Earned Value Management Concepts & Formulas Explained - Gather

You're three months into a £12 million infrastructure project. The client wants to know if you're on track. Your project director is asking for a cost forecast. And you're staring at a spreadsheet trying to work out whether that 0.87 CPI means you should be worried.

This guide gives you everything you need to actually use earned value management on your projects. Not just the formulas (though they're here too), but the practical knowledge to interpret the numbers, spot problems early, and present confident forecasts to clients and stakeholders.

Quick Reference: The Formulas You Need

Before we dive into the detail, here's what you came for:

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‍The three core values:

Why EVM Matters in Construction

Earned value management sounds like something from a project management textbook. And frankly, that's part of the problem. The theory gets taught in RICS courses and then sits unused because it seems disconnected from the reality of running a construction project.

But here's what EVM actually does: it answers the question your client, your project director, and your finance team are constantly asking. "Are we going to finish on budget?"

Without EVM, you're guessing. You might be guessing well, based on experience and intuition. But you're still guessing.

With EVM, you have a structured way to measure progress against plan, identify trends before they become crises, and forecast outcomes with evidence to back them up.

The catch? EVM is only as good as the data feeding it. If your records of what work was actually completed, and what it actually cost, are scattered across site diaries, timesheets, and email chains, your earned value calculations will be worthless.

A Worked Example: Making the Numbers Real

Let's work through an example that mirrors what you'd see on an actual project.

The scenario: You're the QS on a highways project with a total budget (BAC) of £5,000,000. You're at month six of a twelve month programme.

At this point:

• PV = £2,500,000 (You planned to complete 50% of the work by now)
• EV = £2,250,000 (You've actually completed 45% of the work)
• AC = £2,750,000 (You've spent £2,750,000 to get there)

Running the calculations:

CPI = £2,250,000 ÷ £2,750,000 = 0.82

For every £1 you're spending, you're only getting 82p of value. That's a significant efficiency problem.

SPI = £2,250,000 ÷ £2,500,000 = 0.90

You're achieving 90% of planned progress. You're behind schedule, but not dramatically so.

CV = £2,250,000 − £2,750,000 = −£500,000

You're £500,000 over budget on work completed so far.

SV = £2,250,000 − £2,500,000 = −£250,000

You're £250,000 worth of work behind where you planned to be.

EAC = £5,000,000 ÷ 0.82 = £6,097,561

If current trends continue, your final cost will be around £6.1 million, not £5 million.

What this tells you: You have a cost problem more than a schedule problem. Your CPI of 0.82 suggests inefficiencies in how work is being delivered. Perhaps labour productivity is lower than planned, plant hire costs have increased, or you're experiencing rework. This needs investigation now, not in three months when the money is spent.

The Real Challenge: Getting Accurate Data

Here's where most construction EVM implementations fall apart.

Calculating a CPI is straightforward arithmetic. But getting reliable figures for EV and AC? That's where the difficulty lies.

Earned Value (EV) requires you to accurately measure progress. What percentage of the works is complete? And how do you measure that consistently across different activities? Concrete pours are easy. Fitout works? MEP installations? Much harder to quantify objectively.

Actual Cost (AC) seems simpler, but it's not. Your AC needs to include all costs attributable to the work: labour, plant, materials, subcontractor costs, and applicable overheads. If your cost capture is fragmented across different systems, or relies on end of month reconciliation, your AC figure will always be out of date.

The projects that successfully use EVM have one thing in common: contemporaneous, structured records of what work was done and what it cost. Not reconstructed at month end. Not estimated from memory. Captured as the work happens.

Interpreting Your Results: What the Numbers Mean

Understanding the formulas is only half the job. Knowing how to interpret the results, and what actions to take, is where the real value lies.

CPI Interpretation Guide

SPI Interpretation Guide

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The CPI and SPI Relationship

Looking at CPI and SPI together tells you more than either metric alone:

High CPI, Low SPI: You're being efficient with money but slow with progress. Perhaps you're under resourced, being too cautious, or have access constraints.

