How to calculate Planned Value (PV)

(Tip Planned Value is also known as Budgeted Cost of Work Scheduled BCWS)

So what is Planned Value? PV is the estimated value of the work to be completed by your project within a specific time period. Planned Value is also used to calculate Schedule Variance (well be covering that in a later post).

How is PV calculated? Heres the formula.

Planned Value (PV) = Planned % Complete X BAC

Lets see an example. Jenny is the project manager on a project to build a new smart-phone browser. The project is expected to last 10 months. The estimated total cost is $2,300,000. What is the PV after 5 months? Answer: $1,150,000

How did we calculate this?

Planned % Complete is the percentage of the project that is planned to be complete. In this case 5 months / 10 months = 0.5 (or 50% in other words). So in this case, BAC = $2,300,000. With these figures we can calculate the PV. PV = 0.5 x $2,300,000 = $1,150,000

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How to calculate Budget At Completion (BAC)

So what is the BAC? As the name suggests, its how much you estimate the project will cost at its completion. The important thing to note is that the BAC is an estimate and is determined at the start of the project. This is not a calculation that you perform at the end of the project to figure out how much you spent. If you want that figure, youd calculate Actual Cost (AC) at the end of the project. How is BAC calculated? Usually for the PMP exam you wont need to calculate it. You will normally be given the BAC in the question as part of figuring out another value. For example, the question may want you to calculate the Variance At Completion. To do that, the BAC could be included in the question text. However, if you do need to calculate the BAC heres how to do it. Simply put, BAC is estimated by calculating how much money you believe you will need to complete the project. Lets see an example. Dave is the project manager on a project to install a new privacy fence around a five-star hotel. The materials for the fence are estimated to cost $230,000. The labour is estimated at $95,000. Miscellaneous costs are estimated at $15,000. And training is estimated at $3,000. Ongoing maintenance is estimated at $20,000. In most cases a project manager would estimate the BAC at $343,000. Which was calculated by adding $230,000 + $95,000 + $15,000 + $3,000.

The $20,000 of ongoing maintenance was not included as this is not part of the project to install the fence.

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How to calculate Actual Cost (AC)

So what is Actual Cost? Actual Cost (AC) is the actual costs incurred by the project as of a certain point in time. Tip AC is also known as Actual Cost of Work Performed (ACWP).

Most commonly, AC is used to answer the question How much have we spent on the project as of today?

Now that we know what it is, how do we calculate it? You add up all the costs incurred by the project as of the point in time you are measuring. Most commonly this will mean that you add up all the costs incurred by the project as of today.

Lets see an example. Tom is working on a project to install a new wi-fi network on the campus of a Palo Alto smartphone manufacturer. The project has a budget of $2.5 million and involves numerous contractors. The expected value of the work (eg the wi-fi network) is $3.6 million dollars. Tom has budgeted $1.2 million for wi-fi equipment, $1.1 million for installation costs, employee laptop updates and training. He has also budgeted $200,000 for miscellaneous costs. The project team has just begun installing the equipment needed starting with the wi-fi antennas. The project has spent $400,000 on wi-fi equipment, $50,000 on site surveys, $3,000 on team meetings and team building sessions. Tom will be signing a contract for an extra ten wi-fi antennas tomorrow for $30,000. What is the current AC of the project?

Answer: $453,000. How did we calculate this? $400,000 + $50,000 + $3,000 = $453,000.
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Maybe you are wondering why the AC isnt $483,000? Read the text again. The contract for the extra ten wi-fi antennas is being signed tomorrow. Which means it isnt an actual cost today. Today its an expected cost of $30,000. So the $30,000 is not included in the AC calculation.

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How to Calculate Earned Value (EV)

Tip EV is also known as Budgeted Cost of Work Performed (BCWP).

So what is Earned Value? EV is the estimated value of the work completed by your project as of today.

So if the project stopped today, the EV would show the value that it has produced.

Understanding Earned Value is vital as its used in many of the other calculations that you will need to know to master the PMP exam.

