PMP and CAPM Exam Prep Simplified!

BrainBOK - PMP and CAPM Exams, ITTOs, Flashcards, Formulas, Quizzes, Contact Hours
Deep Fried Brain PMP CAPM PMI-ACP Certification Blog
2 comments

  Planned Value (PV) vs Earned Value (EV) in Earned Value Management (EVM)

Confused between Planned Value and Earned Value concepts in Earned Value Management (EVM) What's the difference between Planned Value (PV) and Earned Value (EV) in Earned Value Management (EVM)? This is one of the most frequently asked question by people when they first come across the EVM concepts. I got this question in the email (not for the first time though), and my first instinct was to direct the sender to one of my blog posts. When I tried to look for the post, I was really surprised to know that though I have several posts on advanced EVM concepts such as ETC, EAC, TCPI etc., I don't have any post on the most important EVM topic - PV vs EV. Better late than never, this is my attempt to cover this topic. We'll also add Actual Cost (AC) to the mix, though most people don't have problem understanding AC. As usual, we'll learn by examples and exercises.

Let's look at the PMBOK® Guide, 5th Edition definitions first:

What is Planned Value (PV)?

The authorized budget assigned to scheduled work.

What is Earned Value (EV)?

The measure of work performed expressed in terms of the budget authorized for that work.

What is Actual Cost (AC)?

The realized cost incurred for the work performed on an activity during a specific time period.

The above definitions are pretty straight-forward and self-explanatory, right? Well, not for most beginners. Here are the simplified definitions sourced from BrainBOK PMP and CAPM Flashcards. The keywords are underlined.

What's the difference between Planned Value (PV) and Earned Value (EV)?

Planned Value is the estimated (monetary) value of the work planned to be done, whereas Earned Value is the estimated (monetary) value of the work actually done.

What's the difference between Earned Value (EV) and Actual Cost (AC)?

Earned Value is the estimated (monetary) value of the work actually done, whereas Actual Cost is the amount actually incurred for the work done.

Trick to remember PV, EV and AC

PV => Estimated value / work planned to be done
EV => Estimated value / work actually done
AC => Actual cost incurred

5 Sample Questions on Earned Value Management

As such, the concepts are pretty straight forward but when applied to exam questions, things get tricky. Most people don't have a problem in understanding Actual Cost (AC). Let's apply the above trick to sample questions.

  1. A project team had planned to accomplish $25,000 worth of work to date. It has spent $23,000 to date, and accomplished $20,000 worth of work. What is PV, EV and AC of the project as of today?

    Based on this information, what is the estimated value of the work planned to be accomplished till date? It is $25,000. This is the PV.

    What is the estimated value of the work actually accomplished? $20,000. This is the EV.

    What is the amount actually spent? $23,000. This is the AC.

    Easy, isn't it? Not so fast. Let's consider a slightly more challenging problem.

  2. A project has 10 work packages, each estimated to cost $100,000. The project team had estimated to complete 3 work packages at the end of three months. However, they managed to complete only 2 work packages in 3 months and spent $300,000. What is the PV, EV and AC of the project at the end of three months?

    PV is the estimated value of the work packages planned to be completed in 3 month. 3 work packages were planned to be completed in 3 months. The estimated value of each work package is $100,000. Therefore, PV = 3 x $100,000 = $300,000.

    EV is the estimated value of work packages actually completed. 2 work packages were actually completed and their value is 2 x $100,000 = $200,000

    AC is the actual cost incurred in 3 month i.e. $300,000.

    Feeling better now? Let's see how well you fare on the next one.

  3. A project has a total budget of $100,000. Two months into the project, it has used $30,000 of its total budget to accomplish work that was estimated to cost $25,000. What is the PV, EV and AC?

    What does $25,000 represent in this question? PV or EV? Apply the knowledge that you've acquired so far.

    The work that was estimated to cost $25,000 has already been accomplished. So, it is our EV, not PV. Tricky, isn't it?

    What is the PV? We do not have enough information in the question to determine PV for the project.

    What is actually spent? $30,000. This is our AC.

    Let's continue.

  4. A project has a total budget of $100,000 and is estimated to take 10 months to complete. After 5 months, it is estimated to complete 50% of its work at the cost of 60% of its budget, but it actually accomplished only $40,000 worth of the work, and spent 50% of its budget. What is the PV, EV and AC of the project after 5 months?

    What is the estimated value of work planned to be completed in 5 months? It is 60% of the budget, which is $60,000. This is the PV.

    What is the estimated value of work actually completed in 5 months? It is $40,000. This is the EV.

    What is actually spent? 50% of the budget i.e. 50% of $100,000, which is $50,000. This is the AC.

    Getting a hang of it now? Get ready for the final showdown.

  5. A project has 10 work packages and each work package is estimated to take 1 month to complete. The first 5 work packages are estimated to cost $12,000 each, and the next 5 $8,000 each. At the end of month 5, the first 4 work packages were completed at the cost of $48,000. What is PV, EV and AC of the project at the end of month 5?

    The following table lists the PV after each month.

    Month | PV ($)
    1 | 12,000
    2 | 24,000
    3 | 36,000
    4 | 48,000
    5 | 60,000
    6 | 68,000
    7 | 76,000
    8 | 84,000
    9 | 92,000
    10 | 100,000

    The PV after month 5 is $60,000.

    4 work packages were actually completed after month 5. Their estimated value is 4 x $12,000 = $48,000. This is the EV.

    AC is the cost actually incurred i.e. $48,000.

I hope you found this post useful. If you have other EVM sample questions on PV, EV or AC that you have trouble with, post them in the comments below. I'll try to address them. I also intend to cover all the topics listed on 80 Commonly Confused Concepts for the PMP Exam in the following weeks and months.

Related posts on Earned Value Management
Last Update:
Image credit: Flickr / carbonnyc

2 comments:

  1. Mr. Harwinder,

    I find your explanations clear and precise. In fact, your explanation of PTA & Configuration helped me to understand the concepts better.

    I have a doubt, regarding EV and PV. I read in one of the internet resources that EV can not exceed PV and they gave reference to PMBOK, Fig 7-12. While I understand that at the end of the project, this statement is true as EV will approach BAC; this statement need not be true in the middle of the Project. If there is a question in the PMP exam on this without explaining what stage the project is in; how to answer?

    best regards
    Venkat

    ReplyDelete
    Replies
    1. Hello Venkat,

      Thanks for your encouragement.

      I've not gone into the formulae for SV and SPI in this post and was planning to cover them in a subsequent post. But SV = EV - PV. If EV cannot exceed PV during the course of the project, then that implies that the project can never be ahead of schedule (SV > 0). That's obviously not the case. EV can be less than, equal to, or more than PV during the course of the project.

      At the end of the project, EVM doesn't have a meaning. So for the exam questions, if you are asked to calculate EV or any of the EVM indices or indicators, you can assume that the project is in progress.

      Does that answer your question?

      Delete

Please do not include URLs (links) in your comments as any comment with links would be deleted automatically.

Other interesting posts