Why Projects Fail and How to Improve Their Success

with Sandra M Mitchell

Earned Value Terms and Formulas

Term Abbrev Formula Description

The sum of all budgets

How much was originally budgeted for
Budget at Completion BAC established for the work
this project
to be performed

The realized cost

incurred for the work
The total costs spent during a specific
Actual Cost AC performed on an activity
period of time
during a specific period
of time

EV=Actual % Complete The value of all the work completed

Earned Value EV
x BAC (earned) to a point in time

PV=Planned % Complete The value of the work planned to be

Planned Value PV
x BAC completed to a point in time

The difference between the value of

work completed to a point in time, and
Cost Variance CV CV=EV-AC
the actual costs to the same point in
time

The difference between the work

completed to a point in time, and the
Schedule Variance SV SV=EV-PV
work planned to be completed at the
same point in time

<1=bad
Measures the cost efficiency of
Cost Performance Index CPI CPI=EV/AC 1= on track budgeted resources at a specific point
in time.
>1 =good

< 1=bad
Schedule Performance Measures the schedule efficiency at a
SPI SPI=EV/PV 1= on track
Index specific point in time.
> 1 =good

The expected total cost of completing

Estimate at Completion EAC EAC=BAC/CPIC
all work

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The expected cost to finish all the

Estimate to Completion ETC ETC=EAC-AC
remaining project work

The estimated difference in cost at the

Variance at Completion VAC VAC=BAC-EAC
completion of the project

TCPIc=(BAC-EV)/(BAC-AC)

or

(BAC-EV)/remaining
To-Complete funding The efficiency that must be maintained
TCPIc
Performance Index in order to complete on plan

< 1 is good in this case

because you have the
space to spend more.

Here is an example that you can use to practice applying these formulas. The first thing you want to do is
calculate the first four values: BAC, AC, EV, and PV.

Example: You have a project to install 10 refrigerators in a restaurant. The cost per refrigerator is $2,750 and
the project will last 10 weeks. At week 5, six refrigerators were installed and you’ve spent $15,500.

Budget at Completion $27,500

Actual Cost $15,500

Earned Value Actual % Complete x BAC $16,500

Planned Value Planned % Complete x BAC $13,750

Cost Variance EV-AC $1,000

Schedule Variance EV-PV $2,750

Cost Performance Index EV/AC 1.06

Schedule Performance Index EV/PV 1.2

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Why Projects Fail and How to Improve Their Success
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Estimate at Completion EAC=BAC/CPI $25,943.39

Estimate to Completion ETC=EAC-AC $10,443.39

Variance at Completion VAC=BAC-EAC $1,556.61

To-Complete Performance Index BAC-EV)/(BAC-AC) 0.91666

BAC: To calculate BAC, just take the number of refrigerators (10) times the cost per refrigerator ($2,750).
10(2,750) = $27,500.

AC: The next value to get is the AC, which is stated as “you’ve spent $15,500.”

EV: Now, let’s calculate EV. You do this by taking Actual % Complete x BAC. To calculate the actual %
complete, take the number of refrigerators installed (6) and divide by the total number of refrigerators to
install (10). 6/10 = .60. Then apply the formula: .60 x $27,500 = $16,500. This is the earned value at this point in
the project.

PV: Now let’s calculate PV. You do this by taking Planned % Complete x BAC. To calculate the planned %
complete, take the number of refrigerators that were supposed to be installed by week 5 (5) and divide by the
total number of refrigerators to install (10). 5/10 = .50. Then apply the formula: .50 x $27,500 = $13,750. This is
the planned value at this point in the project.

Now, you have all the values needed to complete the rest of the equations. Let’s move on to the rest of the
formulas.

CV is calculated by taking EV-AC: 16,500 – 15,500 = $1,000. Notice that this is a positive number. This is good
because you’ve spent less money than what you planned to spend at this point in the project.

SV is calculated by taking EV-PV: 16,500 – 13,750 = $2,750. Notice that this is a positive number. This is good
because you’ve installed more refrigerators than what you planned at this point in the project.

Tip for any CV or SV value:

• > 1 is good as you’re getting more value out of your money or time
• < 1 is bad as you’re getting less value out of your money or time
• = 1 you’re right on target with costs and time

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CPI is calculated by taking EV/AC: 16,500/15,500 = 1.06. This is good. What this means is that for every $1.00
spent, you are getting $1.06 worth of value. You are getting more for your dollar.

SPI is calculated by taking EV/PV: 16,500/13,750 = 1.2. This is good. What this means is that for every one hour
worked, you are getting 1.2 hours’ worth of work done. You are getting more for your time.

Tip for any CPI or SPI index value:

• > 1 is good as you’re getting more value out of your money or time
• < 1 is bad as you’re getting less value out of your money or time
• = 1 you’re right on target with costs and time

The following formulas are used for forecasting:

Estimate at Completion is calculated by BAC/CPI: 27,500/1.06 = $25,943.39. This means if the project
continues performing, as it is now, without any changes, that the total cost of the project at completion will
be $25,943.39. This is great news because the BAC was set at $27,500. The sponsor will pay less than planned
for the project.

Estimate to Completion is calculated by EAC-AC: 25,943.39 – 15,500 = $10,443.39. This looks at what you’ve
already spent (AC) and what you estimate to spend at completion (EAC) and subtracts them so you end up
with an amount you’ll spend from now until the end of the project.

Variance at Completion is calculated by BAC-EAC: 27,500 – 25,943.39 = $15,56.61. This tells you the difference
between what was budgeted (BAC) and what you’ll actually spend on the project (EAC).

To-Complete Performance Index is calculated by (BAC-EV)/(BAC-AC) (original budget) or (BAC-EV)/(EAC-AC)

(current forecast).

(27,500 – 16,500) / (27,500 – 15,500) = 11,000/12,000 = 0.91666. This is good. The project team doesn’t have to
work as hard to control costs. If they continue as they are now, then they’ll be under budget.

Tip: This calculation is the exception when it comes to the indices. You want this number to be =/–1 because it
measures the amount of effort needed to achieve the financial goals. Let’s say the value was 1.50. This means
the project team would have to find ways to save .50 per dollar to complete the project on budget.

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• > 1 is bad
• < 1 is good
• = 1 you’re right on target

Tip: Here’s a way that might help you remember these four formulas. First, put them in alphabetical order:
CV, SV, CPI, SPI.

CV = EV-AC

SV = EV-PV

CPI = EV/AC

SPI = EV/PV

• Notice that they each start with EV

• The first two are minus, minus
• The second two are divide, divide
• In alphabetical order, AC (costs) comes before PV (schedule) so it’s AC, PV, AC, PV.
This only works if you do it in order vertically

Tip: Also, there’s somewhat of a pattern with these three formulas that might help you remember them.
First, put them in alphabetical order.

EAC=BAC/CPI

ETC=EAC-AC

VAC=BAC-EAC

Next, if you look at them like it’s a tic-tac-toe board, notice how EAC starts in the upper-left corner,
then goes to the middle and then to the bottom-right corner. Then, BAC is on the top and the bottom.

Then remember to divide, then minus, minus. The last two you just need to remember,
no tricks: CPI and then AC.

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