3.4 Cost Management and Earned Value
Key Takeaways
- Earned Value Management (EVM) integrates scope, schedule, and cost to measure project performance objectively
- The three fundamental EVM values are Planned Value (PV), Earned Value (EV), and Actual Cost (AC)
- Schedule Variance (SV) = EV - PV and Cost Variance (CV) = EV - AC — negative values indicate behind schedule or over budget
- Schedule Performance Index (SPI) = EV/PV and Cost Performance Index (CPI) = EV/AC — values less than 1.0 indicate poor performance
- Estimate at Completion (EAC) predicts the total project cost based on current performance trends
Last updated: March 2026
Cost Management and Earned Value
Cost management and Earned Value Management (EVM) are critical CAPM exam topics. EVM is the gold standard for objectively measuring project performance.
Cost Management Processes
| Process | Process Group | Purpose |
|---|---|---|
| Plan Cost Management | Planning | Establish how costs will be managed |
| Estimate Costs | Planning | Develop cost approximations for activities |
| Determine Budget | Planning | Aggregate costs to establish the cost baseline |
| Control Costs | Monitoring & Controlling | Monitor costs and manage changes to the cost baseline |
Project Budget Components
Total Project Budget
├── Cost Baseline (what you measure performance against)
│ ├── Work Package Estimates
│ ├── Contingency Reserves (known risks)
│ └── Activity cost estimates
└── Management Reserves (unknown risks)
| Component | Purpose | Controlled By |
|---|---|---|
| Cost Estimates | Approximation of cost for each activity | Project Manager |
| Contingency Reserves | Budget for identified risks (known unknowns) | Project Manager |
| Cost Baseline | Approved time-phased budget for measuring performance | Change Control Board |
| Management Reserves | Budget for unidentified risks (unknown unknowns) | Management |
Earned Value Management (EVM)
EVM integrates three dimensions of project performance:
The Three Fundamental Values
| Value | Symbol | Definition | Question It Answers |
|---|---|---|---|
| Planned Value | PV | Authorized budget assigned to scheduled work | "What did we plan to accomplish?" |
| Earned Value | EV | Measure of work performed in terms of the budget authorized | "What did we actually accomplish?" |
| Actual Cost | AC | Actual cost incurred for work performed | "What did it actually cost?" |
Variance Analysis
| Metric | Formula | Interpretation |
|---|---|---|
| Schedule Variance (SV) | SV = EV - PV | Positive = ahead of schedule, Negative = behind schedule |
| Cost Variance (CV) | CV = EV - AC | Positive = under budget, Negative = over budget |
Performance Indices
| Index | Formula | Interpretation |
|---|---|---|
| Schedule Performance Index (SPI) | SPI = EV / PV | > 1.0 = ahead, < 1.0 = behind, 1.0 = on schedule |
| Cost Performance Index (CPI) | CPI = EV / AC | > 1.0 = under budget, < 1.0 = over budget, 1.0 = on budget |
Forecasting with EVM
| Metric | Formula | Use |
|---|---|---|
| Estimate at Completion (EAC) | BAC / CPI | Total project cost forecast (assuming current CPI continues) |
| EAC (typical variance) | AC + (BAC - EV) / CPI | Most common formula when current variances are expected to continue |
| EAC (atypical variance) | AC + (BAC - EV) | When current variances are atypical and won't continue |
| Estimate to Complete (ETC) | EAC - AC | How much more will the remaining work cost |
| Variance at Completion (VAC) | BAC - EAC | Expected budget surplus or overrun at completion |
| To-Complete Performance Index (TCPI) | (BAC - EV) / (BAC - AC) | Required CPI to meet the budget |
EVM Example
A project has:
- Budget at Completion (BAC) = $100,000
- After 50% schedule elapsed: PV = $50,000
- Work completed: EV = $45,000
- Actual spending: AC = $55,000
Calculations:
- SV = EV - PV = $45,000 - $50,000 = -$5,000 (behind schedule)
- CV = EV - AC = $45,000 - $55,000 = -$10,000 (over budget)
- SPI = EV / PV = 45,000 / 50,000 = 0.90 (90% schedule efficiency)
- CPI = EV / AC = 45,000 / 55,000 = 0.82 (82% cost efficiency)
- EAC = BAC / CPI = 100,000 / 0.82 = $121,951 (projected total cost)
- VAC = BAC - EAC = 100,000 - 121,951 = -$21,951 (projected overrun)
Memory Aid: For variances, Earned Value always comes first (EV - PV for schedule, EV - AC for cost). Positive is good, negative is bad. For indices, EV is always the numerator (EV/PV for SPI, EV/AC for CPI). Greater than 1.0 is good, less than 1.0 is bad.
Test Your Knowledge
A project has PV = $80,000, EV = $70,000, and AC = $90,000. What is the Cost Variance?
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Test Your Knowledge
A project has an SPI of 0.85 and a CPI of 1.10. What does this indicate?
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Test Your Knowledge
The difference between contingency reserves and management reserves is:
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Test Your Knowledge
A project has BAC = $200,000 and CPI = 0.80. What is the Estimate at Completion (EAC)?
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