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ChaPter 3 • ProjeCt management 83

Planned value (PV) is simply the cumulative estimate at the end of month 4, or $15,000. In
order to calculate the planned value (PV) we need to multiply the earned value (EV) by the per-
centage of the project that is complete. We see in the table that the first three stages are complete,
but the fourth stage is only half finished. To date, this means that:
p 5 (100 1 100 1 100 1 50)/(100 1 100 1 100 1 100)
5 .875
So the earned value (EV) is:
EV 5 PV * p
5 $15,000 * .875
5 $13,125
The four variables—budget at completion (BAC), planned value (PV), actual cost (AC), and
earned value (EV)—are the core of earned value management. They can be used to calculate a
number of performance measures, including cost variance, schedule variance, the cost perfor-
mance index, and the schedule performance index:
• Cost variance (CV) tells us whether the project or task is costing more than we have
planned. If cost variance is negative, our costs are greater than planned. If it is positive, it
is costing less than planned. Cost variance is simply:
CV 5 EV 2 AC

• Schedule variance (SV) tells us whether the project is taking more time than planned. If so,
it will have a negative impact on our costs. Once again, if schedule variance is negative,
then it is taking longer than planned to perform the work, and the amount is the cost
overage. If schedule variance is positive, then it is taking less time than planned, and the
amount indicates how much we are under budget. Schedule variance is obtained by sub-
tracting the planned value from the earned value, as follows:
SV 5 EV 2 PV

• Cost performance index (CPI) is a ratio that signifies whether a project is over budget. If
the index is less than 1.0, the project or task is over budget. If the ratio is greater than 1.0,
the project or task is under budget. Cost performance index can be calculated as follows:

CPI 5 EV / AC
• Schedule performance index (SPI) is another ratio, this one used to tell whether a project is
falling behind schedule. If the schedule performance index is less than 1.0, it implies that
the project or task is behind schedule. If the schedule performance index ratio is greater
than 1.0, the project is ahead of schedule. Schedule performance index (SPI) can be calcu-
lated as follows:

CPI 5 EV / PV
In our continuing example of website development, we can now calculate these four perfor-
mance measures:
Cost variance at the end of the fourth month is:

CV 5 EV 2 AC
5 $13,125 2 $17,000
5 (2$3,875)

meaning that we are $3,875 over budget.
Schedule variance is:
SV 5 EV 2 PV
5 $13,125 2 $15,000
5 (2$1,875)
implying that we are behind schedule and are over budget.