Organizations need a holistic way to measure not just what they’ve spent, but what they’ve earned, in terms of completed work, scheduled progress and scope delivered. That’s where Earned Value Management (EVM) steps in. By combining cost, schedule and scope into a single framework, Earned Value Management (EVM) gives project and delivery teams a powerful lens into whether they’re on track, behind, or ahead and what it will take to finish.
What is Earned Value Management (EVM)?
Earned Value Management (EVM) is a project performance measurement methodology that integrates three critical elements: project scope, schedule, and cost. This systematic approach provides project managers with an objective, quantifiable method to assess project progress and forecast future performance by comparing planned work against actual accomplishments.
By comparing what was planned, what has been achieved, and what has been spent, EVM provides an objective and quantitative view of project health rather than simply relying on reports of “percent complete” or budget vs. actual cost alone.
In essence, EVM allows you to answer key questions:
- Where have we been?
- Where are we now?
- Where are we likely going (cost and time-wise)?
Key Components of EVM
The foundation of EVM rests on three core metrics that work together to provide a complete picture of project health and progress:
Planned Value (PV) – Also known as Budgeted Cost of Work Scheduled (BCWS), PV represents the approved budget allocated for work scheduled to be completed by a specific date. It establishes the baseline against which project progress is measured.
Earned Value (EV) – Formerly called Budgeted Cost of Work Performed (BCWP), EV measures the budgeted value of work actually completed at a particular point in time. This metric provides a direct comparison between planned work and accomplished work.
Actual Cost (AC) – Known as Actual Cost of Work Performed (ACWP), AC represents the real costs incurred for completed work, including all resources expended, such as time, money, and materials.
Key EVM Metrics
From these three foundational components, EVM generates several critical performance indicators that enable proactive project management:
| Metric | Description |
| Schedule Variance (SV) = EV – PV | -Indicates whether the project is ahead of, on, or behind schedule -Negative values signal schedule delays |
| Cost Variance (CV) = EV – AC | -Shows whether the project is under or over budget -Negative values indicate cost overruns |
| Schedule Performance Index (SPI) = EV / PV | -Measures schedule efficiency -Values greater than 1.0 indicate ahead-of-schedule performance |
| Cost Performance Index (CPI) = EV / AC | -Measures cost efficiency -Values greater than 1.0 signal good cost performance |
| Estimate at Completion (EAC) = BAC / CPI | -Forecasts the final project cost based on current performance -Enables proactive budget adjustments |
| Estimate to Complete (ETC) = EAC – AC | Calculates remaining costs needed to complete the project |
How Precise Cost Estimates Impact EVM
The accuracy of initial cost estimates fundamentally determines EVM’s effectiveness throughout the project lifecycle. Precise cost estimation directly affects every EVM calculation and performance indicator. When cost estimates are accurate, they establish reliable baselines for Planned Value calculations, enabling meaningful performance comparisons.
- If your baseline budget (BAC) or time-phased planned value (PV) is inaccurate, then all derived metrics (EV, CV, CPI, EAC) can be misleading. Poor estimates lead to misleading variances.
- According to government guidance, reliable cost estimating is directly linked to reliable EVM results. The U.S. GAO Cost Estimating and Assessment Guide explicitly links keystone best practices in cost estimating to the efficacy of EVM systems
- When cost estimates are too optimistic (under-budget) or too conservative (over-budget), performance indices may give false optimism (e.g., CPI > 1 because you started with too high a baseline) or false doom (CPI < 1 because you budgeted too low), respectively.
- Inaccurate estimates also undermine forecasting: if your actual performance is measured against a flawed baseline, your EAC (Estimate at Completion) will be off. In other words, you lose the “early warning” benefit of EVM.
- Cost estimate uncertainty and risk need to be accounted for. Without including contingency, assumptions, and risk allowances in the baseline, you may find yourself with schedule or cost variances that are artifacts of under-estimating rather than true performance issues.
EVM is a powerful methodology that provides much more than just budget vs. actual cost; it gives you a window into how much work you’ve earned for what you’ve spent, whether you’re on schedule, how efficiently you’re operating, and where you’re headed. But like any tool, its effectiveness depends on the reliability of the underlying data: scope breakdowns, schedule planning, cost estimates, actual cost capture, and baseline management.
