Most IT projects go over budget. Sound familiar? Imagine that you are running a project, and after the first sprint, you feel that finances are getting out of control. Fortunately, some techniques allow you to retake the reins. One of them is Earned Value Management (EVM).
Learn the story of Adam, an aspiring Project Manager who, thanks to EVM, saved a project worth tens of thousands of euros. It’s not a fairy tale, but a specific plan of action that you can replicate step by step.
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When Excel is no longer enough
Adam got his first big project in his hands: creating a company fitness app.
- Budget (BAC): 60 000 EUR
- Lead time: 12 months
Half a year has passed. The sponsor came with a key question: “Where can I see the results of my work so far?”
Adam panicked because all he could see was chaos in the report. I know it’s a typical situation, but you can do it differently. I’ll show you how EVM (Earned Value Management) turned stressful chaos into a clear plan of action.
The sixth month and the first alarm!
“We have already spent EUR 21,000 and have completed 40% of the project,” reported Ania, the team leader.
Adam looked at the data and realized that He doesn’t know if it’s good or bad. Excel itself did not answer as to whether the project was being implemented as planned.
It turned out that a more experienced colleague, Rafał, uses the Earned Value method in his projects. Adam asked him for help, and then he learned the rules of calculating EVM.
How do you calculate Earned Value (EVM)? Instruction on an example
If you want to calculate Earned Value (EV) in an IT project, you need three basic metrics:
- PV (Planned Value)
- AC (Actual Cost)
- EV (Earned Value) – Earned Value (i.e., the value of the work actually performed)
Before you get into the calculations, you need to know the baseline, or Budget at Completion (BAC) – the total budget of the project. This is your base. In Adam’s project, BAC was EUR 60,000, and we will build on this example.
We divide this budget into stages (or sprints), e.g., analysis, backend, frontend, testing, and implementation, assigning a specific value from the budget to each (e.g., analysis = 4,000 EUR, backend = 26,000 EUR, frontend = 20,000 EUR, tests = 7,000 EUR, implementation = 3,000 EUR).
Step 1: Calculate the planned value (PV)
PV shows how much work should be done (and how much it should “cost”) at a given stage of the project.
For the sake of simplicity, let’s assume that the pace of project implementation is the same throughout its duration. This means that in the middle of the project (after 6 months), 50% of the work should be completed.
Formula: PV = Planned Completion Percentage x Project Total Value (BAC)
In our case:
PV = 50% x €60,000 = €30,000
Our PV (Planned Value) is therefore EUR 30,000.
Step 2: Define AC (Actual Cost) i EV (Earned Value)
Ania reported that EUR 21,000 of the budget had been spent and 40% of the scope of work had been completed.
We take the AC (Actual Cost) value directly from the budget statement. In the example cited, it will be EUR 21,000.
On the other hand, EV (Earned Value) must be calculated using the percentage of work done so far and the total budget of the project.
Formula: EV = Actual Completion Percentage x Project Budget (BAC)
In our case:
EV = 40% x €60,000 = €24,000.
Step 3: Analyze CV and SV metrics
With the basic parameters calculated, we can move on to the analysis of progress and budget. We are now interested in two key indicators:
Cost Variance (CV) – shows whether the project is under budget or over budget.
Formula: CV = EV − AC
(Positive = savings, negative = over budget)
In our example:
CV = €24,000 – €21,000 = +€3,000
(Diagnosis: We have EUR 3,000 in savings in the project.)
Schedule Variance (SV) – Shows whether the schedule is on schedule.
Formula: SV = EV – PV
(Negative = delay, positive = ahead of schedule)
In our example:
SV = €24,000 – €30,000 = – €6,000
(Diagnosis: We have a delay in the project.)
Step 4: Analysis of CPI and SPI indicators
Finally, two absolute indicators will help us assess the effectiveness of the project (e.g., in relation to other projects in the organization), which can also be a valuable guide for us when making further decisions.
CPI (Cost Performance Index) – an indicator of cost efficiency.
