fbpx

Earned Value vs Planned Value: How to Use Them for Project Analysis

When managing a project, you need effective ways to track its progress and spot potential issues. Two useful metrics for this are project analysis using Earned Value and Planned Value.

Understanding the difference between Earned Value and Planned Value allows you to compare budgeted costs to actual costs and detect variances. Calculating these metrics isn’t difficult once you know the formulas.

In this article, we’ll compare Earned Value vs Planned Value, and look at how to calculate them using the proper formulas, and how to apply them for insightful project analysis.

You’ll learn key differences between Earned Value and Planned Value and how to use both together for effective project budgeting and tracking. For PMP candidates, we’ll also provide tips for the exam as you can expect some questions on this topic,

Earned Value vs Planned Value Overview

First off, let’s look at what Earned Value and Planned Value mean when it comes to project management:

What is Earned Value (EV) in Project Management?

Earned Value (EV) is a crucial metric used in project management to objectively gauge a project’s progress by measuring the value of completed work compared to the allocated budget.

EV indicates how much the project has physically progressed and lets you compare the current status against the initial schedule and budget. When combined with the actual costs, EV provides insight into cost and schedule performance.

It converts budget and schedule data into quantifiable value already earned enabling project managers to track real progress, spot variances, and take corrective actions if necessary.

What is Planned Value (PV) in Project Management?

Planned Value (PV) represents the budgeted cost of work that should have been completed on a project up to a certain point. It measures the value of work that ought to have been done according to the initial project schedule.

PV shows if the project is on track or behind schedule in terms of the timeline by comparing PV and Earned Value (EV) to highlight schedule variances and the difference between what was planned and actual progress during project execution.

Earned Value vs Planned Value Calculation

Now let’s take a look at how to calculate both of them using their individual formulas:

Earned Value formula

The Earned Value (EV) formula is quite straightforward and given by:

EV = Percentage of Project Work Completed x Budget at Completion (BAC)

This gives you the objective value that has been earned to that point in the project based on the original cost baseline.

How to Calculate Earned Value

To calculate EV, take the percentage of work finished on the project so far and multiply it by the planned budget for that work.

For example, say your project has a total budget of $100,000. And according to your planning, 20% of the project would be completed by the 3-month mark.

Now when you reach that 3-month checkpoint, you assess that the team has in fact finished 20% of the work.

To calculate EV, you would take that 20% work completion and multiply it by the total $100,000 budget.

20% x $100,000 = $20,000

So the Earned Value for this project so far is $20,000. This shows you the monetary value of the work that has been earned up to this point, based on the original cost baseline.

Planned Value Formula

The Planned Value (PV) formula is given as:

PV = Percentage Planned to be Complete x Budget at Completion (BAC)

To calculate PV, take the percentage of work that should be finished by a certain point and multiply it by the total project budget. This gives the value that was expected to be completed according to the original schedule.

How to Calculate Planned Value

To calculate Planned Value (PV), you first need to know the total budget for the project or task you are tracking. You also need the initial project schedule to determine what percentage of work should be completed by a certain point in time.

For example, say your project has a total budget of $100,000 and was scheduled to last 6 months. You want to calculate PV at the 3-month mark. Your initial schedule showed that by 3 months, 40% of the project work should be finished.

To get PV, you would take that 40% work completion and multiply it by the total project budget of $100,000:

40% x $100,000 = $40,000 Planned Value

This shows the value of the work that was supposed to be completed after 3 months according to the schedule baseline. Tracking PV at milestones lets you compare against Earned Value to see if you are on track or behind schedule.

Difference Between Earned Value and Planned Value

While Earned Value (EV) and Planned Value (PV) are both crucial Earned Value Management metrics for monitoring project performance and provide valuable insights, they measure different aspects of a project.

Understanding the differences between Earned Value and Planned Value allows you to leverage these metrics for effective project management fully. While EV shows what has been accomplished, PV shows what should have been accomplished.

