EVM for the PMP Examination
Earned value management (EVM), a system that integrates cost, scope and schedule to measure performance, is called Earned Value Management. EVM allows for a percentage to be achieved by demonstrating efficiency for every dollar spent. It takes a lot of planning to get to the point where efficiency is possible. However, for the PMP exam we can look at the numbers as if all the planning was done perfectly.
The “Project Cost Management Knowledge Area” Knowledge Area will have questions about EVM equations for the PMP. I will show you how equations can be retained long enough to make a note on your brain-dump sheet. But hopefully for much longer.
These are the three variables that represent the different types and costs from which equations are created:
Budget for costs: Budget cost of work scheduled (BCWS) or planned value (PV). This is what we planned ahead for resources and activities to cost. The cost of the planned work is also allocated to when it should go to be used for scheduling purposes.
BCWS or PV refers to the work schedule that has been completed up to the current status date. Budget at Completion (BAC) is the name of the budget for the entire project.
The amount of work that was done:Budgeted cost of work performed (BCWP), or Earned value (EV). This is the work that was done based on the budget.
Actual costs: Actual Cost of Work Performed or Actual Costs (ACWP). This is the amount that was spent on work.
We now have a better understanding of them and can apply them.
Cost Variance (CV).
EV – AC
What are the future (+) and behind (-) costs for the work being done?
Schedule Variance (SV).
EV – PV
What are our current standings in relation to the budgeted schedule?
Cost Performance Index (CPI).
EV / AC
Work performed per dollar spent
Schedule Performance Index (SPI).
EV / PV
It is amazing how fast the work is moving compared to what it was supposed to be at the time
To-Complete Performance Index, (TCPI).
(BAC – EV) / (Target* – AC)
The target can be BAC, EAC or any other measure that determines future efficiency. CPI must be this in order to reach x (the target).
Estimate To Complete (ETC)
BAC – EV
(BAC – EEV) / CPI
There are many ways you can create an estimate. However, these will give you the cost remaining in a straightforward fashion.
Estimate At Complete (EAC)
AC + (BAC-EV)
AC + (BAC-EV) / CPI
There are many ways to figure EAC. However, these are the fundamental formulas that show the end cost estimate.
Variance at Completion
EAC – BAC
How much you will spend at the final.
The blue cells represent formulas which attempt to determine the current trend, while the green cells represent formulas which predict the future based on past performance.
The formulas are consistent in that cost and budget-related items are in both the numerator as well as the denominator. EV is the first in both the index and variance formulas. Once you have that information, think about whether AC or PV is the best option. What does AC and PV mean? One goes to Cost Variance and Performance, the other to Schedule Variance and Performance (see the table above for more details). TCPI asks “of budget remaining, what’s the cost remaining?” TCPI is consistent in keeping budgeted items on top (numerator), but TCPI only asks for future numbers and not past numbers.
Final thoughts: Finding estimates, ETC, and EAC