Its used to calculate:

Cost Variance (CV) Schedule Variance (SV) Cost Performance Index (CPI) Schedule Performance Index (SPI) To Complete Performance Index (TCPI)

How is EV calculated? Heres the formula.

Earned Value (EV) = Percent Complete * Budget At Completion

Lets see an example.

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Rohit is the project manager on a project to build a new cricket stadium in Mumbai, India.After six months of work, the project is 27% complete. The estimated total cost of the project is expected to be $50,000.000.

What is the EV?

Answer: $13,500,000

How did we calculate this?

The Percent Complete = 27%. So in this case, BAC = $50,000,000.

With these figures we can calculate the EV.

EV = 27% * $50,000,000 = $13,500,000

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How to Calculate Cost Variance (CV)

As the name suggests the CV calculation shows if there are any variations in the costs of the project. In other words, CV shows if your project is under or over budget. CV is calculated using this formula: Cost Variance (CV) = Earned Value Actual Cost

Tip Earned Value is also known as Budgeted Cost of Work Performed (BCWP). And Actual Cost is also known as Actual Cost of Work Performed (ACWP). So you may see the formula written as: CV = BCWP AC CV = BCWP - ACWP CV = EV ACWP So what does the CV that youve calculated mean? A negative number is over budget. And a positive number is under budget.

An important point to remember is that on a perfect project, the CV is 0. This because a CV of 0 is neither over budget or under budget.

Most people understand instinctively why being over budget is bad. But why is being under budget bad?
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It could be a sign that the team has missed a required piece of work. Basically, anytime the CV isnt 0 you need to investigate.

Example Chris is the project manager on a project to build a new photo sharing app for the iPhone and Android smart phones. The value earned by the project is $2,300,000. The costs incurred by the project are $2,560,000. What is the CV? And what does it tell us about the project?

Answer The CV is -$260,000. And this tells us that the project is over budget. How did we calculate this? Well we know that CV = Earned Value Actual Cost. The Earned Value is $2,300,000 (value earned by the project is another way of saying Earned Value). The Actual Costs are $2,560,000 (The projects costs are the costs incurred by the project).

Knowing this we can calculate: CV = $2,300,000 $2,560,000 = -$260,000

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How to Calculate Schedule Variance (SV)

Schedule Variance shows if there are any variations in the schedule of the project.

In other words, Schedule Variance shows if your project is ahead or behind schedule.

Schedule Variance Formula

Schedule Variance is calculated as follows:

Schedule Variance = Earned Value Planned Value

Tip Earned Value is also known as Budgeted Cost of Work Performed (BCWP). And Planned Value is also known as Budgeted Cost of Work Scheduled (BCWS).

So you may see the formula written as:

Schedule Variance = BCWP - BCWS

What does Schedule Variance mean?

The result of the Schedule Variance formula is a number. So what does this number mean?

A value of less than zero means the project is behind schedule. And a value greater than zero means the project is ahead of schedule. (A value of zero means the project is exactly on schedule but this is very rare).

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Tip most people understand that being behind schedule is bad. But did you know that being ahead of schedule can be bad as well? For example, if a team works overtime and gets a task finished early this may mean that they sit around idle waiting for the next task to start. Basically if a project has a Schedule Variance that isnt zero you need to investigate why and mitigate the risks.

Example of Calculating Schedule Variance

Lets see an example.

Doug is the project manager for a software company based in San Francisco. He is working on a project to build a new inventory management system. The project has been underway for six months. Doug has estimated that the project should have a planned value of $825,000 at this point. The value earned by the project is $815,000.

What is the Schedule Variance? And what does this tell us about Dougs project?

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Answer: The Schedule Variance is -10,000. And this tells us that Dougs project is behind schedule.

How did we calculate this?

Well we know that Schedule Variance = Earned Value Planned.

The Earned Value is $815,000. Tip the PMP exam may use slightly different descriptions to describe the input to a formula. This is to test your knowledge and make sure you understand what you are calculating. EG value earned by the project is another way of saying Earned Value.

The Planned Value is $825,000.

