Earned Value Management (EVM), or Earned Value Analysis, is a technique used to measure the performance and progress of a project. The basic premise of earned value is that the cost spent is relative to the work completed. In other words, earned value is a way of placing a monetary value on the progress of work achieved. With earned value, you can tell if your project is behind schedule or over budget at any given time.

Generally, you will plan projects with budgeted costs and/or actual costs. Budgeted costs are how much you plan to spend. Actual costs are how much you actually spent. However, it isn’t possible to compare the work achieved with these two values alone. This is where earned value comes in. With earned value, you are able to see if you have poor project planning. Poor project planning may not be apparent when only monitoring budgeted and actual costs.

In this article, we will go over how to calculate earned value to measure your project’s performance. The following examples are all from Primavera P6 Professional 20. However, you can perform earned value management with any project management software.

What is Earned Value?

Earned value is a monetary value that shows the amount of work achieved on a project. Regardless of how much you planned to spend or actually spent, earned value indicates the value of the project’s progress.

Earned value management requires 3 basic elements for its calculations: Planned Value (PV), Earned Value (EV), and Actual Cost (AC).

• Planned Value (PV) is the budget for the work scheduled. This is sometimes also referred to as the budgeted cost of work scheduled. This is how much you plan to spend on the project based on the assigned resources and expenses.

   

• Earned Value (EV) is a monetary value for the progress of work completed. Put simply, this is the amount of money that you should have spent for the amount of work that you have completed.

   

• Actual Cost (AC) is the actual monetary value spent on the project. Actual costs come about as the project progresses over time.

How is Earned Value Calculated?

To best understand earned value, we are going to look at a simple example project. In the following example, we have a project to construct 10 concrete columns for a building. Each column should take 1 day to build and has a budgeted cost of $100. This means that we are planning on spending $100 per day for 10 days, with a total project cost of $1000. This is the Planned Value for the project – $1000 total, at $100 per day.

Based on this baseline schedule, we would assume that by the end of day 4, we would have spent $400 on building 4 columns. Therefore, our Planned Value for day 4 of this project would be $400.

However, once the actual activities started, things didn’t go as planned. By the end of day 4, we had only completed 2 columns. We were also informed that each column actually costs $200 to build. This would make our Actual Cost for day 4 of this project $400.

We can now calculate the Planned Value, Earned Value and Actual Cost for this project by the end of day 4:

• We had planned to spend $100 per day on this project, according to the baseline schedule. Because we are now on day 4, our Planned Value is $400 – the amount we had planned to spend by this point in the project.

   

• However, in actuality, we only built 2 columns. Based on our baseline schedule, the completion of two columns should have cost us $200, at $100 per column. By day 4, our Earned Value is $200 – the amount we had planned to spend based on the actual work completed.

• We have only built 2 columns, and each column cost $200. Thus, the Actual Cost at this point is $400. This is the amount we have actually spent so far.

Using this information, we can compare the Planned Value and Actual Cost to the Earned Value. This can help us determine whether the project is behind schedule or over budget.

With a simple project like this, it is easy to manually calculate these different values. However, you can automatically calculate Earned Value Management using Primavera P6 Professional.

Setting Up P6 for Earned Value Management

There are seven steps to setting up Primavera P6 for Earned Value Management:

• Step 1: Cost-load the project with resources that don’t automatically compute actuals

   

• Step 2: Create and assign a baseline to calculate earned value

   

• Step 3: Setup the activity table columns for Earned Value Management

   

• Step 4: Adjust all activity percent complete types to Physical

• Step 5: Set the technique for computing Performance Percent Complete

• Step 6: Status the activities with actuals and schedule the project
    
• Step 7: Set the technique for computing Estimate to Complete

As you can see above, setting up the program to calculate earned value can be complicated. To get the best results, we recommend that you follow these steps.

