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EVM for the PMP Exam

Earned Value Management (EVM) is a system set in place to integrate cost, scope, and schedule in order to measure performance.  EVM provides for a physical percentage completed by showing efficiency for the dollar spent.  There is a lot of planning (such as setting up control accounts, assigning budgets, costs, and completion appropriately) behind getting to the point where you eventually show efficiency, but for the PMP exam, we can review the numbers as if the planning has been done perfectly.

For the PMP, there will be several questions from the “Project Cost Management” Knowledge Area that will ask about EVM equations.  I will review with you how the equations can be remembered long enough to jot them down on your brain-dump sheet, but, hopefully, for longer than that.

These 3 variables are the different types of costs from which equations are made:

1)      Budget for costs:  Budget Cost of Work Scheduled (BCWS) or Planned Value (PV)

  • This is what we planned ahead for the resources and activities to cost.  The planned amount of cost is also allocated to when it should be used for scheduling purposes.
  • BCWS or PV only pertains to the schedule of work that has been planned up to the current status date.  The budget for the whole project is referred to Budget at Completion (BAC).

2)      Amount of work valued done:  Budgeted Cost of Work Performed (BCWP) or Earned Value (EV)

  • This is from the value of work done based on the budget.

3)      Actual costs applied:  Actual Cost of Work Performed (ACWP) or Actual Costs (AC)

  • This is the amount spent from work that has been done.

Now that we understand them, we can apply them:

Term

Formula

Description

Cost Variance (CV)

EV – AC

How ahead (+) or behind (-) costs are coming in respect to the work done

Schedule Variance (SV)

EV – PV

How ahead (+) or behind (-) we are in respect to the budgeted schedule

Cost Performance Index (CPI)

EV / AC

Work performed per dollar spent

Schedule Performance Index (SPI)

EV / PV

How fast the work is going compared to how it was scheduled to be at the current time

To-Complete Performance Index (TCPI)

(BAC – EV) / (Target* – AC)

Where “Target” can be BAC or EAC used to determine future efficiency needed.  In order to attain x (the target), CPI will need to be this 

Estimate To Complete (ETC)

BAC – EV  or

(BAC – EV) / CPI

There are many ways to create an estimate, but these will get the cost remaining in a simple fashion

Estimate At Complete (EAC)

AC + (BAC – EV)  or

AC + (BAC – EV) / CPI

There are many ways o figure EAC, but these are fundamental formulas to show the ending cost estimate

Variance at Completion (VAC)

BAC – EAC

How much under or over the budget you will spend at the end

 

The blue cells represent formulas that try to answer what the current trend is and the green cells are formulas that answer what the future is expected to be like (given past performance).

The formulas are consistent in that budget related items are in the numerator and cost is in the denominator.  In trying to remember the formulas above, also notice that “EV” is in every single formula.  EV comes first in both of the variance and index formulas.  Once that’s remembered, then think of if you should choose either AC or PV.  Remember what AC and PV mean?  Well, one of them goes to Cost Variance and Performance and the other goes to Schedule Variance and Performance (see table above for answers).  TCPI asks “of the budget remaining, what is the cost remaining?”  TCPI is still consistent to keep budgeted items on top (numerator), only remember, TCPI asks for future numbers rather than past numbers.

Finally, finding estimates, ETC and EAC, are truly custom made numbers in the real world.  However, for the multiple choice questions that PMI will ask the answer will depend upon the question which will need to be carefully read.  The question should mention how it is expected that costs will be incurred in the future.  If they are incurred the same as the budget expected, then find that budget remaining (BAC – EV) for the ETC.  If the costs will be incurred at the same rate as in the past (which is status quo), then divide the budget remaining by cost efficiency (BAC – EV) / CPI.  Once ETC is understood, EAC is easy because that’s just adding the costs that have happened (AC) to what is expected (ETC).  VAC is looking at the completed picture to understand over-run (costs exceeding budget) and under-run (costs less than budget).  If you really need help with BAC - EAC, maybe you can remember ‘B’ comes before ‘E’ (in the alphabet).

I hope this EVM breakdown helps with recollection!

Author - Gregory Morrow

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