Knowing this we can calculate:

Schedule Variance = $815,000 $825,000 = -$10,000

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How to Calculate Cost Performance Index (CPI)

Cost Performance Index is used to show the efficiency of the money being spent by the project. In other words, the Cost Performance Index shows how much value you are getting for each dollar spent on the project. (or pounds, rupees or riyals you get the point)

Cost Performance index Formula

The Cost Performance Index is calculated as follows:

Cost Performance Index = Earned Value / Actual Cost Tip Earned Value is also known as Budgeted Cost of Work Performed (BCWP). And Actual Cost is also known as Actual Cost of Work Performed (ACWP). So you may see the formula written as Schedule Variance = BCWP / ACWP

What does CPI mean?

The result of the Cost Performance Index formula is a number. So what does this number mean? A value of less than one means that money is being spent inefficiently on the project. So if your CPI is 0.7, this means that for every $1 spent on the project you are getting $0.70 of value. A CPI of one means that your project is exactly on track. You spent $1 on the project and got $1 of value in return. And a value of greater than one means that money is being spent efficiently on the project. So if your CPI is 1.4, this means that for every $1 spent on the project you are getting $1.40 of value. Cost Performance Index answers the question Were spending money on this project, but is what were producing worth something?

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Example of Calculating Cost Performance Index

Lets see an example. Brian is the project manager for a food manufacturing company based in Dallas, Texas. He is working on a project to implement a new inventory management system. The estimated value of the work completed by the project so far is $405,000. The total cost of the project is expected to be $650,000. So far the project has cost $325,000. What is the Cost Performance Index? And what does this tell us about Brians project? Answer: The Cost Performance Index is 1.25. This means that for every $1 spent on the project $1.25 of value is being produced.

How did we calculate this? Well we know that Cost Performance Index = Earned Value / Actual Cost. The Earned Value is $405,000. Tip the PMP exam may use slightly different descriptions to describe the inputs to a formula. This is to test your knowledge and make sure you understand what you are calculating. EG estimated value of the work completed by the project so far is another way of saying Earned Value. The Actual Cost is $325,000. Knowing this we can calculate: Cost Performance Index= $405,000 / $325,000 = 1.25
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How to Calculate Schedule Performance Index (SPI)

Schedule Performance Index is used to show whether a project is behind or ahead of schedule. In other words, the Schedule Performance Index shows whether your project will deliver late, on time or early.

Schedule Performance Index Formula

The Schedule Performance Index is calculated as follows: Schedule Performance Index = Earned Value / Planned Value .Tip Earned Value is also known as Budgeted Cost of Work Performed (BCWP). Planned Value is also known as Budgeted Cost of Work Scheduled (BCWS). So you may see the formula written as: Schedule Performance Index = BCWP / BCWS Schedule Performance Index = EV / BCWS Schedule Performance Index = BCWP / PV

What does SPI mean?

The result of the Schedule Performance Index formula is a number. So what does this number mean? A value of less than one means that the project is potentially behind schedule. So if your SPI is 0.8, the project will not finish on time. An SPI of one means that your project will be finish exactly when the plan predicts. And a value of greater than one means that the project will be completed early. So if your SPI is 1.2, the project will be completed sooner than the plan predicts. Schedule Performance Index answers the question When will the project be completed?.

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Example of Calculating Schedule Performance Index

Lets see an example. Frank is the project manager for a software development company based in London. He is managing a project to create a new mobile photo sharing app. The estimated value of the work completed by the project so far is $116,000. The planned value of the project is $125,000. What is the Schedule Performance Index? And what does this tell us about Franks project? Answer: The Schedule Performance Index is 0.93. This means that Franks project is behind schedule. How did we calculate this? Well we know that Schedule Performance Index = Earned Value / Planned Value. The Earned Value is $116,000. Tip the PMP exam may use slightly different descriptions to describe the input to a formula. This is to test your knowledge and make sure you understand what you are calculating. EG estimated value of the work completed by the project so far is another way of saying Earned Value. The Planned Value is $125,000. Knowing this we can calculate: Schedule Performance Index= $116,000 / $125,000 = 0.93

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How to Calculate Estimate At Completion (EAC)

Estimate At Completion is used to predict the cost of the project at its completion. In other words,the Estimate At Completion predicts the total cost of your project.