EV represents the monetary value that has been earned so far based on the work actually completed. It is calculated by taking the percentage of work finished and multiplying it by the budget to give you a quantifiable view of how much the project has truly progressed physically.

In contrast, PV shows how much value should have been earned according to the initial project schedule. It is calculated by taking the percentage of work that should be completed by a certain point and multiplying it by the total budget to provide an expectation of progress.

While EV measures actuals, PV measures assumptions. Comparing the two metrics highlights whether the project execution is aligned with the plan. If EV is less than PV, then the project is behind schedule. On the other hand, if the EV exceeds PV, the project is ahead of schedule.

Earned Value analysis is focused on performance relative to the cost baseline, while Planned value analysis is focused on performance relative to the schedule baseline. Used together, EV and PV provide insights into both budget and timeline adherence.

How to use Earned Value and Planned Value for Project analysis

Getting the most value from EV and PV requires calculating them consistently and combining them with qualitative knowledge about the project. Used together, they provide powerful analytics to keep your project on track.

Here are some tips for using these metrics to gain insights:

1. Track EV and PV at Milestones

Calculate both EV and PV at major milestones in your project schedule. Comparing them shows you whether the actual work completed is aligned with the initial plan. If there are significant variances, then this is an indication of issues.

2. Calculate the Schedule Variance

Schedule variance helps quantify your project behind-or-ahead status to pinpoint schedule problems. It’s calculated as EV – PV. A positive variance indicates that your project is ahead of schedule, while a negative variance means it’s behind schedule.

3. Calculate the Schedule Performance Index

The Schedule Performance Index (SPI) measures efficiency and shows if your project is progressing as planned. It’s calculated as EV / PV. An SPI above 1 means ahead of schedule and below 1 means behind. SPI

4. Forecast Final Costs and Schedule

Use EV and PV data to forecast the project finish date and final cost using the Estimate at Completion (EAC) and Estimate to Complete (ETC) metrics. This helps you develop corrective actions when needed.

5. Compare EV Trends Over Time

Look at EV trends across project milestones to spot patterns. Is EV increasing as expected? Decreasing? Flatlining? The trendline shows project health.

6. Contextualize the Data

Consider why variations are occurring. Are there resource issues? Scope creep? Accurate EV and PV analysis combines quant data with human insight.

Earned Value vs Planned Value PMP Exam Tips

According to the Project Management Book of Knowledge (PMBOK) Guide 6th Edition, Earned Value (EV) and Planned Value (PV) are both used in the Monitor and Control Project Work process to assess project performance.

EV represents the budgeted cost for the work actually completed, while PV represents the budgeted cost for the work planned to be completed.

On the PMP exam, questions may ask you to interpret EV and PV to determine if a project is ahead of or behind schedule.

  • If EV > PV, it means more work has been completed than planned, so the project is ahead of schedule.
  • If EV < PV, less work has been completed than planned, so the project is behind schedule.

To answer PMP questions on this topic, remember that EV reflects completed work and PV reflects planned work. Calculate the difference between the two to determine the schedule variance.

Conclusion

An understanding of Earned Value and Planned Value is key as these are metrics that provide objective data to assess the progress and performance of your project.

Earned value shows work accomplished while Planned Value value shows expected completion. When you compare them, you get an indication of your project schedule and budget adherence.

Use EV and PV together to gain insights into project health by consistently calculating and analyzing them at milestones to identify variances and issues early. This way, you can better control projects and meet strategic objectives.

David Usifo (PSM, MBCS, PMP®)
David Usifo (PSM, MBCS, PMP®)

David Usifo is a certified Project Management professional, professional Scrum Master, and a BCS certified Business Analyst with a background in product development and database management.

He enjoys using his knowledge and skills to share with aspiring and experienced Project Managers and Business Analysts the core concept of value-creation through adaptive solutions.

Articles: 334

Leave a Reply

Your email address will not be published. Required fields are marked *