Earned value, explained.CPI, SPI, and EAC for construction.

The eight numbers every EVM report contains

Three measured inputs (PV, EV, AC) and one fixed reference (BAC). Everything else is derived. The DoD-era acronyms BCWS, BCWP, and ACWP are equivalent to PV, EV, and AC; you will see both sets on federal contracts.

Six steps. Run them every week against a frozen status date. The discipline of the same cutoff convention period over period is what makes EVM trends actually trustworthy.

1. 1

   Freeze a status date and pull the cost-loaded schedule

   Lock the as-of date that PV, EV, and AC will all reference.

   The status date is typically the last day of the workweek. Export the cost-loaded schedule with activity budgets time-phased to the day or week. PV equals the sum of every activity budget that was planned to be complete by the status date. For activities in progress on the status date, use the time-phased budget consumed through that date.

2. 2

   Measure physical percent complete on every active activity

   Use a consistent earned-value measurement method per activity type.

   Apply the right rule for the activity. 0/100 rule for short-duration discrete work (one to two weeks). Weighted milestones for long-duration activities (foundation pour weight 30 percent, wall framing 40 percent, sheathing 30 percent). Physical percent complete for material-heavy work: installed quantity divided by planned quantity. 50/50 rule for activities that can be objectively started but not easily measured mid-flight.

3. 3

   Compute EV

   EV per activity is activity budget multiplied by physical percent complete.

   For each activity, EV equals the budget at completion for that activity times the measured percent complete at the status date. Sum across the entire project to get total project EV. Never use percent dollars-spent as a proxy for percent-complete; that turns AC into EV and destroys the measurement.

4. 4

   Pull AC from accounting

   Pull all actual costs charged to project cost codes through the status date.

   AC includes direct labor, materials delivered and installed, subcontract progress, and any indirect costs that the WBS captures. Apply consistent burden, retainage, and accrual treatment period over period. AC is the most error-prone input because accounting cutoffs rarely match the status date exactly; document the cutoff convention and stick to it.

5. 5

   Compute indices and variances

   Report CPI, SPI, CV, and SV. All four, not just CPI and SPI.

   CPI = EV / AC. SPI = EV / PV. CV = EV - AC (negative means cost overrun). SV = EV - PV (negative means behind schedule). Variances are dollar figures and let you see the absolute size of the problem; indices are ratios and let you see the trend. Owners want both.

6. 6

   Forecast EAC, ETC, VAC, and TCPI

   Produce all four EAC formulas. Compute TCPI. Escalate if EAC exceeds BAC.

   EAC1 = BAC / CPI. EAC2 = AC + (BAC - EV). EAC3 = AC + ((BAC - EV) / (CPI x SPI)). EAC4 = AC + bottoms-up ETC. ETC = EAC - AC. VAC = BAC - EAC. TCPI = (BAC - EV) / (BAC - AC). If TCPI exceeds 1.10, the budget is generally unrecoverable; escalate to the owner before submitting the next pay application.

A 52-week project with a $2.4M budget at completion. At the end of week 18, the cost-loaded schedule and accounting system produce three measured inputs. Everything else follows.

Report all four on every status. The spread between them tells the owner whether the team agrees on what is going to happen. A tight spread is a confident forecast. A wide spread is a flag.

Traditional SPI has a known and well-documented flaw: at the end of any project that eventually finishes, total EV equals total PV (because BAC equals BAC), and SPI converges mathematically to 1.0. A project that ends six months late will show SPI = 1.0 at closeout, which is useless for forecasting and embarrassing in front of owners.

Walter Lipke proposed the fix in 2003 and published the foundational book in 2009. Earned schedule (ES) converts earned value into a time measure rather than a dollar measure. Instead of comparing EV dollars to PV dollars, ES asks: at what point in the original schedule was the cumulative PV equal to current EV? The answer is ES, measured in weeks (or days, or months).

The two derived indices are SPI(t) = ES / AT (actual time elapsed) and SV(t) = ES - AT. Both stay accurate through closeout. A project that finished six months late closes out with a clear SPI(t) well below 1.0, which is what you actually want to know. ES has been adopted by PMI as a practice standard and is now standard on most large construction and federal projects.