Estimate At Completion Formula

The Estimate At Completion formula is more complicated than most. This is because there are actually four formulas. Each formula tackles a different scenario that you may face on your project.

Scenario 1 Original estimate is no longer valid

You might discover that the original estimates for your project were fundamentally floored. Or circumstances may have changed so much that the estimates you have are no longer valid. In this case you would use the following formula: Estimate At Completion = Actual Cost + Bottom-up Estimate To Complete

You can read our previous blog post about how to calculate Actual Cost. You might be wondering how you calculate the Bottom-up Estimate To Complete. According to the PMBOK there is no formula. Instead this is a prediction by the team of how much work is left to complete the project. Tip you may see the formula written as: EAC = AC = Bottom-up ETC

Scenario 2 CPI will stay the same for the rest of the project

This scenario assumes that the Cost Performance Index (CPI) experienced by the project will stay the same until the project is completed.
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In this case you would use the following formula: Estimate At Completion = Budget At Completion / Cost Performance Index

Read our posts about Budget At Completion and Cost Performance Index if you need more information about them.

Scenario 3 Current CPI is abnormal

In this case you need to calculate the Estimate At Completion but discover that your current CPI is abnormal. Why could the current CPI be abnormal? An example might be that you have estimated $50,000 to install a new generator. During the installation the generator is accidentally damaged and $5,000 has is spent on repairs. You have three more generators to install but you are confident that the accident wont happen again as you have a risk mitigation plan (and you yelled at the people who caused the damage!). In this case it is appropriate to believe that your original estimates for installing the generators are still good. Its also appropriate that the current CPI (which reflects the accidental damage) does not reflect how the project will progress. In this case you should use a formula that ignores the CPI. The formula is: Estimate At Completion = Actual Cost + (Budget At Completion Earned Value)

You can read our previous blog post about how to calculate Actual Cost, Budget At Completion and Earned Value.

Scenario 4 Project has to meet a deadline

Weve all worked on projects where the boss or a customer demand that a project be delivered by a certain date. To calculate the Estimate At Completion for such a project you need to take into account the Schedule Performance Index and Cost Performance Index.

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The formula is: Actual Cost + [(Budget At Completion - Earned Value) / (Cost Performance Index X Schedule Performance Index)]

What does EAC mean?

After calculating the EAC youll have an amount in dollars, pounds, yen or whatever currency your project is using. But what does this amount mean? The EAC predicts what you expect the total cost of the project to be.

Example of Calculating Estimate At Completion

Lets see some examples.
Example 1

Frank is the project manager for a software development company based in London. He is managing a project to create a new recipe sharing social network. The project recently hit problems when the development team discovered that the software architecture they were going to use is not valid. After discussions the team has decided on a new approach. The PMO has asked for a new estimate of the total cost of the project. The project has already spent $210,000 and has a CPI of 1.1. After talking with the teams on the project, he determined that the remaining costs are development $50,000, quality assurance $30,000 and documentation $10,000. What is the Estimate At Completion?

Answer: The Estimate At Completion is $300,000.

How did we calculate this?

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In this example, the original estimates are bad because they are based on a flawed architecture approach. Therefore, we will calculate Estimate At Completion using the formula from scenario one: Estimate At Completion = Actual Cost + Bottom-up Estimate To Complete

Knowing this we can calculate: $210,000 + ($50,000 + $30,000 + $10,000) = $300,000

Example 2

Tim is the project manager for an undersea cable company based in Cyprus. He is managing a project to lay an optical fiber cable from Naples to Palermo. The PMO has asked for an updated estimate of the total cost of the project. At the start of the project, the costs of the project were estimated as $1,600,000 for design and permitting, $18,750,000 for optical fiber costs, $4,500,000 for installation and $2,300,000 for testing of the cable. The Cost Performance Index of the project is currently 1.08. What is the Estimate At Completion?