Formula: CPI = EV / AC
(CPI > 1 = efficient, CPI < 1 = we burn through the budget)
In our case:
CPI = €24,000 / €21,000 = 1.14
(Diagnosis: The project is cost-effective. For every EUR 1 spent, the value of the work equal to EUR 1.14 was obtained.)
SPI (Schedule Performance Index) – an indicator of the performance of the schedule.
Formula: SPI = EV / PV
(SPI < 1 = the project is carried out slower than planned, SPI > 1 = faster)
In our case:
SPI = €24,000 / €30,000 = 0.8
(Diagnosis: The project is being implemented at a slower pace; we are only reaching 80% of the planned pace.)
What do these data tell us?
The analysis of the indicators is precise: Adam’s project is under budget (saves money), but has delays. To maintain efficiency, the team needs to accelerate before the delay translates into higher costs. Fortunately, savings (positive CVs) give room for maneuver – they can be used, for example, for additional resources to make up for lost time.
Thanks to EVM, Adam precisely diagnosed the problem: the problem was not the budget, but the pace of work. This allowed him to focus on the real challenge, instead of looking for improvements “blindly”.
Secret 1: Measure Real Progress, Not the “Impression” of Progress
Many Project Managers trust the “feel” – “it seems to be going well”. Adam learned to count the facts:
- EV = percentage of completion × planned budget
- CPI = EV/AC (Are you over or under budget?)
- SPI = EV/PV (Are you on schedule?)
These are simple patterns, but they are a game-changer. You see the numbers, not the impressions. PM’s intuition will never replace complex data, although I know that a good “feel” of the project is something that helps a lot.
What can you do? For example, update your EVM data once a week. Thanks to this, you will catch risks faster than from a report after a month.
EVM in practice: How to talk to your team?
After implementing EVM, Adam showed the results to the team: “We are under budget (CPI 1.14), but too slow (SPI 0.8). Together we can improve this.”
Usually, the team reacts to the slogan “we are late” with panic or apathy. But Adam, thanks to EVM, knew he had €3,000 in savings. He could have planned additional, paid work with the developers to make up for the delay. It was a completely different approach than throwing the slogan “do something about it” at the team.
After a month, the statistics could look like this: SPI = 0.95, CPI = 1.1 – almost perfect balance.
Transparency is a key premise of EVM. Sharing results builds accountability and trust. So be sure to share your EVM results with your team, not just your sponsor.
Tools that help (and don’t kill the PM)
Adam moved the calculations from Excel to Jira using one of the available add-ons (e.g., BigPicture, Tempo Planner, or other portfolio management plugins). Thanks to this, he could see in real time:
- Per sprint spend;
- EV and PV in the form of a graph (S-Curve);
- Warning indicators are used when a cost or schedule deviates from the plan.
EVM automation means less counting, more management. Of course, using the tool built into Jira is just an example. You can use any EVM counting tool – it’s essential that you can easily verify the current status of your project and react quickly when it starts to deviate from the designated path.
Secret 2: How to avoid panic using EVM
Think of EVM periodic verification as an early warning system in your project. If the implementation starts to deviate from the plan, this is an impulse for you to take action. The difference can be both positive and negative, so, as always in a project, opportunities can be used, and risks should be minimized. IT Risk Management: Key Strategies, Tools, and Case Studies.
When the first yellow cards appeared in the schedule (SPI 0.8), Adam remembered one thing: “It’s not the team’s fault, it’s just a warning signal.” Together, they analyzed the cause of the delays, instead of looking for the culprits.
By regularly informing the team about EVM metrics, everyone felt co-responsible for the success and was ready to help when difficulties arose.
Summary: EVM is a personal trainer for your project
Earned Value Management is not corporate bureaucracy. It’s like post-match analysis: complex data that shows the actual result.
Thanks to EVM, Adam not only delivered the project on budget but also gained the trust of the team and sponsors. What about you? It may be time for your projects to start winning against the budget instead of losing to it.
Share in the comments if you have already tried to apply EVM in your project!