Understanding PV, EV, and AC: The Core Components
To effectively use any EVM formulas cheat sheet, you must first master the three fundamental data points: Planned Value (PV), Earned Value (EV), and Actual Cost (AC). These values represent the "snapshot" of a project at any given status date. PV, also known as the Budgeted Cost of Work Scheduled (BCWS), is the authorized budget assigned to work scheduled to be completed by a specific point in time. It is derived directly from the cost baseline. EV, or the Budgeted Cost of Work Performed (BCWP), represents the value of work actually completed, expressed in terms of the budget assigned to that work. Finally, AC, or the Actual Cost of Work Performed (ACWP), is the total cost incurred for the work performed during a specific period.
Exam questions often provide these values in a narrative format, requiring you to extract them accurately. A common trap is confusing PV with EV; remember that PV is what you planned to do, while EV is what you actually accomplished, valued at the planned rate. If a project has a total budget of $100,000 and you are 50% through the timeline but have only completed 40% of the work, your PV is $50,000, while your EV is $40,000. These three pillars form the basis for every variance and index calculation you will perform.
The Significance of Budget at Completion (BAC)
Budget at Completion (BAC) is the sum total of all budgets established for the work to be performed. It represents the total cost baseline for the project. In the context of the PMP exam, the BAC is a static figure unless a formal change request is approved to modify the scope or budget. It serves as the target endpoint for the project’s financial performance. While PV, EV, and AC change as the project progresses, the BAC remains the benchmark against which the final project performance is measured.
Understanding the BAC is critical for calculating the Estimate at Completion (EAC) formulas later in the project lifecycle. It is also the terminal value of the Planned Value curve; at the very end of the project, PV must equal BAC. When solving exam problems, pay close attention to whether a question provides the BAC or if you need to calculate it by summing the individual work package budgets. If a project is terminated early, the BAC remains the original goal, while the EV reflects the value of the work finished before the shutdown. This distinction is vital for accurate variance at completion reporting.
Calculating Project Variances
Cost Variance (CV) and Schedule Variance (SV)
Variances are the simplest way to measure project performance. The cost variance formula PMP candidates must memorize is CV = EV – AC. This calculation determines if the project is under or over budget by comparing the value of the work completed to the actual money spent. Simultaneously, the Schedule Variance (SV) is calculated as SV = EV – PV. This measures the distance between the work actually performed and the work planned for that same period. Both formulas use Earned Value as the starting point, which is a key rule for the exam: EV always comes first in variance subtractions.
In a real-world exam scenario, you might be told that a project has spent $45,000 (AC) to achieve $40,000 worth of work (EV), while the plan called for $50,000 of work (PV) by this date. Applying the formulas, CV = $40,000 - $45,000 = -$5,000 (over budget), and SV = $40,000 - $50,000 = -$10,000 (behind schedule). These absolute values provide a dollar-denominated view of the project's current status, helping stakeholders understand exactly how much the project is drifting from its baseline in monetary terms.
Interpreting Positive and Negative Variance Results
On the PMP exam, the sign of the variance (positive or negative) is more important than the number itself for qualitative questions. For both CV and SV, a negative result is "bad" and a positive result is "good." A negative CV indicates that the project is over budget—you have spent more than the value of the work produced. A negative SV indicates the project is behind schedule—the value of work completed is less than what was planned. Conversely, a positive CV means the project is under budget, and a positive SV means the project is ahead of schedule.
Warning: A zero variance indicates the project is exactly on plan. However, on the PMP exam, a zero variance is rare. You must be prepared to analyze what a $0 CV means (spending exactly what was planned for the work completed) versus what a $0 SV means (completing exactly the amount of work scheduled).
Understanding these interpretations allows you to answer "What should the project manager do next?" questions. If CV is negative, the manager may need to perform a root cause analysis or look for cost-saving measures. If SV is negative, schedule compression techniques like crashing or fast-tracking may be required.
The Cost Performance Index (CPI) is perhaps the most critical metric in EVM, as it measures the cost efficiency of the work completed. To calculate CPI SPI TCPI, you must use division rather than subtraction. The formula is CPI = EV / AC. This index tells you the value you are receiving for every dollar spent. A CPI of 1.0 indicates that the project is performing exactly to budget. A CPI greater than 1.0 indicates cost efficiency (under budget), while a CPI less than 1.0 indicates poor cost performance (over budget).
For example, a CPI of 0.85 means that for every $1.00 spent, the project is only receiving $0.85 worth of value. This represents a 15% cost overrun. On the exam, CPI is considered the most stable predictor of project performance. If a question asks which metric is most reliable for forecasting the final cost of the project, the answer is almost always the CPI. It is used extensively in the various EAC formulas to predict the final total cost based on current efficiency trends.
The schedule performance index (SPI) measures the efficiency of the project team in using their time. It is calculated as SPI = EV / PV. Similar to CPI, an SPI of 1.0 means the project is exactly on schedule. An SPI greater than 1.0 means the project is ahead of schedule, and an SPI less than 1.0 means the project is behind schedule. It is important to note that SPI eventually becomes 1.0 when the project is finished, even if it was late, because EV will finally equal PV (both will equal BAC).
When analyzing SPI, you are looking at the rate at which the project is progressing compared to the plan. If the SPI is 0.7, the project is only progressing at 70% of the planned rate. On the PMP exam, you may see questions where SPI and CPI provide conflicting signals—for instance, a project that is ahead of schedule (SPI > 1.0) but over budget (CPI < 1.0). This often suggests that the project manager has "crashed" the schedule, adding resources (increasing costs) to complete work faster. Recognizing these relationships is a hallmark of an advanced candidate.
