Earned Value (EVM) Explained Clearly, With a Real Example

Earned value, or EVM, scares many PMP candidates. It sounds like complicated math and easily confused acronyms. The truth is that it’s one of the simplest and most useful ideas in project management, if someone explains it well. Let’s get to it.

The Problem It Solves

Imagine you’re halfway through a project’s schedule and you’ve spent half the budget. Are you on track? You have no way of knowing from that alone. You could have made a lot of progress or very little. Spending and time don’t tell you how much actual work you’ve completed.

Earned value solves exactly that: it measures how much the work you’ve genuinely done is worth, not how much you’ve spent or how much time has passed.

The Three Base Numbers

All of EVM is built on three figures:

• Planned value (PV): how much work you planned to have done by this date, in money.
• Earned value (EV): how much the work actually completed is worth, in money.
• Actual cost (AC): how much you’ve truly spent to do it.

The key is the EV. It’s not what you spent, it’s what the completed work is worth.

A Real Example

You have a project worth 100 units of money and 10 weeks long. The plan is to progress evenly, 10 per week. You’re in week 5.

• You planned to have 50% done, so PV = 50.
• You review the work and only 40% is complete. The value of that is EV = 40.
• To do that 40%, you spent AC = 45.

With those three numbers you already know the uncomfortable truth: you progressed less than planned and spent more than the completed work is worth. You’re behind schedule and over budget. And you know it in week 5, not in week 10, while you can still correct course.

The Two Variances That Matter

• Schedule variance (SV) = EV minus PV. Here, 40 minus 50, equals minus 10. Negative means behind schedule.
• Cost variance (CV) = EV minus AC. Here, 40 minus 45, equals minus 5. Negative means over budget.

Mental rule: if the variance is negative, there’s a problem. Negative schedule, you’re running late. Negative cost, you’re overspending.

The Two Indexes

To compare projects or see trends, indexes are used:

• SPI = EV divided by PV. Here, 40 over 50, equals 0.8. Less than 1, you’re going slow.
• CPI = EV divided by AC. Here, 40 over 45, equals 0.89. Less than 1, you’re overspending.

A CPI of 0.89 means that for every unit spent you only generate 0.89 of value. If nothing changes, you’ll finish over budget.

Why It Comes Up So Much on the Exam

The exam wants to see whether you understand the story behind the numbers, not whether you recite formulas. It usually gives you three of the data points and asks for the fourth, or asks you what a CPI less than 1 means. If you’re clear that the EV is the value of the completed work and that negative variances are bad news, you’ll solve most of them without breaking a sweat.

Join the waitlist

At The PM Architect we explain earned value and the rest of the syllabus with simple numerical examples and classroom cases. The books will be free: leave your email on the home page and we’ll let you know when they’re available.