# The Earned Value Management formulas

Topics: Cost, Project management, Cost overrun Pages: 8 (1414 words) Published: October 13, 2013

There are two useful numbers that you can compute with the EAC. One of them is called Estimate to Complete (ETC), which tells you how much more money you’ll probably spend on your project.

And the other one, Variance at Completion (VAC), predicts what your variance will be when the project is done.

ETC = EAC - AC€11, 507 – €5, 750 = €5, 757(how much the rest of the project likely to cost)

Since EAC predicts how much money you’ll spend, if you subtract the AC, you’ll find out how much money the rest of the project will end up costing.

VAC = BAC –EAC€10, 000 – €11, 507 = €1, 507(extra money required)

If you end up spending more than your budget, the VAC will be negative… just like CV and SV!

Finding missing information

Let’s say you’re given...

… the CPI and Earned Value, and you want to figure out the actual costs. Why would you ever see this? Sometimes it’s hard to figure out how important a project is unless you know how much it’s really spending—if a project is more expensive, people in your company probably care more about it.

If you’re told that a project’s CPI is 1.14 and its EV is €350,000, how do you figure out the actual costs?

CPI=EV/AC

1.14=€350,000/AC

AC = € 307, 017

Let’s say you’re given...

… the Earned Value and actual percent complete, and you want to figure out the project’s budget. This can be really helpful when you need to “read between the lines” when you need to make a decision about a project when someone doesn’t want to give you all the information you need.

When you have a project’s EV of \$438,750 and its actual % complete of 32.5%, how do you figure out the total budget (BAC)

EV = BAC x Actual % Complete

\$438,750 = BAC x 32.5%

\$438,750 = BAC x 0.325

BAC = \$1, 350, 000

Let’s say that you’re running 15% over budget today. If your budget is \$100,000, then your CPI will be CPI=EV/AC

CPI=(\$100,000)/(\$115,000)=0.87

One good way to predict what your final budget will look like is to assume that you’ll keep running 15% over budget. Let’s say your total budget is \$250,000. If you’re still 15% over at the end of the budget, your final CPI will still be

CPI=(\$250,000)/(\$287,500)=0.87

Your CPI will always be .87 if you’re 15% over budget. That’s why we call that forecast EAC—it’s an ESTIMATE of what your budget will look like AT COMPLETION. By dividing CPI into BAC, all you’re doing is calculating what your final budget will be if your final budget overrun or underrun is exactly the same as it is today.

EAC is a good way to estimate costs, because it’s easy to calculate and relatively accurate—assuming that nothing on the project changes too much. But you’re right, if a whole lot of unexpected costs happen or your team members figure out a cheaper and better way to get the job done, then an EAC forecast could be way off!

But for the PMP exam, you just need to know:

EAC=BAC/CPI

Keep your project on track with TCPI

You can use Earned Value to gauge where you need to be to get your project in under budget. TCPI can help you find out not just whether or not you’re on target, but exactly where you need to be to make sure you get things done with the money you have.

To-Complete Performance Index (TCPI)
This number represents a target that your CPI would have to hit in order to hit your forecasted completion cost. If you’re performing within your budgeted cost, it’ll be based on your BAC. If you’re running over your budget, you’ll have to estimate a new EAC and base your TCPI on that.

There are two different formulas for TCPI. One is for when you’re trying to get your project within your original budget, and the other is for when you are trying to get your project done within the Estimate At Completion you’ve determined from Earned Value Calculations.

BAC based:

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

EAC based:...