Earned Value Management is an important topic for PMP and PMI ACP Exam. Since the questions related with Earned Value Management are based on formulas so with practice, these concepts can be mastered and these questions can be answered confidently in the exam.

1. Manish Purwar, iZenBridge

2.  Understanding Earned Value Management
 Calculating To-Complete Performance Index (TCPI)
 Budget forecasting
 Budget variance analysis

3.  Understanding of Earn Value Management concepts
 Will help in managing projects better in real life
 Will help in solving ~10 questions in PMP exam

4.  Earned Value Management (EVM) is a project management
system that combines schedule performance and cost
performance to answer the question,
 “What did we get for the money we spent?”
 It measures project performance against the project
baselines. It results from an earned value analysis indicating
potential deviation of the project from the cost and/or
schedule baseline.

5.  It is used to figure out how well project needs
to perform in the future in order to stay on
budget.

6.  Use the information you have about the project right now to
predict how close it will come to its goals if it keeps going the
way it has been.

7.  Throughout your project, you are looking at
how you are doing as compared to your plan.
The variance between planned and actual
performance needs to be carefully analyzed
to figure out budget or schedule related
issues.

8.  Planned Value : The percentage of total
budget that you are supposed to have earned
so far.
 BAC (Budget At Completion)
◦ It is total budget you have for your project.
 Planned Value
◦ Budget you planned on using so far
◦ PV = BAC x Planned % Complete
If BAC is $100,000 and planned % complete is
30%, then Planned Value is : $100,000 x 30% =
$30,000

9.  Earn Value tells you how much your project
actually earned.
 EV = BAC x Actual % complete
 If BAC is $100,000 and actual % complete is 25%,
then Earned Value is : $100,000 x 25% = $25,000

10.  Schedule Performance Index (SPI) = EV / PV
 If SPI > 1 means Earned Value is greater than Planned value so project is
ahead of schedule
 If SPI < 1 means Earned Value is less than Planned Value so project is
behind of schedule
 Schedule Variance (SV) = EV – PV
 If SV is positive means EV > PV and it tells you how many dollars you are
ahead of schedule.
 If SV is negative means EV < PV and it tells you how many dollars you are
behind schedule.
 Total budget of project is $10,000 and you are halfway through schedule. It
seems you have only gotten 40% of actual work done.
 What is PV, EV, SPI and SV?
 Is project ahead or behind of schedule?
 Recap : PV = BAC x Planned % Complete, EV = BAC x Actual % complete

11.  Actual Cost (AC) is the amount of money spent so far on the project.
 Cost Performance Index (CPI) = EV / AC
 If CPI > 1 means Earned Value is greater than Actual Cost so project is under
budget
 If CPI < 1 means Earned Value is less than Actual Cost so project is over budget
 Cost Variance (CV) = EV – AC
 If CV is positive means EV > AC and it tells you how many dollars you are under
budget.
 If CV is negative means EV < AC and it tells you how many dollars you are over
budget.
 Total budget of project is $10,000 and you are halfway through schedule. It seems you
have only gotten 40% of actual work done. You have spend $6000 so far.
 What is PV, EV, CPI and CV?
 Is project over or under budget?
 Recap : PV = BAC x Planned % Complete, EV = BAC x Actual % complete

13.  Forecasting is predicting what your project will look like when
it’s at completion.
 Estimate At Completion (EAC) is Predicting total cost when
project is complete.
 EAC = BAC / CPI
◦ If CPI < 1 mean project is over budget and will give EAC >
current budget.
◦ If CPI > 1 mean project is under budget and will give EAC <
current budget.
 If CPI is 0.8 and total budget is $10,000, then what will be
Estimate At Completion (EAC)?

14.  Estimate To Complete (ETC) is how much more money will be
spend on project completion.
◦ ETC = EAC – AC
 Variance At Completion (VAC) predicts what your budget
variance will be when the project is complete.
◦ VAC = BAC – EAC
◦ If you will spend more than your budget, variance will be
negative.
BAC
PV
EAC
AC ETC

15.  TCPI represents a target that your CPI would have to hit to meet
forecasted completion cost.
◦ TCPI when you are trying to get your project within your original
budget,
 TCPI = (BAC – EV) / (BAC – AC) i.e. left Budgeted work / left
budgeted money
◦ TCPI when you are trying to get your project done within Estimate
At Completion (EAC),
 TCPI = (BAC – EV) / (EAC – AC) i.e. left budgeted work / left
estimated money
 Higher TCPI means left budgeted work > left budgeted (or
estimated) money so it’s time to take strict cost management
approach.
 Lower TCPI means left budgeted work < left budgeted (or estimated)
money so you are well with in your budget.

16.  Actual value at any given time of the project
minus all of the costs associated with it.
 Managers calculate this number to see if it’s
worth doing a project. Managers select
project with greatest NPV.
 If Project A will take 3 years to complete and
has an NPV of $50,000. Project B will take 6
years to complete and has an NPV of
$90,000. Which one would you prefer?

17.  IRR is interest rate at which project inflows
(revenues) and project outflows (costs) are
equal.
 If company has more than one project to
select, project with highest IRR are selected
for implementation.

18.  The number of time periods it takes to
recover your investment in the project before
you start accumulating profit.
 You have two projects to choose from, Project
A with a payback period of six months or
Project B with a payback period of 18 months.
Which one would you prefer?

19.  It is ratio of Benefit (i.e. revenue in this case)
to Cost.
 BCR > 1 means benefits are greater than
cost.
 Project with highest BCR is selected for
implementation.

20.  Opportunity given up by selecting one project
over another.
 You have two projects to choose from; Project
A with an NPV of $50,000 or Project B with an
NPV of $90,000. What is the opportunity cost
of selecting project B?

21.  Net Present Value
 Internal Rate of Return
 Payback period
 Benefit Cost Ratio

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26. Presentation by –
Manish Purwar
Contact Manish at
Mobile : +91 9910500922
purwar_manish@yahoo.com