Low CPI, High SPI: You're making progress but burning through money. Perhaps you're throwing resources at the problem, experiencing productivity issues, or have cost estimation problems.

Low CPI, Low SPI: Both cost and schedule are suffering. This usually indicates fundamental issues that need senior management attention.

High CPI, High SPI: The ideal scenario. Verify your data is accurate and maintain your current approach.

EVM for NEC Contracts

If you're working under NEC3 or NEC4, earned value management becomes particularly powerful when combined with the contract's requirements.

The NEC framework already requires you to track Defined Costs, report on programmes, and assess compensation events. EVM provides a structured way to bring this information together into meaningful project health indicators.

When assessing compensation events, your CPI can help demonstrate whether the impact of a particular event is genuinely affecting project efficiency, or whether the contractor was already experiencing cost overruns before the event occurred. This kind of analysis requires robust contemporaneous records, but when you have them, it provides compelling evidence for any commercial position.

Similarly, your SPI trends can support time impact assessments and programme change requests. If you can show that SPI dropped immediately following a client instruction or compensation event, you have objective evidence of the schedule impact.

EVM for JCT Contracts

Under JCT forms, EVM principles can support variation valuations, extension of time claims, and loss and expense recovery.

When valuing variations, EVM data helps you demonstrate the actual resource usage and productivity rates on similar work. If a variation is for additional concrete work and you have EVM data showing your actual productivity rate on concrete works, you can price the variation based on evidence rather than standard rates.

For delay claims, your SPI trend analysis can show the progression of delay over time, helping to establish causation and impact. This is particularly valuable when delays have multiple concurrent causes.

Common Mistakes and How to Avoid Them

Mistake 1: Measuring progress inconsistently

Different people measuring progress in different ways will give you meaningless EVM results. Establish clear rules for how progress is measured for each work type and stick to them throughout the project.

Mistake 2: Using estimated costs instead of actual costs

Your AC needs to reflect reality. If you're using budgeted rates instead of actual costs, you're just comparing your budget to itself.

Mistake 3: Ignoring the trend

A single month's CPI or SPI is less meaningful than the trend over time. A CPI of 0.95 is concerning if last month it was 0.98 and the month before it was 1.00. The direction matters as much as the absolute value.

Mistake 4: Waiting too long to act

EVM is an early warning system. If you wait until problems are obvious, you've missed the point. A dropping CPI in month two gives you time to investigate and correct. The same CPI in month eleven means you're just documenting the damage.

Mistake 5: Poor record keeping undermining the whole system

This is the most common failure point. EVM requires accurate, timely data on work completed and costs incurred. If your site records are incomplete, your timesheets are estimates, or your cost allocation is done monthly from invoices, your EVM calculations will be fiction.

Implementing EVM on Your Projects

If you're not currently using EVM and want to start, here's a practical approach:

Start with the basics. You don't need complex software or expensive systems. You need reliable data on planned work, completed work, and actual costs.

Define your work breakdown structure clearly. You need a consistent way to categorise work that aligns with both your programme and your cost tracking.

Establish measurement rules. How will you measure progress on each type of work? Physical measurement? Milestone completion? Effort expended? Document your approach and apply it consistently.

Capture costs contemporaneously. Your actual costs need to be recorded as they're incurred, not reconstructed later. This means structured site records that capture labour, plant, and materials usage daily.

Review regularly. Monthly EVM calculations are typical, but fortnightly reviews give you more opportunity to spot and address problems early.

Take action on the insights. EVM is pointless if you calculate the metrics but don't act on what they tell you. When your CPI drops, investigate. When your SPI shows delay, respond.

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Complete EVM Glossary

Below is a comprehensive reference covering all earned value management terms and concepts.

A

Actual Cost (AC): The realised cost incurred for the work completed up to a given point in time. AC includes all direct and indirect costs: labour, materials, plant, and overheads. In older terminology, this was known as Actual Cost of Work Performed (ACWP).

B

Baseline: The original approved plan for the project, including schedule, budget, and scope. The baseline provides the reference point against which actual performance is measured. Once established, baselines should only be changed through formal change control processes.

