will remain the same for the rest of the
project. From the above formula, you can conclude that:

 If the CPI = 1, then EAC = BAC. This means you can complete your project with your approved budget, and there is no
need to use forecasting analysis.
 At the start of the project, the Estimate at Completion will be equal to the budget at completion, i.e. EAC = BAC.

Case 2: EAC = AC + (BAC – EV)

In Case 2, you have deviated from your budget estimate; however, from now on you can complete the remaining work as
planned. Usually, this happens when, due to some unforeseen, or one time conditions costs increased. However, you are
sure this will not happen again and you can continue with the planned cost estimate. That is why in this formula, to
calculate the EAC you will simply add the money spent to date (i.e. AC) to the budgeted cost for the remaining work.
Formula for the Estimate at Completion

The formula to calculate the Estimate at Completion in case-II is as follows: Estimate at Completion = Money spent to date
+ Budgeted cost for the remaining work EAC = AC + (BAC – EV)

Case 3: EAC = AC + (BAC – EV) / (CPI * SPI)

You are over budget, behind schedule, and the client is insisting you complete the project on time. In this case, both the
cost and the schedule need to be taken into consideration.

Formula for the Estimate at Completion

The following formula can be used to calculate the Estimate at Completion in case-III:

Estimate at Completion = Money spent to date + (Budgeted cost for the remaining work – Earned Value) / (Cost
Performance Index * Schedule Performance Index) EAC = AC + (BAC – EV) / (CPI * SPI)

Case 4: EAC = AC + Bottom-up Estimate to Complete

This is the case when you find out that your cost estimate was flawed and you need to calculate the new cost estimate for
the remaining project’s work.

Here you will go to the activity level, find the cost of each activity, and sum them to get the total cost of the remaining
work.

Forecasting Technique #2: Estimate to Complete (ETC)

Estimate to Complete is the second forecasting technique which is used along with Estimate at Completion. It is the
amount of money needed to complete the remaining work.

Forecasting Technique #3: To Complete Performance Index (TCPI)

The To Complete Performance Index estimates how fast you have to move to achieve the target.

It is the estimate of the future cost performance that you may need to complete the project within the approved budget.
This budget may be your initial approved budget (BAC), or a new approved budget, i.e. the Estimate at Completion (EAC).

Summary
The Estimate at Completion is an excellent forecasting tool which gives you a mid-project estimation of the total cost that
your project may take to complete. Please note that after you calculate the Estimate at Completion, you will need to
initiate a change request to approve it. Once it is approved, this will be your new budget. In project management, one
such technique is the Estimate to Complete (ETC), which is another forecasting technique used along with the estimate at
completion. This technique gives you an approximate idea of how much money will be required to complete the
remaining balance of work. Since this is a very important forecasting technique, I will explain this topic with three simple
examples in three different scenarios, so you can understand it properly. Afterwards, we will move on to mathematical
examples.

Estimate at completion is the total cost of the project at the end. On the other hand, Estimate to Complete is the amount
of money required to complete the remaining work from a given date.
Moreover, when the project starts, the EAC is equal to the ETC. As the project progresses, the ETC starts decreasing, and
at the end of the project it becomes zero.

How to Calculate the Estimate to Complete

There are two methods to calculate the Estimate to Complete.
1. Bottom up Cost Estimation
2. ETC = Estimate at Completion – Actual Cost

Case I: Bottom up Cost Estimation

In this case, you go to the activity level, find the cost of each activity for the remaining work, and add them to get the total
cost of the remaining work.There is no formula for the bottom up cost estimation technique.

Summary
The Estimate to Complete is the anticipated cost that you will need to complete the remaining part of the project. This is a
forecasting tool and you will use it when the previous estimate is no longer valid and you need a fresh estimate for the
rest of the work. Tracking ETC gives you information on the projected cost of the remaining work. This tool is useful for
whenever something goes wrong and the cost baseline deviates. You will use this tool as quickly as possible and
communicate to stakeholders to get the new budget approved.

To Complete Performance Index (TCPI)

The To Complete Performance Index (TCPI) gives you the future cost performance index that you must follow for the
remaining work if you want to complete it within the given budget. As per the PMBOK Guide, fifth edition: “TCPI is the
calculated cost performance index that is achieved on the remaining work to meet the specified management goal, such
as the BAC or the EAC.” Put more simply, the To Complete Performance Index (TCPI) is the estimate of the future cost
performance that you may need to complete the project within the approved budget. This budget may be your initial
approved budget (BAC), or a newly calculated budget/estimate at completion (EAC). You can calculate the TCPI by dividing
the remaining work by the remaining funds; i.e. TCPI = (Remaining Work) / (Remaining Funds)

You can calculate the remaining work by subtracting the earned value from the total budget; i.e. (BAC – EV). However,
there are two cases to determine the remaining funds on hand. In the first case, you determine the remaining funds when
you are under budget and in the second case when you are over budget.

Case I: You’re Under Budget

In this case, the remaining funds will be calculated by subtracting the “actual cost incurred to date” from the “initial
budget”; i.e. (Budget at Completion (BAC) – Actual Cost (AC)). Here, the TCPI formula will be:
TCPI = (BAC – EV) / (BAC – AC)

Case II: You’re Over Budget

In this case, the remaining funds will be calculated by subtracting the actual cost incurred to date from the estimate at
completion; i.e. (EAC – AC).Here, the TCPI will show you the required cost performance to complete the project with the
newly calculated budget. TCPI = (BAC – EV) / (EAC – AC)

Remember that if you have calculated the estimate at completion using the earned value management formula (EAC =
BAC / CPI), the TCPI will be equal to the CPI at the moment when you calculate the TCPI the first time. This is because
while calculating the estimate at completion (EAC) you have already assumed that the future cost performance of the
project will be the same as the past cost performance of the project.
We have finished outlining the technical details of the To Complete Performance Index (TCPI), so now let’s see the use of
TCPI a real-world scenario. Suppose you have been given a job to paint 10,000 square feet in 10 days. This means you
have to paint 1,000 square feet per day to complete the project on time. You start the painting job but when you review
your progress after 5 days, you find that only 3,000 square feet has been painted. Now you have 5 days left and 7,000
square feet is yet to be painted. You calculate and deduce that if you want to complete your task within 10 days, you will
have to paint 1,400 square feet per day.

This will be your future performance to complete the task on time, and this future performance is known as the To
Complete Performance Index (TCPI). Please note that the Cost Performance Index (CPI) is your past performance and the
TCPI is your future performance which you must meet to complete the project within the approved budget.

You may also consider what will happen if you perform better; i.e. you painted 7,000 square feet in 5 days. This means
that you now have to paint 3,000 square feet in 5 days. In this case, you can paint 600 square feet per day to complete
the task. In other words, you can comfortably complete the task.

Beore I conclude this post, let’s revisit some key points:

 CPI is the past cost performance of the project; on the other hand, TCPI is the future cost performance of the
project.
 If you are under budget, you will calculate the TCPI based on the BAC.
 If you are over budget, you will calculate the TCPI based on the EAC.
 If the To Complete Performance Index is less than one, you are in a comfortable position.
 If the To Complete Performance Index is greater than one, you have to perform with a better cost performance than
the past cost performance.
 If the To Complete Performance Index is equal to one, you can continue with the same cost performance.

Summary
The To Complete Performance Index is a forecasting tool that helps you find the future efficiency of the project which you
have to follow for the remaining work of the project in order to complete the project within the budget. If the TCPI is less
than one, it is good news for you, while in the case of performance indexes, the opposite is true; i.e. if the indexes are
greater than one, it is good for the project.