Earned Value (EV) for the PMP® Exam
Project Management Value and Earned Value
No matter what type of work is in a project or in what industry project work is performed, the question that always matters is: “is it on track?” To answer that question, Project Managers use Earned Value (EV) and Earned Value Management (EVM) tools to tell the story of the project’s progress in schedule and budget throughout the project. The Project Management Institute (PMI)’s Project Management Professional (PMP)® certification exam may include questions about, or driven by, the EVM performance calculations. Understanding the value of the Earned Value formula toolset enhances a project manager’s skills in addition to serving as preparation for Earned Value PMP certification exam questions.
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Earned Value (EV) Concept for the PMP Exam
The Earned Value concept is centered around data-driven insights into the project progress and projections as measured against the original plans of timeline and costs. The earned value calculations are simple mathematical calculations that are only as accurate as the data used to complete the formula. Within the PMI.org library is Reichel’s whitepaper “Earned value management systems” in which definitions are provided for EV concepts:
Earned Value Analysis (EVA) — a quantitative project management technique for evaluating project performance and predicting final project results, based on comparing the progress and budget of work packages to planned work and actual costs.
Earned Value Management (EVM) — a project management methodology for objectively measuring project performance using an integrated schedule and budget based on the project work breakdown structure (WBS).
Earned Value Management System (EVMS) — the process, procedures, tools, and templates used by an organization to do earned value management.
Earned Value (EV) or Budgeted Cost of Worked Performed (BCWP) – enables the project manager to compute performance indices or burn rates for cost and schedule performance, which provides information on how well the project is doing or performing relative to its original plans. Source: PMI.org
It is important to not wait until the end of a project, or worse after a project, to use EV tools, because by then it is too late to mitigate any identified schedule or budget risks. It would be wise for a PM to include in the project schedule when earned value formula calculations will be performed; weekly, monthly, quarterly, or any interval that best suits the project. Conducting the “PMP earned value calculations” as some refer to it, can be an early warning deduction system.
Earned Value Terminology
Some are looking for the answer to “what is Earned Value PMP?” What is key to know is there is an earned value formula, but “earned value” is a larger concept and one’s organization must have certain measures in place to fully realize the benefit of earned value. The calculations within earned value have their own purpose within project management and collectively work together within an earned value management system.
|Earned Value Terminology and Formulas|
|Actual Cost||AC||the actual cost of the project||amount spent on the project|
|Actual Cost of Work Performed||ACWP||cost of a project completed within a specific time||cost of a project completed within a specific time|
|Budget at Completion||BAC||total of budget||total of budget|
|Budgeted Cost for Work Performed||BCWP||also EV; the amount of work completed||% Work Complete x Budget|
|Budgeted Cost for Work Scheduled||BCWS||also PV; value of the work completed to date||Planned % complete x BAC|
|Cost Performance Index||CPI||cost variance; CPI < 1 = over budget, CPI > 1 = under budget||EV / AC|
|Cost Variance||CV||amount of project budget over or under budget; CV < 0 = over budget, CV > 0 = under budget||EV – AC|
|Earned Value||EV||also BCWP; amount of work actually completed||% Work Complete x Budget|
|Estimate at Completion||EAC||expected budget at project end based on variances that occurred||AC + BAC – EV|
|Estimate to Complete||ETC||expected cost to finish remainder of project||EAC – AC|
|Planned Value||PV||also BCWS; value of the work completed to date||Planned % complete x BAC|
|Schedule Performance Index||SPI||schedule variance; SPI < 1 = behind schedule, SPI > 1 = ahead of schedule||EV/ PV|
|Schedule Variance||SV||amount of project work ahead or behind schedule; SV < 0 = behind schedule, SV > 0 = ahead of schedule||EV – PV|
|Variance at Completion||VAC||forecasted cost variance at end of project||BAC – EAC|
When preparing for the PMP® certification exam, it would be wise to anticipate questions related to earned value calculations. You may not be asked to specifically calculate each of these metrics for the exam, but you should understand what they mean for your project.
Calculating Earned Value
The Earned Value (EV) calculations and analysis are completed with three data points: the planned value, actual cost, and earned value. In the PMP certification exam, the earned value calculations may be part of standalone questions and within larger scenarios questions.
Any project manager or PMP®credential holder could do earned value calculations. However, without “complete earned value management in use on your project, it will be extremely unlikely to obtain correct results.” If you have faulty data, your calculations may be mathematically correct but not accurate in terms of assessing or predicting the project’s progress.
Understanding Earned Value (EV)
Earned Value Management connects cost and schedule data for a project to answer the question of: “Is the project behind, on, or ahead of schedule?” The Earned Value assumes:
project work completed = value
value = budget put into work
Within the Earned Value Management System of an organization, tools like the Cost Performance Index (CPI) and the Schedule Performance Index (SPI) have clear-cut interpretations. However, Earned Value Management is a complex concept; the way data is collected, when the data is collected, and how inclusive is the data will directly impact the accuracy of the earned value formula results. Which in turn, shapes earned value analysis and interpretation.
EV Calculation Example
The PMI white paper “How to make earned value work on your project” includes this EV example:
- A project for the installation of 500 new computers in an office and 350 computers are installed
- Work progress is 70% complete (350/500)
- Project budget is $200,000
EV Graph Example
The PMP® certification exam might include questions that ask for an interpretation of EV values on a graph. The visualization of the EV values is a way to better communicate with stakeholders the status of schedule, cost, and overall value. On “Earned Value PMP Questions Explained,” a graph example is provided with this tip for interpretation:
- If the EV line is below PV, the project is behind schedule; if EV is above PV, the project is ahead of schedule.
- If the AC line is below EV, the project is within budget; if AC is above EV, the project is over budget.
Knowing the Earned Value formula is but one step in understanding Earned Value Management. Interpreting the relationship between schedule and cost data and what it indicates about the overall project is required.
Sample EV PMP® Certification Exam Questions
|Reporting the project performance is a required task as per your contract. You have calculated earned value measures and report them to your stakeholders. BAC = 20,000; PV = 18,600; EV= 17,500; AC = 17,000; CPI = 1.03; SPI is 0.94; EAC is 19,400; ETC is 2,400 What do these figures tell you about your project performance to date?||The budget at completion is less than the estimate at completion so we will spend more than we planned and need to get approval.||You are behind schedule and over budget so we need to establish new cost and schedule baselines immediately.||The estimate at completion is over the original budget.||The cost performance index tells us that we are getting a good return for the money spent on the project so far but we are behind schedule.|
|After analyzing the status of your project, you determine that the earned value is lower than the planned value. What should you expect as an outcome if this trend continues?||The actual cost will be lower than planned and you will finish behind schedule.||The estimate at completion will be lower than planned and you will finish ahead of schedule.||The project will finish behind schedule.||The project will finish below the original cost estimate and on time.|
Studying for the PMP Exam?
- Choice D is correct. CPI greater than 1 indicates that we are performing better than planned with regard to costs, and an SPI < 1 indicates that we are behind schedule.
- C. Schedule Variance = EV-PV. Since this value is negative here, the project will finish behind schedule if this trend continues.
Within the context of the PMP® certification exam, project managers might be asked to complete Earned Value calculations using specific formulas. Additionally, understanding the meaning of the calculations and how they work together to provide insights into value, is a key project management skill. At the foundation, Planned Value (what is earned to date per the schedule), Actual Cost (amount spent to date), and Earned Value (value of work completed to date), enable the project manager to better assess the status of the project in comparison to the plan. From there, mitigation activities can be activated to make schedule and cost adjustments to better reach business goals.
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