The Disadvantages of the Earned Value of a Project

by Ron Price; Updated September 26, 2017

Earned Value Analysis (EVA) is a favorite yet controversial tool for project management that provides an objective measurement of project performance in terms of its scope (tasks), schedule (time) and budget (cost). Supporters claim EVA measures how much of the time and money budgeted for a project is "earned." Its detractors say EVA can misrepresent true project status in either schedule or expenditures.

Earned Value Analysis

EVA uses the planned schedule and budget along with what has actually occurred to develop three values that indicate the relative health of a project. These values are: Planned Value (PV), which is the budgeted cost of tasks that should be complete; Earned Value (EV), which is the total budgeted costs of complete tasks; and Actual Cost (AC), which is the total expenditures to-date.

Example: The project budget is $100,000. Sixty percent of the tasks should be complete, so PV is $60.000. Only 50 percent of the tasks are actually complete, making EV $50,000. AC is $65,000.

EVA Variances

EVA calculates two variances: cost variance (CV) = EV - AC, and schedule variance (SV) = EV - PV.

Using the values in Section 1, CV is minus $15,000. It has cost $65,000 to complete $50,000 of planned work. SV is minus $10,000. The project is behind schedule by $10,000 worth of work.

EVA Indexes

Two indexes indicate the performance of the project. Cost performance index (CPI) = EV/AC. Schedule performance index (SPI) = EV/PV. Using the data in Sections 1 and 2, CPI is 0.77 and SPI is 0.83.

If the indexes are equal to one, the project is on schedule/on budget; less than one, the project is behind schedule/over budget; and greater than one, the project is ahead of schedule/under budget.

CPI Issues

Once a project is over/under budget, CPI remains essentially the same for the remainder of the project, unless EV or AC changes significantly. CPI is dependent on AC for accuracy. If AC does not include all appropriate costs and payments, CPI can be unreliable.

SPI Issues

EVA cannot tell a critical task from a noncritical task. SPI may be misleading when an ahead-of-schedule noncritical task overshadows a behind-schedule critical task. The SPI may indicate a healthier project than actual reality.

Why Not EVA?

Project managers give many reasons for not using EVA, including expense to implement, requires EVA software, involves many others in many departments, divulges more information than desired and it is too complex.

If the project scope, schedule or budget is ill-defined, its goals and outcomes are vague, the Work Breakdown Structure (WBS) is incomplete, the AC collection system does not report costs timely, management exerts undue influence or distraction, or the time to properly setup data is not available, EVA may be a waste of time.

About the Author

Ron Price, MBA, has extensive senior level experience in business, information technology, and education. Under his pen name Ron Gilster, Price has written over 40 books for several leading publishers on a topics ranging from business and finance to IT certifications to real estate.

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