Budget at Completion (BAC): The total budgeted cost for completing all project work. This is your original budget before any adjustments for scope changes or variations.

Budgeted Cost for Work Performed (BCWP): The older term for Earned Value (EV). It represents the budgeted cost of the work actually completed at a given point.

Budgeted Cost for Work Scheduled (BCWS): The older term for Planned Value (PV). It represents the budgeted cost of work that was planned to be completed by a given point.

C

Control Account (CA): A management control point where scope, budget, and schedule are integrated. Control accounts represent significant portions of the project work and provide a level of control between the total project and individual work packages.

Control Account Manager (CAM): The individual responsible for managing a control account. The CAM oversees performance, budget, and schedule for their assigned control account and reports progress to project management.

Cost Baseline: The approved, time phased budget for the project. The cost baseline shows how the total budget is distributed over the project duration and provides the reference for Planned Value calculations.

Cost Performance Index (CPI): The ratio of Earned Value to Actual Cost (EV ÷ AC). CPI measures cost efficiency. A value above 1.0 indicates you're achieving more value than you're spending. Below 1.0 indicates cost overrun.

Cost Variance (CV): The difference between Earned Value and Actual Cost (EV − AC). Positive values indicate cost savings. Negative values indicate cost overrun. CV tells you in monetary terms how your spending compares to the value of work completed.

Critical Path Method (CPM): A scheduling technique that identifies the longest sequence of dependent activities. Activities on the critical path have zero float. Any delay to critical path activities directly delays project completion.

D

Data Date: The specific date used as the cutoff for performance measurement. All EVM calculations are made as of the data date. Work completed after the data date is not included in current period measurements.

E

Earned Schedule (ES): An extension of EVM that translates monetary schedule metrics into time based measurements. Earned schedule provides more intuitive schedule performance indicators, particularly for projects in the later stages.

Earned Value (EV): The budgeted cost of work actually performed. EV measures the value of completed work in terms of what it was budgeted to cost. If you planned to spend £100,000 on an activity and have completed 50% of it, your EV for that activity is £50,000.

Estimate at Completion (EAC): The projected total cost to complete all project work based on current performance. The simplest calculation is BAC ÷ CPI, which assumes current cost efficiency will continue. Alternative calculations can incorporate schedule performance or management estimates.

Estimate to Complete (ETC): The projected cost to complete the remaining work. Calculated as EAC − AC. This tells you how much more money you expect to spend to finish the project.

P

Planned Value (PV): The budgeted cost of work scheduled to be completed by a given date. PV represents what you planned to accomplish. At the end of a project, total PV equals the BAC.

S

Schedule Performance Index (SPI): The ratio of Earned Value to Planned Value (EV ÷ PV). SPI measures schedule efficiency. Above 1.0 indicates you've completed more work than planned. Below 1.0 indicates you're behind schedule.

Schedule Variance (SV): The difference between Earned Value and Planned Value (EV − PV). Positive values indicate you're ahead of schedule. Negative values indicate delay. SV is expressed in monetary terms, representing the budgeted value of work ahead or behind.

V

Variance at Completion (VAC): The projected difference between budget and final cost, calculated as BAC − EAC. Positive values indicate projected savings. Negative values indicate projected overrun.

Conclusion

Earned value management gives you objective insight into project performance. The formulas are straightforward. The challenge is capturing the data accurately and acting on what the numbers tell you.

The projects that benefit most from EVM are those with robust, contemporaneous records of work completed and costs incurred. Without that foundation, you're just doing arithmetic with unreliable numbers.

If you're spending weekends reconstructing what happened on site, chasing timesheets, or reconciling costs from multiple systems, your EVM calculations will always be compromised. The first step to effective earned value management is getting your site records right.

What's your experience with implementing EVM on construction projects? Have you found particular approaches that work well, or challenges you've had to overcome?

Related Resources:

• Site Diary Best Practices for Commercial Teams
• NEC4 Contract Administration: A Practical Guide
• How to Substantiate Compensation Events
• Cost Control Strategies for Infrastructure Projects

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