Earned Value Management (EVM) for IT Project Managers: Uses,

Benefits, Formula, and Scenarios

Earned Value Management (EVM) is a powerful project management
technique that integrates scope, cost, and schedule measures to assess
project performance and progress. IT Project Managers can use EVM to
provide objective project status and predict future performance trends.
Uses of Earned Value Management (EVM) for IT Project
Managers:
1. Performance Measurement: EVM helps measure project performance by comparing
the planned work against completed work.
2. Forecasting: EVM allows project managers to forecast project costs and timelines
based on current performance.
3. Early Warning System: Identifies potential cost and schedule overruns early,
enabling corrective actions.
4. Decision Making: Provides quantitative data to support decision-making regarding
resource allocation, risk management, and scope adjustments.
5. Stakeholder Communication: Communicates project progress in a clear, objective
manner using standard metrics.

Benefits of Earned Value Management (EVM):

1. Integrated View: EVM integrates scope, cost, and schedule to provide a
comprehensive view of project performance.
2. Objective Measurement: Offers objective, data-driven insights into project health.
3. Improved Control: Helps maintain control over project scope, budget, and timeline,
leading to better outcomes.
4. Proactive Management: Enables proactive management through early identification
of variances and performance trends.
5. Enhanced Transparency: Increases transparency with stakeholders by providing
clear, quantifiable performance metrics.

Key EVM Formulas:

Planned Value (PV): The budgeted cost of work scheduled (also
known as Budgeted Cost of Work Scheduled - BCWS).
1. Formula: PV = (Planned % Complete) x (Total Project Budget)

Earned Value (EV): The budgeted cost of work actually performed

(also known as Budgeted Cost of Work Performed - BCWP).
1. Formula: EV = (Actual % Complete) x (Total Project Budget)

Actual Cost (AC): The actual cost incurred for the work completed
(also known as Actual Cost of Work Performed - ACWP).
1. Formula: AC = Total cost incurred for the completed work

Cost Variance (CV): The difference between earned value and actual
cost; measures cost performance.
1. Formula: CV = EV - AC
2. Interpretation: Positive CV = Under budget, Negative CV = Over budget
 Schedule Variance (SV): The difference between earned value and
planned value; measures schedule performance.
1. Formula: SV = EV - PV
2. Interpretation: Positive SV = Ahead of schedule, Negative SV = Behind
schedule

Cost Performance Index (CPI): The ratio of earned value to actual

cost; measures cost efficiency.
1. Formula: CPI = EV / AC
2. Interpretation: CPI > 1 = Cost efficient, CPI < 1 = Cost inefficient

Schedule Performance Index (SPI): The ratio of earned value to

planned value; measures schedule efficiency.
1. Formula: SPI = EV / PV
2. Interpretation: SPI > 1 = Ahead of schedule, SPI < 1 = Behind schedule

Estimate at Completion (EAC): The estimated total cost of the project

at completion, based on current performance.
1. Formula: EAC = Total Budget / CPI

Estimate to Complete (ETC): The estimated cost to complete the

remaining work.
1. Formula: ETC = EAC - AC

Variance at Completion (VAC): The difference between the total

budget and the estimated total cost at completion.
1. Formula: VAC = Total Budget - EAC
2. Interpretation: Positive VAC = Under budget, Negative VAC = Over budget

Scenarios for Using EVM:

Tracking Software Development Progress: In a software
development project, EVM can be used to monitor whether
development efforts are proceeding as planned. For instance, if only
40% of the coding work is complete when 60% was planned, EVM
metrics (e.g., SV, SPI) can highlight the delay, prompting action to get
back on track.
Managing Cloud Migration Projects: When migrating applications to
the cloud, EVM can be employed to track budget consumption versus
progress. If the migration cost is higher than anticipated at a certain
milestone (negative CV), the project manager can use EVM data to
adjust resource allocation or renegotiate with vendors.
Agile Project Performance: Even in Agile environments, EVM can be
applied by aligning earned value to sprint completions. For example, if
two sprints are complete but the earned value indicates that only half
the planned work was delivered, it signals inefficiencies in the sprint
process that need to be addressed.
 Implementing Business Intelligence (BI) Tools: During a BI tool
implementation, EVM can be used to assess the alignment between
budgeted resources and actual outcomes. A positive CPI and SPI
would indicate that the project is being completed more efficiently than
planned, allowing for potential reallocation of saved resources to other
priorities.
How to Use EVM in IT Projects:
1. Define the Baseline: Establish the project’s scope, budget, and schedule baseline
before using EVM.
2. Collect Data Regularly: Continuously track progress, costs, and performance data
throughout the project.
3. Calculate EVM Metrics: Use the EVM formulas to compute key performance
indicators (KPIs) like CV, SV, CPI, and SPI.
4. Analyze Trends: Monitor trends in CPI and SPI to forecast potential risks and make
informed decisions.
5. Communicate Results: Present EVM metrics to stakeholders to provide a clear and
objective view of the project’s status.

By applying EVM in IT project management, project managers can gain

greater control over their projects, ensuring better outcomes and more
informed decision-making.
Let's walk through an example of Earned Value Management (EVM) calculations
with sample data.
Project Scenario:
 A project has a total budget of $100,000.
 The project duration is 10 months.
 By the end of Month 4, we evaluate the project performance.

Data Provided:
1. Planned Value (PV): The project was planned to spend $40,000 by the end of Month 4.
2. Earned Value (EV): The actual work completed by Month 4 is valued at $35,000.
3. Actual Cost (AC): The actual cost incurred by Month 4 is $45,000.

Calculations:
Cost Variance (CV):
o Formula: CV=EV−ACCV = EV - ACCV=EV−AC
o Calculation: CV=$35,000−$45,000=−$10,000CV = \$35,000 - \$45,000 = -\
$10,000CV=$35,000−$45,000=−$10,000
o Interpretation: The project is over budget by $10,000.

Schedule Variance (SV):

o Formula: SV=EV−PVSV = EV - PVSV=EV−PV
o Calculation: SV=$35,000−$40,000=−$5,000SV = \$35,000 - \$40,000 = -\
$5,000SV=$35,000−$40,000=−$5,000
o Interpretation: The project is behind schedule by $5,000 worth of work.

Cost Performance Index (CPI):

o Formula: CPI=EVACCPI = \frac{EV}{AC}CPI=ACEV
o Calculation: CPI=$35,000$45,000=0.78CPI = \frac{\$35,000}{\$45,000} =
0.78CPI=$45,000$35,000=0.78
o Interpretation: For every dollar spent, the project is earning only $0.78 worth of
work, indicating cost inefficiency.

Schedule Performance Index (SPI):

o Formula: SPI=EVPVSPI = \frac{EV}{PV}SPI=PVEV
o Calculation: SPI=$35,000$40,000=0.875SPI = \frac{\$35,000}{\$40,000} =
0.875SPI=$40,000$35,000=0.875
o Interpretation: The project is progressing at 87.5% of the planned rate, indicating a
schedule delay.

Summary:
 Cost Variance (CV): -$10,000 (over budget)
 Schedule Variance (SV): -$5,000 (behind schedule)
 Cost Performance Index (CPI): 0.78 (cost inefficiency)
 Schedule Performance Index (SPI): 0.875 (schedule delay)

These EVM metrics provide valuable insights into the project's health, highlighting
areas where corrective actions might be necessary.