Answer: The Estimate At Completion is $25,138,888.89

How did we calculate this? In this example, the CPI is not considered abnormal. Therefore, a formula using CPI can be used. So we will calculate Estimate At Completion using the formula from scenario two: Estimate At Completion = Budget At Completion / Cost Performance Index

Knowing this we can calculate: ($1,600,000 + $18,750,000 + $4,500,000 + $2,300,000) / 1.08 = $25,138,888.89

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Example 3

Gill is the project manager for a software company based in New York. She is managing a project to create a new accounting software package. During construction, the team realized that mistakes were made while collecting requirements. The mistake has now been fixed and a risk mitigation plan put in place. During a review of the project, the PMO has asked for an updated estimate of the total cost of the project. At the start of the project, the costs of the project were estimated as $200,000 for design, $300,000 for development, $200,000 for quality assurance. The project has spent $400,000 so far. The value of the work completed is $500,000. What is the Estimate At Completion?

Answer: The Estimate At Completion is $600,000

How did we calculate this? In this example, the CPI is considered abnormal. So we will calculate Estimate At Completion using the formula from scenario three: Estimate At Completion = Actual Cost + (Budget At Completion Earned Value) Knowing this we can calculate: $400,000 + ($700,000 $500,000) = $600,000

Example 4

Rajesh is working on a project to create a new inventory management system for a food manufacturer in Sheffield, England. The CEO has told the shareholders that the new system will be in place in six months, without discussing this first with the PMO. At the start of the project, the costs of the project were estimated as $150,000 for design, $700,000 for development, $225,000 for quality assurance.

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The project has spent $450,000 so far. The value of the work completed is $375,000. The CPI for the project is 0.83 (CPI = $375,000 / $450,000) and the SPI is 0.8. What is the Estimate At Completion?

Answer: The Estimate At Completion is $1,510,606.06

How did we calculate this? In this example, the project has to meet a deadline. So we will calculate Estimate At Completion using the formula from scenario three: Estimate At Completion = Actual Cost + [(Budget At Completion - Earned Value) / (Cost Performance Index X Schedule Performance Index)] Knowing this we can calculate: = $450,000 + [($1,075,000 - $375,000) / (0.83 X 0.8)] = $450,000 + [$700,000 / 0.66] = $450,000 + $1,060,606.06 = $1,510,606.06

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How to Calculate Estimate To Complete (ETC)

Estimate To Complete is a prediction of how much more money the project will cost to complete.

Estimate To Complete Formula

The Estimate To Complete is calculated as follows: Estimate To Complete = Estimate At Completion Actual Cost Tip AC is also known as Actual Cost of Work Performed (ACWP). So you may see the formula written as: Estimate To Complete = Estimate At Completion Actual Cost of Work Performed Estimate To Complete = EAC ACWP

What does ETC mean?

The result of the Estimate To Complete formula is a dollar amount. (or rupees, pounds etc you get the point) So what does this amount represent? Estimate To Complete tells you and the PMO (which may be more important), how much cash you need to finish the project. This information is crucial when trying to determine the future of a project. For example, imagine that the company you are working for is having to rationalise its budget by cutting projects. You are working on a large project whose Actual Cost is $2.3 million. The PMO could say This project has cost us $2.3 million and isnt even finished yet. Lets cut the project its bound to save us money. But then you run the numbers and calculate that the Estimate To Complete is $20,000. So you respond by saying Hey but we only need $20,000 to finish the project. And the Earned Value of the project is $3.4 million. So cutting the project makes no sense.

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The PMO agree, the project is saved and everyone loves you! (Well you get the idea)

Example of Calculating Estimate To Complete

Lets see an example. Joe is the project manager for a software development company based in Vancouver. He is managing a project to create a new sports news app. So far the project has spent $430,000. The predicted total cost of the project is $650,000. What is the Estimate To Complete?

Answer: The Estimate To Complete is $220,000.

How did we calculate this? Well we know that Estimate To Complete = Estimate At Completion Actual Cost. The Estimate At Completion is $650,000. Tip the PMP exam may use slightly different descriptions to describe the input to a formula. This is to test your knowledge and make sure you understand what you are calculating. EG predicted total cost of the project is is another way of saying Estimate At Completion. The Actual Cost is $430,000. (the project has spent is another way of saying Actual Cost). Knowing this we can calculate: Estimate To Complete = $650,000 $430,000 = $220,000

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How to Calculate To-Complete Performance Index (TCPI)

TCPI is an estimate of the performance needed to achieve a goal.

