Earned Value and Project Risk

Spending isn’t progress

“We’ve spent half the budget and we’re halfway through the schedule.” It sounds fine. But what if only a third of the work is actually done?

Paying a decorator half the fee doesn’t mean half the house is painted. You’d go and look at the walls. Earned value is the project manager’s way of looking at the walls.

Earned value management (EVM) brings scope, schedule and cost together, answering: how much work have we really done, compared with the plan and with what we’ve spent?

Three numbers

Planned value 500,000, earned value 400,000, actual cost 550,000 at month 6.

Term	Meaning
Budget at completion (BAC)	The total approved budget
Planned value (PV)	The budgeted cost of the work scheduled to be done by now
Earned value (EV)	The budgeted cost of the work actually done by now
Actual cost (AC)	What the work done so far actually cost

Reading the results

SV -100,000, CV -150,000, SPI 0.80, CPI 0.73, EAC 1,375,000.

Indicator	Formula	Bad news when…
Schedule variance	SV = EV − PV	Negative: behind schedule
Cost variance	CV = EV − AC	Negative: over budget
Schedule performance index	SPI = EV ÷ PV	Below 1: behind schedule
Cost performance index	CPI = EV ÷ AC	Below 1: over budget
Estimate at completion	EAC = BAC ÷ CPI	Above the budget: forecast overrun

Worked example. The budget is 1,000,000. At month 6, PV is 500,000, EV is 400,000 and AC is 550,000. SV = −100,000 (behind schedule). CV = −150,000 (over budget). SPI = 0.80. CPI = 400,000 ÷ 550,000 ≈ 0.73. If cost performance doesn’t improve, EAC = 1,000,000 ÷ (400,000 ÷ 550,000) = 1,375,000. Meanwhile the status report says “55% of budget spent”, which hides that only 40% of the work is done.

Managing project risk

Project risks threaten scope, schedule, cost, quality or benefits. Managing them follows the general risk process:

Identify risks early and keep doing so: workshops, checklists, lessons from past projects.
Assess how likely and how damaging each is.
Plan responses: avoid, mitigate, transfer or accept, with contingency reserves.
Assign owners.
Monitor through a risk register reviewed at steering meetings.

Common project risks: unclear or changing requirements, weak sponsor or user involvement, unrealistic estimates, reliance on one key person, new technology, vendor performance, complex integration, and data conversion.

What the auditor looks for

progress measured by work done (earned value or similar), not by spending
baselines changed only through approved change control
a maintained risk register with owners and actions
big variances escalated to the steering committee
independent quality reviews at key milestones

How the exam asks about it

If the question asks…	The answer is usually…
The best measure of project progress	Earned value: work done compared with the plan and cost
SPI of 0.8 means	Behind schedule (80% of the planned work done)
CPI below 1.0 means	Over budget for the work done
Formula for cost variance	EV − AC
When project risks are assessed	Throughout the project

In short

Earned value management compares planned value (PV), earned value (EV) and actual cost (AC) to measure schedule and cost performance.
Schedule variance = EV − PV; cost variance = EV − AC. Negative means behind schedule or over budget.
SPI = EV ÷ PV and CPI = EV ÷ AC. Below 1.0 is bad.
Estimate at completion is often budget ÷ CPI: today's cost performance projected to the end.
Project risks are identified early, rated, given owners and responses, and tracked in a risk register.
Money spent says nothing about progress; earned value ties spending to work actually done.

Exam traps

A project that has spent 50% of its budget isn't necessarily 50% complete.
Positive variance is good; an index above 1.0 is good.
Earned value is the BUDGETED cost of work done, not the actual cost.
Project risk management is continuous, not a one-off at the start.

Slides

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