# How to Calculate Earned Value: Formulas & Examples

Instructor: Noel Ransom

Noel has taught college Accounting and a host of other related topics and has a dual Master's Degree in Accounting/Finance. She is currently working on her Doctoral Degree.

Earned Value is a useful calculation used by project managers to determine the value the project has produced. Earned value is also used by project managers to get an idea of current progress.

## What is Earned Value?

According to the Project Management Book of Knowledge (PMBOK Guide), 'Earned Value is the value of work performed expressed in terms of the approved budget assigned to that work for an activity or work breakdown structure component' Earned value shows you how much value you have earned from the money you have spent on a project to date. The earned value methodology allows a project manager to make a comparison of how much work has been completed versus how much work is expected to be completed at any given period throughout the project timeline.

## Defining the Work to be Completed in a Project

Before a project manager can perform an earned value calculation, the scope of the project work must be determined. After the scope is identified, the project manager creates a Work Breakdown Structure (WBS). The WBS is useful because its purpose is to organize the project work into a series of manageable sections or packages of work. PMBOK defines a work breakdown structure as 'a deliverable-oriented hierarchical decomposition of the work to be executed by the project team'. It is simply a step by step list of all the work to be completed. Time and cost estimates are assigned to each task of the WBS as well.

For example, a project manager works on a project to install new kitchen cabinets. The project manager may assign a 100% value to the task of measuring the workspace because this work is completed. The assembly of cabinets is a task of the project and is 30% complete and hanging the cabinets is another major task of the project and is 60% complete.

Every company has their own way of tracking the completion of a task. Some companies will say if a task is started, it is assigned a 50% completion value and 100% once completed. Other companies will say a task is either 0% or 100%. In this example, we will assign task completion using a 0% to 100% scale.

Let's calculate the percentage of work completed after six months. 100% +30%+60% = 190. We then take the total of 190 and divide by the number of tasks in our work breakdown structure. We had three total tasks. Therefore, the calculation is 190 divided by three which is 63.33. Therefore, the percentage of work completed after six months is 63.33%

## Planned Value (PV)

Now that we know the percentage of work completed for the project, we can calculate the planned value (PV). PMBOK defines planned value as 'the authorized budget assigned to the work to be accomplished by an activity of WBS component.' We calculate the planned value using the following formula: Planned % Complete multiplied by the Budget at Completion or BAC. Let's say we have a project to be completed in 10 months and the total cost of the project is \$100,000. At the six month mark, we planned to have 60% of the work complete using a monthly budget of \$10,000 per month. Our planned value is .6 (60%) times \$100,000 = \$60,000, therefore our planned value at the 6 month mark is \$60,000.

## Earned Value (EV)

The formula for earned value (EV) is the percent % of completed work times the Planned Value (PV). We calculated our percentage of completed work at the six-month mark as 63.33%. Therefore, the Earned Value of our project at 6 months is .6333(63.33%) times \$60,000 = \$37,998.

## Actual Costs (AC)

However, it has been determined by the project manager that the actual costs of the project for the past six months is \$65,000. The actual cost (AC) is the total cost incurred for the completed work at a specified period.

Let's recap what we have calculated so far:

A project has a budget of \$100,000 and a ten-month schedule with a monthly budget of \$10,000. Six months have passed, and 60% of the work should be completed. Here is a snapshot of the project figures at six months based on our calculations:

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