Earned value management explained, with the numbers worked through
What earned value is, how CPI, SPI, EAC, ETC, and VAC are calculated, and a worked example of a project heading $125,000 over budget.
Earned value management has a reputation for being something only defence contractors with dedicated cost engineers can do. In practice, a handful of numbers cover most of what a delivery manager needs, and all of them come from three things you probably already track: planned cost, actual cost, and percentage complete.
The three inputs
- Planned value (PV) is the budgeted cost of the work you expected to have done by now.
- Actual cost (AC) is what you have really spent.
- Earned value (EV) is percentage complete multiplied by budgeted cost: the value of the work actually finished.
That third one is the idea the whole method rests on. Spending is not progress. A task with a $100,000 budget that is 40% done has earned $100,000 × 40% = $40,000 of value, whether you spent $20,000 or $80,000 getting there.
A worked example
A project with a total budget of $500,000. Three months in, you expected to have completed $200,000 worth of work. The work is genuinely 30% complete, and you have spent $187,500.
| Measure | Formula | Value |
|---|---|---|
| Budget at completion (BAC) | the total budget | $500,000 |
| Planned value (PV) | budgeted cost of scheduled work | $200,000 |
| Actual cost (AC) | what has been spent | $187,500 |
| Earned value (EV) | 30% × $500,000 | $150,000 |
| Cost Performance Index (CPI) | EV ÷ AC | 0.80 |
| Schedule Performance Index (SPI) | EV ÷ PV | 0.75 |
| Estimate at completion (EAC) | AC + (BAC − EV) ÷ CPI | $625,000 |
| Estimate to complete (ETC) | EAC − AC | $437,500 |
| Variance at completion (VAC) | BAC − EAC | −$125,000 |
Read that bottom line first. On current performance this project finishes $125,000 over a $500,000 budget, which is a 25% overrun, and it is visible in month three.
What each index is telling you
CPI of 0.80 means every dollar spent is buying 80 cents of value. Above 1.0 is under budget, 1.0 is on plan, and below 0.8 is generally treated as serious, because the shortfall compounds across everything still to come.
SPI of 0.75 means you have completed three-quarters of the work you planned to have done by now. It is a useful early signal, though it has a known flaw: as a project approaches completion SPI drifts back toward 1.0 whether or not you finished on time, because eventually all the planned work is done. Use it early and stop trusting it late.
The two indices answer different questions and are frequently both bad for the same underlying reason. A team that is behind schedule and burning budget to catch up will show both falling together.
Why EAC divides by CPI
The interesting move in the whole method is in the EAC formula. The remaining work is worth $350,000 of budget, but EAC does not simply add $350,000 to what has been spent. It divides that remainder by CPI first.
That is the difference between a forecast and a hope. If your delivery has been converting dollars to value at 80 cents on the dollar for three months, assuming the remaining work will suddenly run at 100% efficiency requires a reason. Dividing by CPI says: absent evidence of a change, expect the pattern to continue.
If you have a genuine reason to expect improvement (the cause was a one-off, the expensive phase is over), that is a legitimate override. The point is that it should be an explicit, argued adjustment rather than a silently optimistic default.
Calculate continuously, not quarterly
The most common failure is treating this as a quarterly reporting ritual. By the time a quarterly CPI reads 0.85, the money is spent and the options are gone.
Calculated per task and rolled up by workstream, the same numbers become an early warning system. One workstream drifting from 1.0 to 0.9 over three weeks is visible long before it moves the programme total, and that is the window where an intervention is still cheap.
A workable habit: green at 1.0 and above, amber between 0.8 and 1.0, red below 0.8. Review anything amber weekly. That single rule catches most budget problems while they are still fixable.
How this works in Depentra
Depentra computes earned value, CPI, EAC, ETC, and VAC per task and rolls them up by group, from the planned cost, actual cost, and percentage complete already on your tasks. The cost side is covered; SPI is not currently calculated.