To-Complete Performance Index Formula

As with EAC, there is more than one formula for TCPI. One formula is based on the BAC; the other is based on EAC.
Scenario 1 BAC is valid

We know that BAC is an estimate of the project cost that you created at the start of the project. If this estimate is still valid, use this formula: (Budget At Completion Earned Value) / (Budget At Completion Actual Cost)

How do you know if the BAC is still valid? Remember that the BAC is estimated at the start of the project based on certain assumptions. If any of those assumptions arent valid anymore, dont use this formula. For example, one of those assumptions for the tablet project was probably that you need x people working x hours a day to finish the project on time. (EG I need 200 people working 6 hours per day to finish this project in four months). If the project now has to be complete in two months, then you will probably need more people or to work longer hours. (Actually it will most likely be both) So in this case the BAC is no longer valid and this formula should not be used.
Scenario 2 BAC is no longer valid

If the BAC is invalid, use this formula: (Budget At Completion Earned Value) / (Estimate At Completion Actual Cost)

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What does TCPI mean?

Imagine you are the driver of a freight train 5506. You are due in Boston by 4:00pm. It is now 2:40pm and you have 80 miles to go. Your TCPI is the speed you need to squeeze out of 5506 to arrive in Boston by 4:00pm.

Example of Calculating To-Complete Performance Index

Scenario 1 BAC is valid

John is the project manager on a project to install new light fixtures in a hotel in Houston. The hotel is currently closed and the light fixtures are being replaced as part of a refurbishment. The project is estimated to last for six months. The project is due to be completed in two months. At the start of the project, John estimated that the project would cost $120,000 to complete. The costs incurred by the project so far are $80,000. John has also estimated that the value of the work completed so far is $85,000. At a recent meeting with the stakeholder, he was informed that the hotel will be opening ahead of schedule and that the project needs to be completed in one month. What is the To-Complete Performance Index?

Answer: The To-Complete Performance Index is 0.875.

How did we calculate this? In this example, the BAC is $120,000. The EV is $85,000 and the AC is $80,000. The BAC can be considered valid. Why? The BAC was estimated to be $120,000. The project is two thirds complete (four months work has been completed on a six month project). The AC is $80,000 which is exactly what you would expect two thirds of the way through the project. So we will calculate the TCPI using the formula from Scenario 1: To-Complete Performance Index = (Budget At Completion Earned Value) / (Budget At Completion Actual Cost) To-Complete Performance Index = ($120,000 $85,000) / ($120,000 $80,000)
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To-Complete Performance Index = $35,000 / $40,000 To-Complete Performance Index = 0.875

Scenario 2 BAC is no longer valid

Greg is the project manager on a project to create a new mobile sharing app. The project is due to go live in twelve months. The project is due to be completed in four months. At the start of the project, Greg estimated that the project would cost $2,400,000 to complete. The costs incurred by the project so far are $2,100,000. John has also estimated that the value of the work completed so far is $1,200,000. At a recent meeting with the stakeholder, he was informed that the project must now go live in two months. After the meeting John estimated that the total project will cost $2,700,000. What is the To-Complete Performance Index?

Answer: The To-Complete Performance Index is 2.

How did we calculate this? In this example, the BAC is $2,400,000. The EV is $1,200,000 and the Actual Costs are $2,100,000. The BAC cannot be considered valid. Why? The BAC was estimated to be $2,400,000. The project is three quarters complete (eight months work has been completed on a twelve month project). So you would expect the AC to be $1,600,000. However the AC is $2,100,000 a discrepancy of $500,000. So we will calculate the TCPI using the formula from Scenario 2: To-Complete Performance Index = (Budget At Completion Earned Value) / (Estimate At Completion Actual Cost) To-Complete Performance Index = ($2,400,000 $1,200,000) / ($2,700,000 $2,100,000) To-Complete Performance Index = $1,200,000 / $600,000 To-Complete Performance Index = 2

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