## Learning the Fundamentals

EVM, in regards to cost management, is concerned with the relationships between three formulas that reflect project performance. Figure 7-6 demonstrates the connection between the following EVM values:

• Planned value (PV) Planned value is the work scheduled and the budget authorized to accomplish that work. For example, if a project has a budget of \$500,000 and month six represents 50 percent of the project work, the PV for that month is \$250,000.

• Earned value (EV) Earned value is the physical work completed to date and the authorized budget for that work. For example, if your project has a budget of \$500,000 and the work completed to date represents 45 percent of the entire project work, its earned value is \$225,000. You can find EV by multiplying the percent complete times the project's budget at completion (BAC).

• Actual cost (AC) Actual cost is the actual amount of monies the project has required to date. In your project, your BAC, for example, is \$500,000 and your earned value is \$225,000. As it turns out, your project team had some waste, and you actually spent \$232,000 in actual monies to reach the 25-percent-complete milestone. Your actual cost is \$232,000.

That's the fundamentals of earned value management. All of our remaining formulas center on these simple formulas. Just remember that earned value is always the

Budget at Completion \$500,000

Budget at Completion \$500,000

spent to reach this project should be point in the project

Figure 7-6 Earned value management shows project performance.

spent to reach this project should be point in the project

Figure 7-6 Earned value management shows project performance.