Despite its growth and popularity — and its original intent to make measuring project progress easier — earned value management (EVM) remains a challenging and sometimes murky concept for many. Because in theory, it’s easy to see the value that project performance metrics bring to monitoring your large-scale capital projects. What isn’t so easy is all the calculations behind it and how best to interpret the resulting numeric values.
Whether the difficulty is real or perceived, demystifying and parsing out EVM is possible if you take it in steps. We’ll take a look first at its more common terms, and their corresponding equations and definitions:
Planned Value (PV): |
% Complete (Planned) x Budget at Completion (BAC) ·        BAC is the project’s total planned value (or established budget) from the estimate, determined before the project began.
·        BAC serves as the baseline against which to compare your progress going forward. ·        PV measures the value of the work that should have been completed by a certain point in time. ·        It’s reflected as a dollar value. |
Actual Cost (AC): |
AC·        That’s it, no formal equation. Simple addition is your friend here.
·        AC is the tallied-up real dollars that actually have been spent to complete the work accomplished by a certain point. ·        It’s reflected as a dollar value, of course. |
Earned Value (EV): |
% Complete (Actual) x BAC·     EV is the monetary value of the work that’s been done to a certain point.
·     It’s reflected as a dollar value. |
Schedule Performance Index (SPI): |
EV / PV·     SPI is the schedule efficiency (the amount of progress) of your project in relation to the planned timeline.
·     It’s expressed as a percentage. |
Cost Performance Index (CPI): |
EV / AC·     CPI is the cost efficiency (the amount of progress) of your project in relation to the actual cost.
·     It’s expressed as a percentage. |
Schedule Variance (SV): |
EV – PV·     SV measures the variation, or difference, between actual work done and the expected work to date (or by a certain date).
·     It shows whether the project is on schedule, behind or early. ·     SV is reflected as a dollar value (yes, even the schedule is shown in dollar terms). |
Cost Variance (CV): |
EV – AC·     CV measures the variation, or difference, between the budgeted amount for work that should have been completed to date (or by a certain date) and the actual amount spent for the completed work.
·     It shows whether your project is under, over or on budget. ·     CV is reflected as a dollar value. |
You may have noticed that performance indexes and the variances seem similar. Here’s how they differ:
- CPI and SPI are efficiency measures and are represented as ratios of the performed work to the budgeted or scheduled work.
- CV and SV measure how much deviation there is in the actual work compared to the planned budget or schedule.
What do all of these Earned value management calculations mean?
How does all of this translate in real life when you need to interpret the story your earned value management metrics are telling you? Let’s put the how-to calculations and definitions aside and replace each one with some context around it so you know what’s actionable.
Planned Value (PV): |
PV answers the question: How much work should be done by the end of the project or by a certain point based on the schedule? |
Actual Cost (AC): |
AC answers the question: How much did the work cost for a given period? Be sure to include relevant project expenses, both direct and indirect. AC will grow throughout your project. |
Earned Value (EV): |
EV answers the question: How much should have been spent to achieve this much progress? |
Schedule Performance Index (SPI): |
SPI answers the question: How efficient is our schedule? Or, how well are we spending our time?These are the values to note from your SPI equation:
·      A value greater than 1 (SPI > 1) indicates a project’s timing efficiency (ahead of schedule). ·      A value less than 1 (SPI < 1) indicates a project’s timing inefficiency (running behind). ·      A value equal to 1 (SPI = 1) indicates a project is on schedule as planned (rare, but it happens). |
Cost Performance Index (CPI): |
CPI answers the question: How efficient is our budget? Or, how well are we spending our money?These are the values to note from your CPI equation:
·      A value greater than 1 (CPI > 1) indicates a project’s cost efficiency so far (below budget). ·      A value less than 1 (CPI < 1) indicates a project’s cost inefficiency so far (over budget). ·      A value equal to 1 (CPI = 1) indicates a project is on budget so far (also rare, but could happen). |
Schedule Variance (SV): |
SV answers the question: How far ahead or behind schedule are we compared to the plan?These are the values to note from your SV equation:
·      A positive value (SV > 0) indicates how much a project is ahead of schedule. ·      A negative value (SV < 0) indicates how much a project is behind schedule, and shows how much delays are costing your project so far. ·      A zero value (SV = 0) means a project is on schedule. |
Cost Variance (CV): |
CV answers the question: How far above or below budget are we compared to the plan?These are the values to note from your CV equation:
·      A positive value (CV > 0) shows how much a project is below budget. ·      A negative value (CV < 0) shows how much a project is over budget. ·      A zero value (CV = 0) means a project is on budget. |
Factors that can cause earned value management metrics to fluctuate
How do you know when SPI, CPI, SV and CV values are too high or too low? There’s something called an operating range within which these earned value management metrics can fluctuate without it being a cause for concern. These values can naturally rise and fall as your project responds to both internal and external factors. Values within the range you set at the project’s outset are what you deem stable, while those outside of that range (sudden spikes, or sustained highs or lows) would be cause for concern and require attention and remedial action. (Note that even high positive values, while a high-five-worthy achievement, should be examined as it could indicate a miscalculation or an uncompleted task to be accounted for later that causes a sudden drop.)
So, what kinds of external and internal factors that can influence your SPI, CPI, SV and CV?
- External: Fluctuating labor, equipment and materials costs; supply chain issues; availability of materials and equipment; economic conditions; weather; new or changing regulations
- Internal: No contingency plans for external factors; scope creep; labor productivity; manual EVM calculating
How can you reduce the likelihood of these occurring? This will vary depending on the circumstances of your unique project, such as the time of year, the duration of the build, the state of the economy, and your own planning. But here are suggestions to address some of the factors above before they have a chance to happen:
- External: Have local materials vendors at the ready to help expedite delivery when delays with existing vendors are imminent. Maintain proactive communication with vendors on inventory to head off potential shortages.
- Internal: Create contingency plans in the pre-build planning stage for as many external factors as possible. Regularly monitor labor productivity by crew, by project phase to detect any trending lags resulting from manual timesheet entry or being shorthanded, for example. Use software to calculate your EVM metrics.
Value of earned value management for project predictability and confidence
The purpose of EVM is a little clearer, right? Ultimately, EVM is an analysis tool that provides insights into project predictability, giving you certainty in your project’s performance to date, and therefore confidence in knowing what next steps to take. And even if the earned value metrics on a project are showing negative values, at least you will know, which is the first step in knowing how to proceed.
Demystifying earned value management can also be enhanced by the tech tools you choose to implement it. The right EVM solution for you is one that helps you proactively track the health of your project using visually formatted data in dashboards that give you actionable insights at a moment in time. InEight’s Connected Analytics could be that software that’s ideal for your construction company to keep tabs on your projects’ earned value management metrics. A demo can show you how.