Three reporting frameworks layered on top of each other. Traditional percent-complete is universal. EVM adds objective cost and schedule indices. Earned Schedule fixes the SPI flaw at project end.

The U.S. consensus standard for EVM systems. DoD and NASA require certified compliance on contracts above their thresholds. Most owner agencies follow the same structure for major capital projects.

1. 01

   Organization

   5 criteria

   Define the scope, work breakdown structure (WBS), organizational breakdown structure (OBS), responsibility assignment matrix, and integration of cost and schedule.

2. 02

   Planning, Scheduling, and Budgeting

   10 criteria

   Build the schedule, time-phase the budget into control accounts, identify discrete work packages, set the performance measurement baseline (PMB), and authorize work.

3. 03

   Accounting Considerations

   6 criteria

   Capture direct labor, materials, subcontract, and indirect costs in a manner consistent with the budget. Consistent burden treatment is the most common audit finding.

4. 04

   Analysis and Management Reports

   6 criteria

   Compute CPI, SPI, CV, SV, EAC, VAC, and TCPI at the control account level. Generate variance explanations and corrective actions monthly.

5. 05

   Revisions and Data Maintenance

   5 criteria

   Process baseline changes through formal change control. Maintain traceability. Re-baselining is permitted but tightly controlled.

Federal contracting thresholds

EVM is required on most federal construction contracts above agency-specific dollar thresholds. The system used must comply with ANSI/EIA-748-D and pass an integrated baseline review.

These appear in nearly every EVM audit. Each one either distorts the indices, hides cost trends, or undermines owner confidence in the forecast.

1. 01

   Declaring 100 percent EV at delivery without a quality gate

   A common pattern: an activity is marked 100 percent complete the moment it is physically installed, but the punch list and rework cost arrive in a later period. EV is credited too early, CPI looks good, and the next period absorbs rework costs that distort both CPI and the EAC forecast. Apply a substantial completion gate (90 percent EV at install, 10 percent at punch closeout) for any activity with known rework risk.

2. 02

   Using only one EAC formula and treating it as gospel

   Reporting only EAC = BAC / CPI without computing the worst-case EAC = AC + ((BAC - EV) / (CPI x SPI)) hides schedule-driven cost compounding. Report all four EAC values side by side and explain the spread. A wide spread is a signal that the team disagrees on whether current trends will continue.

3. 03

   Ignoring TCPI when it exceeds 1.10

   A TCPI above 1.10 means the team needs to perform 10 percent better than they have to date on every remaining activity. That essentially never happens. When TCPI exceeds 1.10, the right action is to acknowledge the overrun to the owner and discuss either a change order, descope, or accepted VAC, not to publish a recovery plan everyone knows is fiction.

4. 04

   Inconsistent burden treatment in AC

   If month one of a project captures direct labor only, month two captures direct labor plus burden, and month three captures everything plus subcontract retainage, CPI will swing wildly without any real performance change. Define the burden, retainage, and accrual conventions at project kickoff and apply them consistently in every period.

5. 05

   Confusing percent dollars-spent with percent-complete

   If you have spent 60 percent of the budget, you have NOT necessarily completed 60 percent of the work. Substituting percent dollars-spent for percent-complete makes EV equal to AC by construction, which forces CPI to 1.0 and erases the measurement. EV must come from physical progress, not from the spend curve.

Frequently asked questions

• PMI PMBOK Guide (7th Edition), Project Performance Domain — canonical reference for EVM definitions, formulas, and reporting practice.
• AACE International Recommended Practice 80R-13, Earned Value Management for Engineering Procurement Construction — construction-specific application of EVM principles.
• AACE International Recommended Practice 10S-90, Cost Engineering Terminology — standardized definitions for PV, EV, AC, EAC, and related terms.
• DoD Earned Value Management Implementation Guide (EVMIG) — federal contracting requirements and ANSI/EIA-748-D compliance guidance.
• Federal Acquisition Regulation (FAR) Part 34, Major System Acquisition — EVM requirements on federal major-system contracts.
• Earned Schedule (Lipke, 2009) — the foundational reference for time-based earned value extensions.
• College of Performance Management — practitioner community and reference materials on EVM and ES implementation.