cost management

The earned value management formulas

Earned value management (EVM) is just one of the tools and Remember, your sponso alw
techniques in the Control Costs process, but it’s a big part of PMP most about what the prr oje ays cares
exam preparation. When you use these formulas, you’re measuring ct
to him. BAC says how much is worth
and analyzing how far off your project is from your plan. Remember, getting for the whole proje value he’s
think of everything in terms of how much value you’re delivering to tells him how much of that ct, and EV
your sponsor! Take a look at the formulas one more time: gotten so far. value he’s

Name Formula What it says Why you use it

BAC—Budget at No formula—it’s the +RZPXFKPRQH\\RX¶OO To tell the sponsor the total amount of
completion project budget spend on the project value that he’s getting for the project

PV = BAC x
Planned % What your schedule says 7R¿JXUHRXWZKDWYDOXH\RXUSODQVD\V
PV—Planned value complete you should have spent you should have delivered so far

+RZPXFKRIWKH
Actual % To translate how much work the team’s
EV—Earned value ¿QLVKHGLQWRDGROODUYDOXH
EV = BAC x project’s value you’ve
complete
really earned

+RZPXFK\RX¶YH
The amount of money you spend
What you’ve actually
AC—Actual cost spent on the project actually spent so far
doesn’t always match the value
you get!
EV 7R¿JXUHRXWZKHWKHU\RX¶YH
SPI—Schedule SPI = Whether you’re behind or
delivered the value your schedule
performance index PV ahead of schedule
said you would
+RZPXFKEHKLQGRU
SV—Schedule SV = EV – PV ahead of schedule you
To put a dollar value on exactly how far
variance are
ahead or behind schedule you are

EV
CPI—Cost CPI = Whether you’re within Your sponsor is always most interested
AC
performance index your budget or not in the bottom line!

BAC-EV +RZZHOO\RXUSURMHFW
TCPI—To-complete TCPI = must perform to stay on
To forecast whether or not you can stick
BAC-AC
performance index budget
to your budget

+RZPXFKDERYHRU
CV = EV – AC Your sponsor needs to know how much
CV—Cost variance below your budget
it costs to get him the value you deliver
you are

you are here  373

what cpi and spi really mean

Interpret CPI and SPI numbers to gauge your project

The whole idea behind earned value management is that you can use it to
easily put a number on how your project is doing. That’s why there will be If the SPI is
exam questions that test you on your ability to interpret these numbers! Luckily,
it’s pretty easy to evaluate a project based on the EVM formulas. below 1, then
your project
If your project is on track, that means is behind
you’re delivering the value you promised. schedule. But
You can tell that your project is on track because the two
index numbers—CPI and SPI—are both very close to if you see a
1, and the variance numbers—CV and SV—are very
close to zero dollars. It’s very rare that you’ll get exactly CPI under 1,
to a CPI of 1 or a SV of $0, but a SPI of 1.02 means
you’re very close to on time, and a CV of –$26 means your project is
A lot of PMOs have a
you’re very close to on budget.
over budget!
rule where a CPI or SPI Sometimes you’ll see negative
between 0.95 and 1.10 values written in parentheses—
is absolutely fine! in this case, ($26).

You can tell if your project is ahead of schedule Being a long way under
or under budget by looking for larger numbers. budget isn’t always a
good thing. It means you
If the CPI is much bigger than 1, it means you’re under asked for and were given
budget. And you can tell how much under by looking at the resources that you didn’t
CV—that’s what variance is for! It helps you see just how much need—and which your
the actual cost varies from the value you were supposed to earn company could have used
Ahead of schedule by now.
or under budget elsewhere.

A project that’s behind schedule or over budget will CPI and SPI
have lower numbers. can’t be below
zero, because
When you see a SPI that’s between 0 and 1, that tells you that the project they’re ratios!
is behind schedule…and that means you’re not delivering enough value
to the sponsor! That’s when you check the SV to see how much less value
you’re delivering. And the same goes for cost—a low CPI means that your
Behind schedule project is over budget, and CV will tell you how much more value you
or over budget promised to deliver to the sponsor.

374 Chapter 7