Step 1: Cost-load the project with resources that don’t automatically compute actuals

The first thing you’ll need to do is make sure that you’re working with a cost loaded schedule with a tight logical path. I’ve created a project in P6 for the example we looked at earlier, with the construction of the 10 columns over 10 days. Each activity has 1 day of duration and represents the construction of one column. The activities are all assigned a material resource of concrete with a budgeted cost of $100. All together, the project has a total budgeted cost of $1000 over 10 days of duration.

This is a good example of the type of project you’ll want to use when performing Earned Value Management. The logical path is tight with no loose ends and each activity is cost loaded.

When you are calculating earned value, the resources you use should NOT automatically compute actuals. With earned value, actuals should be based on actual costs incurred. We do not want the resources to automatically compute these values based on our original estimates.

By default, resources will automatically have the Auto Compute Actuals setting turned on. To turn this option off, you will need to navigate to the Resources screen by selecting Enterprise > Resources.

Select the resource you would like to use from the table and then navigate to the Details tab. Here, there is an option to Auto Compute Actuals. By default, this will be checked, so it is important to uncheck it if you are going to use the resource to calculate earned value. You will want to do this before assigning resources to your activities.

Currently, my material resource, Concrete, does not have Auto Compute Actuals checked. Because of this, I know that the resource will work for calculating earned value in my project. 

Step 2: Create and assign a baseline to calculate earned value

Next, you will need to create a baseline and assign it to the project. You will not be able to track variance on a project unless you have created and assigned a baseline. Earned value is all about comparing your current schedule with your original schedule. In other words, comparing your actual progress with your planned progress. Where there are differences,  P6 will calculate different data sets to help quantify any deviation from the baseline.

To create a new baseline for the project, select Project > Maintain Baselines.

In the Maintain Baselines window, select Add and choose to Save a copy of the current project as a new baseline. This will automatically save the project as it currently is as a baseline.

With this baseline created, you will now need to assign it to the project. However, before doing that, you will need to tell P6 which baseline you will be using to calculate earned value. You can do this in the Projects window. If this is not already open, you can open the Projects window by selecting Enterprise > Projects.

In the Projects table, select the desired project and use the Settings tab to choose a baseline to use for earned value. By default, this will be set to the Project Baseline, but you can also use the User’s Primary Baseline. It doesn’t matter which baseline type you choose. However, you’ll want to make sure to assign the created baseline to your selected option.

Now, you can assign the newly created baseline by selecting Project > Assign Baselines.

In the Assign Baselines window, select the baseline you just created under whichever baseline type you selected in the last step. This will be either Project Baseline or the User’s Primary Baseline. Then, press OK.

Step 3: Setup the activity table columns for Earned Value Management

The next step would be to set up the activity table for Earned Value Management. After adding the desired columns, I recommend that you save the configuration as a layout for use later on.

There are a variety of different columns that you can add to help you calculate earned value. However, I recommend having at least the following columns display:

• Original Duration
• Actual Duration
• Planned Value Cost
• Actual Cost
• Earned Value Cost
• Budget At Completion
• Duration % Complete of Original
• Performance % Complete
• Schedule Performance Index
• Cost Performance Index
• Estimate to Complete

To add these columns to the activity table, select View > Columns. Move the desired columns from Available Options to Selected Options, and select OK.

With all the columns added, your earned value layout should look somewhat like this:

We will overview the information that displays in these columns later in this guide.

Step 4: Adjust all activity percent complete types to Physical

Next, you will need to adjust all activity Percent Complete Types to Physical. You can only calculate earned value when the duration of the activity is separate from the percent of work completed. For this reason, you will want to be using the Physical Percent Complete type for all activities. This will measure the work physically achieved, rather than just the amount of time spent.

The easiest way to do this to all activities simultaneously is to add the Percent Complete Type column to the layout. With the column displaying, you can quickly adjust each activity type to Physical.

You could keep the Percent Complete Type column displaying. However, because Earned Value Management uses so many columns already, you may want to remove it after performing this step.

Step 5: Set the technique for computing Performance Percent Complete

Next, you will need to set up how P6 is going to calculate the earned value costs. You can do this in the WBS screen, which you can open by selecting Project > WBS.

