What is the difference between Planned Value (PV) and Earned Value (EV)? If you’ve got team members asking you this, or you are trying to work it out for yourself, look no further!
In this article, we’ll answer the question: “How do you calculate EV and PV?” and give you a worked example for both so you can see how to use these formulas in practice.
Planned Value (PV)
One of the first things you’ll do when you get started with earned value management calculations is to work out the Planned Value (PV). This is the value of the work that is due to be carried out on the project, based on the activities from the project schedule.
It’s a financial figure, so although we’re talking about ‘value’ what you are measuring is a monetary amount which equates to the approved project budget for an activity or work breakdown structure component. It’s usually used to represent the cost of part of the project because the PV for the whole project is the same as the Budget at Completion, so we tend to use BAC to talk about the whole project.
You’ll also hear it referred to as Budgeted Cost of Work Scheduled (BCWS) which is perhaps an easier term to use when explaining it to other people, although most of the textbooks now stick with PV.
PV is calculated at the beginning of the project, before the work is carried out. It becomes your financial baseline.
How to Calculate Planned Value
Formula: PV = task budget x percent complete
Simply multiply the amount of work complete (or planned to be complete at any given point) by the budget for the work. When a task is 100% complete, the PV will equal 100% of the budget for that activity.
Worked Example: Planned Value
Let’s say you have a project with a duration of six months. The project’s budget is $60k. You are three months into the project and the client asks you to update the earned value management numbers (whoops – you should have been on top of this!). The team is halfway through the work so 50% of it should have been completed.
The client asks you to send them the PV.
We know that PV is the financial amount equivalent to the work that should have happened according to the schedule. We do not need to take into account any actual progress or performance at this time.
PV = 50% of $60k
PV = $30k
OK: it’s a little bit odd for a client to be requesting the PV numbers, because they are used to calculate schedule variance and Schedule Performance Index (SPI) which are more useful to know, but hopefully that illustrates the calculations!
Earned Value (EV)
Next, we come to Earned Value (EV). It’s the value of the work that has actually been completed, so this is where project performance comes into play. No longer are we working out monetary figures against the baseline – we’re dealing in the cold, hard world of reality and what the project team has managed to get done.
Consequently, we should expect EV and PV to be a little bit different, knowing what we do about how changes and circumstance affect a team’s ability to be able to deliver exactly to schedule!
Earned Value represents what you have got for the investment in the project so far and can help you spot trends. You’ll also hear it referred to as Budgeted Cost of Work Performed (BCWP), which is a good way of explaining it to people new to the concepts of EVM, although it is slightly old-fashioned nomenclature.
How to calculate Earned Value
Formula: EV = BAC x % complete
You work out EV by multiplying the percent complete for the work package or project as a whole by the budget for the task.
Worked Example: Earned Value
Let’s use the same project. It has a duration of six months, a budget of $60k and you’ve been working on it for three months. However, you are running behind plan and the client is getting concerned. They want an EV report to quantify the situation.
When you look into project performance, it is worse than you expected and only 30% of the work has been completed. You know you should be at 50% because you are halfway through the project. So what is the project’s EV?
EV = 30% of $60k
EV = $18k
This is not good news to the client and you start to think about ways to get the project back on track. You dive deeper into the numbers and use the EV to work out the schedule and cost variances, SPI and Cost Performance Index (CPI).
If the calculations are starting to sound a bit tricky, do not worry. Earned value management software can do a lot of the heavy lifting for you and create tailored reports so you have real-time data at your fingertips without having to get out your calculator.
Both these calculations are covered and explained in our earned value management training.
The differences between EV and PV
As you’ve seen, the main difference between Planned Value and Earned Value is that Planned Value does not take actual performance into account. That doesn’t make it less useful: it is the baseline figure against which you can compare actual performance.
EV gives you a general overview of how the project is doing, but you’ll want to dig into the other calculations and the context behind the project’s performance to get the full picture about any variances and why they are happening.
EV tools can help with presenting and interpreting the data in the fastest way, so as long as your software is set up to support you in data analysis, you’ll be able to draw conclusions from your numbers to take the appropriate action.