A simple question: a project with a ten-million budget and a twelve-month programme. Seven months have passed and six million has been spent. Is the project healthy? The honest answer is that you cannot tell — two numbers are not enough. You are missing a third: how much work has actually been completed, valued at budget. That number is earned value, and it is what turns a status report from an impression into a measurement.
Key takeaways
- Spend is not a measure of progress — spending money is easy, earning value is the measurement.
- You need exactly three numbers: planned value, earned value, and actual cost.
- A cost performance index below 1 means you are paying more than planned for every riyal of work delivered.
- CPI stabilises early — its value at 20% complete is a strong indicator of the final outcome.
- SPI necessarily returns to 1 at completion, so it is never read alone near the end of a project.
The three numbers
Earned value management looks complicated because of its acronyms, but at its core it is three numbers measured on one date and then divided by each other.
| Number | Meaning | Where it comes from |
|---|---|---|
| Planned Value (PV) | What should have been completed by today, valued at budget | The approved programme + budget distribution |
| Earned Value (EV) | What has actually been completed, valued at the same budget | Installed quantities × budget rates |
| Actual Cost (AC) | What was actually paid for the work completed | Approved expenditure in the same period |
The only precondition is being able to measure progress by quantity rather than by estimated percentage — which makes a well-structured Bill of Quantities a prerequisite for any meaningful earned value calculation.
A fully worked example
Back to the project from the introduction: a SAR 10,000,000 budget over twelve months. We are at the end of month seven.
| Measure | Value | How it was derived |
|---|---|---|
| Budget at completion (BAC) | SAR 10,000,000 | Contract value at budget cost |
| Planned value (PV) | SAR 6,500,000 | From the approved spend curve to month 7 |
| Earned value (EV) | SAR 5,400,000 | Sum of (installed quantity × budget rate) |
| Actual cost (AC) | SAR 6,000,000 | Approved expenditure to date |
The two variances
- Cost variance (CV) = EV − AC = 5,400,000 − 6,000,000 = −SAR 600,000. You are six hundred thousand over.
- Schedule variance (SV) = EV − PV = 5,400,000 − 6,500,000 = −SAR 1,100,000. You are behind by 1.1 million worth of work.
The two indices
- Cost performance index (CPI) = EV ÷ AC = 5,400,000 ÷ 6,000,000 = 0.90. You are getting 90 halalas of work for every riyal spent.
- Schedule performance index (SPI) = EV ÷ PV = 5,400,000 ÷ 6,500,000 = 0.83. You are delivering at 83% of the planned rate.
Note the contrast with the naive reading. “We have spent 60% of budget in 58% of the programme” sounds entirely acceptable. The reality is that the completed work is worth only 54% of budget, and you are paying 11% more than planned for it.
Forecasting: the number the owner cares about
The indices above describe the past. The real value of earned value management is that it lets you forecast the ending from present data, without waiting for the project to finish.
The estimate at completion (EAC) in its simplest form assumes current performance continues: EAC = BAC ÷ CPI. In our example: 10,000,000 ÷ 0.90 ≈ SAR 11,111,000.
| Formula | Assumption | When to use |
|---|---|---|
| BAC ÷ CPI | Current performance continues unchanged | The default, and the most realistic |
| AC + (BAC − EV) | The overrun had causes that are now over and will not recur | Only when the cause is documented and genuinely closed |
| AC + (BAC − EV) ÷ (CPI × SPI) | Schedule delay will drive additional cost | Projects with high fixed site overheads |
The second formula is by far the most abused. It is very easy to convince yourself the overrun was “an exceptional circumstance that has now passed”. Use it only if you can name the cause and the date it closed.
Reading both indices together
The two indices are independent, and their intersection gives four situations with completely different diagnoses.
| Situation | Diagnosis | Action |
|---|---|---|
| CPI ≥ 1 and SPI ≥ 1 | On cost and on programme | Continue, and verify progress measurement is accurate |
| CPI ≥ 1 and SPI < 1 | Productivity is fine but resources are insufficient | Add execution capacity rather than cutting cost |
| CPI < 1 and SPI ≥ 1 | You are buying speed with money (overtime, acceleration, higher-priced subcontractors) | Check whether the speed is contractually required at all |
| CPI < 1 and SPI < 1 | Double overrun | The most serious case — needs an immediate scope and resource review |
An important limit on SPI
At completion, earned value necessarily equals planned value (both equal the budget at completion), so the schedule performance index returns to 1 even on a project delivered six months late. That is why it is never read alone in the last third of a project — pair it with critical path analysis on the programme.
What makes the implementation succeed or fail
Earned value management does not fail arithmetically — the arithmetic is four divisions. It fails on its inputs.
Objective progress measurement
If earned value rests on an “about 70%” estimate, everything downstream is guesswork carried to two decimal places. Use approved installed quantities from the BOQ.
Cut off cost on the same date
If earned value runs to the 31st but actual cost excludes invoices that arrived late, your CPI is falsely optimistic. Set one cut-off date and hold to it.
Distribute the budget across the programme before you start
Planned value needs an approved spend curve. Without one there is no reference to compare against, and SPI simply cannot be computed.
Pick one stable aggregation level
Calculate at work-package level rather than per item. Excessive detail turns the report monthly instead of weekly; excessive aggregation hides where the problem is.
Earned value management does not tell you what to do. It tells you the truth early enough for you to decide.
How this surfaces in muqawil
The EVM module in muqawil computes the indices from data already in the platform, with no double entry: earned value from installed quantities in the BOQ, actual cost from approved expenses, planned value from the budget distributed across project phases.
- CPI and SPI recomputed on every progress update or expense approval.
- An S-curve comparing planned value, earned value and actual cost visually.
- Estimate at completion updated as work progresses.
- Excel export for owner or group-level reporting.
The same precondition still applies: output quality is bounded by the discipline of quantity measurement. The tool calculates fast, but it calculates what it is given.
Frequently asked questions
Is earned value management appropriate for small projects?
Yes, provided you simplify the aggregation level. A five-million-riyal project can be controlled with eight work packages instead of eighty, and the arithmetic is unchanged. The complexity comes from the level of detail you choose, not from the method.
What is the difference between cost variance and the cost performance index?
Cost variance is an absolute figure in currency telling you the size of the overrun. The cost performance index is a ratio telling you its rate. The first answers “how much?”, the second answers “how much per riyal?” — and the second is what supports forecasting, because it can be applied to the work remaining.
How often should these be calculated?
Monthly at minimum, since they are tied to the expense approval cycle. Firms that approve expenses weekly can compute them weekly, which is better — every week of delay in spotting a variance is a week of spending against it.
Can earned value be calculated without a structured BOQ?
In theory yes, using weighted milestones; in practice with difficulty. The BOQ hands you quantity-based progress measurement ready-made. Without it you have to build a separate weighting system, which is more work than structuring the BOQ in the first place.
What if the cost performance index is well above 1?
It may be excellent performance, or it may be a measurement error. The common causes are claiming progress for work not yet approved, or invoices not posted to the correct period. A CPI of 1.25 on a construction project deserves verification before celebration.
See your indices computed automatically
Connect the BOQ to expenses in muqawil and get CPI, SPI, an S-curve and an estimate at completion without a side spreadsheet.