What Is Earned Value (EVM) and Why Your Steering Committee Needs It
A project reported as "70% done and on track" can be burning through budget 15% faster than it's producing. Earned value is the method that catches this — and the only data a steering committee can argue with facts, not opinions.
The problem with percent complete
When someone says a project is "70% done," 70% of what? Of closed tasks? Of hours consumed? Of the project manager's gut feeling? It's almost always an estimate nobody can defend with numbers — and it hides two different questions: is the money performing? and is the schedule holding?
Earned value management (EVM) answers both, separately, by comparing three figures at the same point in time.
The three numbers behind earned value
| Acronym | Name | What it measures |
|---|---|---|
| PV | Planned value | How much work you should have completed by today, per the baseline. |
| EV | Earned value | How much work you've actually completed, valued at the budget you assigned to it. |
| AC | Actual cost | How much you've spent to get here. |
The key is EV: it's not "how much I've done" by eye — it's "how much I've done, measured in the money that work was worth in the plan." If a task budgeted at $10,000 is finished, you've earned $10,000 of value — whatever it actually cost you to get there.
CPI and SPI: the two ratios that matter
From those three figures come two ratios you can read at a glance:
- CPI = EV / AC — cost performance index. Tells you whether the money is performing.
CPI = 1is exact;< 1is overrun;> 1is savings. - SPI = EV / PV — schedule performance index. Tells you whether you're on pace. Same reading:
< 1means you're behind.
Example. A 12-month, $5M project. Week 24: the plan said you should have $2.5M of work done (PV). You've completed $2.17M of value (EV). And you've spent $2.49M (AC). → CPI = 2.17 / 2.49 = 0.87 and SPI = 2.17 / 2.5 = 0.87. The team reports it as "70% done and on track." The indicators say something else: for every dollar spent, you're only delivering $0.87 of value, and you're 13% behind the planned amount of work.
Projecting the finish: EAC and VAC
The indicators don't just describe the past — they let you forecast the finish. The most common estimate assumes cost performance holds steady:
EAC = BAC / CPI
Where BAC is the total budget. In the example: 5,000,000 / 0.87 = $5,747,000. VAC (variance at completion) is BAC − EAC = −$747,000: the expected overrun if nothing changes. That number, presented in week 24 instead of at closeout, is what turns a status meeting into a decision.
What it takes for the indicators to tell the truth
Earned value isn't accounting magic. It needs three things:
- A frozen baseline — an approved plan with budget assigned per work package. Without it there's no PV or EV.
- An honest progress criterion — 0/100, 50/50, weighted milestones… any of them works, as long as it's the same for everyone and isn't decided by whoever's reporting.
- Up-to-date cost data — AC has to reflect what's actually been spent, internal hours included.
The discipline belongs to the team; the calculation should belong to the tool. If your PMO is still computing CPI in a spreadsheet on Friday afternoon, the method isn't the problem.
PMOvio calculates earned value for you
CPI, SPI, EAC, VAC and the PMBOK status color, updated automatically on every project. 15 days free, no card required.
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