In the details section, select the Earned Value tab. Using the left side of the tab, you can choose a technique for computing Performance Percent Complete. This is the amount of work actually performed on activities. Put simply, this is the way that you will be earning value for activities within the selected WBS layer.

Activity Percent Complete is the default option. This means that the activity will earn value based on its percent complete. You can also choose to earn value based on WBS Milestones. As they complete, activities will earn a part of the completed total cost for that WBS layer. The final 3 options are 0/100, 50/50, and custom percent complete. Selecting one of these options will cause activities to earn value based on these ratios. For example, if you were to choose the 0/100 option, activities would not earn any value until you mark them as Completed. At that point, the activity would earn its full budgeted value.

You cannot enter PPC techniques for individual activities. Instead, they can only inherit the technique from their immediate parent WBS element. In this case, however, I’m only using one WBS layer – so I don’t need to worry about this. To keep things simple, I’ll keep Activity Percent Complete selected as my performance percent complete technique.

Step 6: Status the activities with actuals and reschedule the project

At this point, you can now begin to status the project to show the actual work completed and the actual costs spent. You can do this back on the Activities screen.

Going back to the example discussed earlier, it is now day 4 of the project. We have completed building two columns so far – so I’ll need to update the statuses of activities Column 1 and Column 2.

Starting with Column 1, I’ll use the Status tab of the details section to mark that the activity has Finished. Because this column actually took 2 days to complete, I’ll adjust the Actual Duration to 2.​

I’ll also need to add in the actual costs, which I can do in the Resources tab. Although we were planning on only spending $100 per column, this column actually cost us $200. I’ll show this by setting the Actual Units for the resource to 2. This will automatically adjust the Actual Cost to $200.​

I’ll do the same thing for Column 2, which also took 2 days to complete and had an actual cost of $200.

Now, we can view and contrast the Actual Duration with the Original Duration in the table. However, the Planned Value and Earned Value fields will not update with this schedule progress. To calculate these values, we will have to move the data date forward and reschedule the project.

To reschedule the project, select Tools > Schedule. Select Apply selected data date and select the date you statused the project up to. In this example, we have completed the fourth workday for the project. To show this, I’ll move the data date forward to the beginning of the fifth workday. Then, I’ll select Schedule.

Analyzing Earned Value Results

With the schedule statused, the columns have populated. We can now see that this project has an Actual Cost of $400, a Planned Cost of $400, and an Earned Value of $200. 

Again, the Actual Cost is how much we have spent so far in the project. By day 4, we had spent $400. The Planned Cost is how much we had planned to spend by day 4 based on our baseline estimates. We had planned to have 4 columns finished at this point, each at a cost of $100. The Earned Value is how much we had spent based on the amount of work we had completed. According to our baseline schedule, 2 completed columns should have cost $200.

Because of this project’s simplicity, we could have calculated these values manually. However, using Primavera P6, this information is available to us automatically. This can be useful for longer and more complex projects.

We can now analyze the schedule’s performance and cost so far using the activity table columns.

From the Duration % Complete of the Original column, we can see how much of the project should have been completed according to the baseline schedule. Right now, it is at 40% complete – this is how we had meant to complete by day 4. In the Performance % Complete column, we can see how much of the project we have completed based on the actual work done. This is currently 20%, as we have only built 2 columns. From these two fields, we can immediately tell that the project is running behind schedule.

For cost performance, we can see from the Planned Value Cost that we should have completed $400 of work at this point. However, our Actual Cost is $400 and we’ve only been able to achieve $200 of work in this time, as shown by Earned Value. This shows that the project is also over budget.

We can get more information on the project’s performance using the Cost Performance Index, Schedule Performance Index, and Estimate to Complete columns. 

What is the Cost Performance Index?

The Cost Performance Index (CPI) is a ratio of what was earned in value and the actual cost spent so far. An index less than 1 is over budget, and an index greater than 1 is under budget. This ratio is calculated using the following formula: 

Earned Value / Actual Cost = Cost Performance Index

In this project, the Earned Value is $200 and the Actual Cost is $400. $200 divided by $400 would give us a ratio of 0.5. A Cost Performance Index of 0.5 lets us know that the schedule is currently over budget. Although we can calculate this ratio manually, the Cost Performance Index column will compute it automatically.

