So how is earned value calculated?

Any type of calculation can be intimidating, especially when it is a calculation which requires getting accurate data from the field and then using that data inside of an earned value formula.

The great thing about how earned value is calculated is that almost all projects are already tracking the data needed to make the earned value calculation (or they definitely should be).

So how is earned value calculated?

The first aspect of calculating earned value is getting the information you need to make the calculation.

For earned value, this means finding or knowing your:

• BAC (Budget at completion) - The original budget for the project or projected cost of the entire project (or phase of work)
• % of work completed - The % of the project which is actually complete at the time of calculating EV

The second part of how earned value is calculated is simply putting these two numbers into your equation:

EV = % of work completed x BAC = 50% x $1,000,000 = $500,000

For this specific calculation, we can see that our budget for this job was $1,000,000 and the % of work we have completed so far is 50%. This gives us an earned value of $500,000.

This earned value result tells us how much 'value' we have created on the project so far - which is nice, but not that helpful if we don't understand how much it cost us to create this much value, and how long it took us to create this much value.

To make our earned value tell us something more meaningful, we need to compare this number to our original cost and schedule plan.

The first and easiest next step is usually to compare the current earned value to our actual costs so far, which will enable us to see whether we are under, on or over budget.

Let's say we have incurred costs so far of $450,000. To calculate how we are performing on the basis of cost, we use our cost variance formula:

CV = EV - AC = $500,000 - $450,000 = $50,000

In this case, our cost variance is $50,000, which means we are $50,000 under budget. This makes sense with the numbers above, because we can see we have created $500,000 in value from spending $450,000.

Now that we are looking pretty in terms of cost, we also want to see whether we are on schedule. It's great if we are under budget, but if we are way behind schedule then that's probably why we are under budget.

The equation we care about when looking into our schedule performance is the schedule variance, and it's very similar to our cost variance above.

There's one other component of this equation which we need to understand in order to make sense of our schedule performance - we need to know how much value we had planned to generate by this stage of the project.

In this case, when we are 50% complete, we are 6 months into the project. The project was planned to go for 10 months in total, so our planned value at this stage was/is:

PV = % of project planned to be completed x Budget at completion = 60% x $1,000,000 = $600,000

We use this planned value to calculate our schedule variance:

SV = EV - PV = $500,000 - $600,000 = -$100,000

This negative number means we are behind schedule, in this case, we are $100,000 behind schedule. So although we are under budget, we are way behind schedule.