Estimate to Complete (ETC) for Remaining Work
The Estimate to Complete (ETC) is the expected cost needed to finish all the remaining project work. This is a "forward-looking" metric. While AC tells you what you have already spent, the ETC tells you what you still need to spend from this point forward. There are two primary ways to determine ETC on the exam. The first is a bottom-up estimate, where the project team re-estimates the remaining work from scratch. This is used when the original assumptions are no longer valid.
The second way is using a formula based on the current performance. If the project is expected to proceed at the current CPI, the formula is ETC = (BAC – EV) / CPI. If the future work is expected to be performed at the budgeted rate, the formula is simply ETC = BAC – EV. Knowing which ETC to use depends on the scenario provided in the exam question. If the question mentions that a one-time anomaly occurred, you assume future work will return to the planned rate. If the question suggests current trends will continue, you factor in the CPI.
The estimate at completion (EAC) formulas are used to predict the total final cost of the project at the end of the day. There are four variations you must know for the PMP exam:
- EAC = BAC / CPI: Use this if you expect the current cost performance (CPI) to continue for the remainder of the project. This is the most common "typical" variance formula.
- EAC = AC + (BAC – EV): Use this if you believe the current variances are atypical and that the rest of the project will be performed at the original budgeted rate.
- EAC = AC + Bottom-up ETC: Use this when the original plan is fundamentally flawed or when a significant change in the project scope has occurred.
- EAC = AC + [(BAC – EV) / (CPI × SPI)]: Use this "stringent" formula when both the cost and schedule performance are expected to influence the remaining work. This is often used when the project has a firm completion date and is currently over budget.
Choosing the right EAC formula requires careful reading of the question's context. If the exam states "the project experienced a one-time equipment failure," use the atypical formula. If it says "current performance is expected to persist," use the typical (BAC/CPI) formula.
Advanced EVM Calculations
The To-Complete Performance Index (TCPI) is a unique metric that tells you the level of efficiency your team must maintain for the remainder of the project to meet a specific goal. Unlike CPI, which tells you how you have been performing, TCPI tells you how you must perform. There are two versions of this formula. To meet the original BAC, the formula is TCPI = (BAC – EV) / (BAC – AC). To meet a revised EAC, the formula is TCPI = (BAC – EV) / (EAC – AC).
Interpreting TCPI is the opposite of CPI in terms of "good" and "bad" numbers. If the TCPI is greater than 1.0, it is "harder" to achieve because you must be more efficient than originally planned. For example, a TCPI of 1.25 means you must get $1.25 worth of work out of every $1.00 spent. If the TCPI is less than 1.0, it is "easier" to achieve because you have a budget cushion. This metric is essential for a project manager to determine if a recovery plan is realistic. If the CPI is 0.7 and the TCPI required to meet the BAC is 1.5, the goal is likely unattainable.
Calculating Variance at Completion (VAC)
Variance at Completion (VAC) is a forecast of the total budget surplus or deficit at the end of the project. It is the difference between what you originally planned to spend and what you now expect to spend. The formula is VAC = BAC – EAC. This is a simple subtraction, but its implications are significant for stakeholder management and high-level reporting.
Like CV and SV, a positive VAC is favorable (you expect to finish under budget), while a negative VAC is unfavorable (you expect to finish over budget). On the PMP exam, you might be asked to calculate VAC after first calculating EAC. This two-step process tests your ability to link different EVM concepts. For instance, if your BAC is $100,000 and your calculated EAC is $110,000, your VAC is -$10,000. This indicates a forecasted 10% overrun, which would necessitate immediate communication with the project sponsor and potentially the use of management reserves if the variance is due to unforeseen risks.
Applying EVM to PMP Exam Scenario Questions
Step-by-Step Approach to Solving EVM Problems
When faced with a word problem involving PMP earned value management formulas, follow a systematic approach to avoid errors. First, identify and list the known variables (PV, EV, AC, and BAC). Often, these are hidden in sentences like "the project is 30% complete" or "you have spent $5,000 so far." Translate these into their EVM counterparts: if the budget is $10,000 and it's 30% complete, EV = $3,000. Second, identify what the question is asking for. Is it asking for current status (CV/SV/CPI/SPI) or a forecast (ETC/EAC/VAC/TCPI)?
Third, select the appropriate formula based on the "flavor" of the scenario (typical vs. atypical performance). Finally, perform the calculation and check the result against the qualitative options. If your CPI calculation results in 0.8, the project is over budget; if the multiple-choice options include "the project is performing well," you can immediately eliminate that choice. This logical cross-check ensures that a simple math error doesn't lead you to the wrong conceptual answer. Always keep your scratch paper organized so you can re-verify your numbers if the result seems counter-intuitive.
Common Pitfalls and Misinterpretations to Avoid
One of the most common pitfalls on the PMP exam is misapplying the "percent complete" to the wrong variable. Remember that Percent Complete × BAC = EV. A common mistake is multiplying the percent of time elapsed by the BAC to get EV; this actually gives you the PV. EV must always be based on the actual physical work completed. Another frequent error is the "inverse" mistake: accidentally dividing AC by EV when calculating CPI. Always remember the mnemonic "EV is always on top" for index formulas (CPI = EV/AC; SPI = EV/PV).
Additionally, be wary of questions that provide irrelevant data, such as "sunk costs" or "management reserves." Sunk costs should never influence future project decisions or EVM calculations. Management reserves are not part of the cost baseline and therefore are not included in BAC or EV calculations unless they have been formally incorporated into the baseline via a change request. Finally, remember that if SPI is less than 1.0, the project is behind schedule, but this doesn't automatically mean the project will be late; it simply means that based on current efficiency, the project is moving slower than planned. Distinguishing between "current status" and "final outcome" is key to scoring high on the EVM portion of the exam.