What is the Schedule Performance Index?

The Schedule Performance Index (SPI) is a ratio of what was earned in value and what you had originally planned to spend at this point. Once again, an index less than 1 is behind schedule and an index greater than 1 is ahead of schedule. This ratio is calculated using the following formula:

Earned Value / Planned Value = Schedule Performance Index

In this project, the Earned Value is $200 and the Actual Cost is $400. $200 divided by $400 would give us a ratio of 0.5. A Schedule Performance Index of 0.5 lets us know that the project is currently behind schedule. Again, we can calculate this ratio manually. However, adding the Schedule Performance Index column in P6 will display this value automatically.

Lastly, we can look at the Estimate to Complete – but before we do that, we need to choose how P6 will compute this value.

Step 7: Set the technique for computing Estimate to Complete

The last step in performing earned value management in Primavera P6 is to choose a technique for computing Estimate to Complete. Estimate to Complete (ETC) is the estimated remaining costs for the rest of the activities in the schedule. When you add the Estimate To Complete value to the Actual Cost value, you’ll get the project’s Estimate At Complete. Estimate At Complete is the amount we will be spending on the project as a whole, once completed. One of the objectives of EVM is to try to keep the Estimate At Complete value as close as possible to the Budgeted at Complete (BAC) value. In other words, you’ll want to only spend as much on the project as you had originally planned to.

Before being able to calculate this, we need to go back to the Earned Value tab on the WBS screen.

On the right side of the tab, there are several options for how to compute ETC. The first option is ETC = remaining cost for activity. This is a basic manual forecast that will not recalculate any of the ETC values based upon performance. In other words, you’ll continue to assume you’ll be spending the original planned costs.

In the current project, we plan to build 8 more columns, and each column was originally set to cost $100 each. Using this option would make the Estimate to Complete value be $800. However, we now know that the planned costs weren’t accurate. Keeping this option at ETC = remaining cost would not give us a good estimate for the rest of the project.

The remaining options all use a Performance Factor (PF). A Performance Factor is a multiplier that you can use to trend ETC values based on project performance. You can base these performance factors on a simple 1 value, meaning not trending. Along with this, they can be set to trend based on the Cost Performance Index (CPI), Schedule Performance Index (SPI), or both. You can also enter in a custom performance factor if needed.

In this project, we now know how much each column will cost. We know that each column will cost exactly twice as much as we had originally expected to spend. Because of this, I’ll choose the last option and set the Performance Factor to 2. This will multiply our planned costs by 2 – increasing the costs for the remaining columns from $100 to $200.

Returning to the Activities page, we can see the Estimate to Complete is now set to $1600. Adding this value to the $400 that we have spent so far, our Estimate At Complete is now $2000. With each column continuing to cost $200, we now have an accurate estimate for the remaining project costs.

Summary

Earned value is a monetary value based on the project’s performance. With earned value, you can gain more insight on your project’s schedule and cost performance. Beyond tracking planned and actual costs, earned value allows you to analyze costs relative to project performance. Using earned value management, you can see whether your project is behind schedule or over budget compared to the baseline plan. You can perform earned value management in most scheduling applications – including P6 and MS Project. In Primavera P6, you will need to set up the program to prepare for earned value trackinge – which you can do by following the steps listed above. If you choose to perform EVM, you should continue to monitor these fields as the project progresses. Earned value fields, such as SPI and CPI, can help you mitigate any schedule or budgetary issues that may occur.

If you have any comments, questions or suggestions, please use the comment section on the bottom of this page. Don’t forget to subscribe to our blog to get more Oracle Primavera Cloud tips & tricks directly in your inbox!

Lauren Hecker is a Primavera P6, Oracle Primavera Cloud, and Microsoft Project instructor. She teaches both onsite and virtual scheduling courses. To see her next open enrollment course, please visit our calendar. To schedule an onsite or custom course, please contact us!