Earned value management measures project performance by comparing the budgeted value of work actually completed with the value planned to be complete by now and with the cost actually incurred, producing variances and indices that forecast the final cost and date.
Our take. Earned value is the only progress measure that cannot be gamed by a confident voice, which is why teams resist it and sponsors should insist on it. Percent complete is an opinion; earned value is arithmetic on work packages that were either finished or not. The method is heavier than most projects need and lighter than most managers fear.
A project reports that it has spent half its budget and is halfway through its schedule. That tells you nothing, because it could be on track, or it could have completed a quarter of the work at twice the cost. Earned value adds the missing number. Planned value is what the plan said would be complete by today, in money. Earned value is what has actually been completed, valued at what it was budgeted to cost. Actual cost is what has been spent. With those three, the schedule variance is earned minus planned, the cost variance is earned minus actual, and both are signed numbers that say, in currency, whether the project is behind and whether it is overspending, without anyone's opinion involved.
Measure
Formula
Reads as
Schedule variance
Earned value minus planned value
Negative: behind plan, in currency terms
Cost variance
Earned value minus actual cost
Negative: over budget for the work done
Schedule performance index
Earned value divided by planned value
Below one: delivering slower than planned
Cost performance index
Earned value divided by actual cost
Below one: each unit of budget buys less than a unit of work
Estimate at completion
Total budget divided by the cost performance index
The forecast final cost if efficiency continues
The indices are the useful part, because they forecast. A cost performance index of point eight in month four means every unit of money has bought point eight units of work so far, and unless something changes the project will cost the budget divided by point eight. Research on large programmes has repeatedly found that the index stabilises early and rarely recovers by more than a little, which makes the month-four forecast worth more than the manager's assurance that the second half will go better. The professional certifications examine the formulas directly and the interpretation more searchingly: given these three numbers, what should the sponsor be told.
It needs a baseline: a breakdown structure with a budget per package and a schedule for when each is planned. Without that there is nothing to earn value against.
It needs a rule for partial credit: none until finished, half at start and half at end, or a weighted milestone scheme. The rule matters less than applying it consistently.
It is heavy for small projects and standard on large public-sector and defence ones, where it originated and is often mandated.
Its lighter cousins are the agile burn-down and burn-up charts, which track completed items against planned ones and are earned value without the currency.
In practice
A construction programme with a budget of ten million reports at month six that it has spent four million and is on schedule. The earned value calculation says otherwise: planned value at month six was four million, earned value is three million, so the schedule variance is minus one million and the work is a quarter behind plan; actual cost is four million, so the cost variance is also minus one million and every unit of money has bought three quarters of a unit of work. The estimate at completion is ten million divided by point seven five, a little over thirteen million. The manager's report said on schedule; the arithmetic said three million over and a quarter late, in month six, when there was still time to decide what to do about it.
A Gantt chart shows progress as shading along bars, which is a percentage someone estimated. Earned value replaces the estimate with the budgeted value of packages actually finished, which is why the two can disagree and the second is usually right.
The critical path says which activities set the end date; earned value says whether the work as a whole is being delivered at the planned rate and cost. A project can be on its critical path and still bleeding money on everything else.
The breakdown structure with a budget per package is the baseline earned value is measured against. No structure, no packages to earn; earned value is what the structure is ultimately for.
Key takeaways
→Planned, earned, actual: three numbers replace percent complete with arithmetic.
→The cost performance index stabilises early and forecasts the final cost better than any assurance.
→It needs a baseline of budgeted packages; burn-down charts are the same idea without the currency.
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FAQ
Is earned value only for large projects?
Its full form, with a costed breakdown structure and formal reporting, is standard on large programmes and heavy for small ones. Its principle, measuring completed work against planned work rather than asking for a percentage, scales down to any project with a list of things to finish, and burn-down charts are that principle in agile clothing.
Why not just ask the team how far along they are?
Because percent complete is an opinion and it is systematically optimistic: work is reported ninety percent done for a long time. Earned value counts packages actually finished under a stated rule, and the number moves only when work does.
What does a cost performance index below one mean in practice?
That each unit of budget has bought less than a unit of planned work, and that the project will overspend by roughly the inverse of the index unless something changes. Below point nine in the first third of a project is a signal that rarely reverses and should be reported as a forecast, not a hope.
Sources
The primary text this definition rests on. Read it before you trust ours.
Project Management Institute, The Standard for Earned Value Management (2019)
ANSI/EIA-748, Earned Value Management Systems
Christensen, D. S., The Costs and Benefits of the Earned Value Management Process (1998)
