Work Budget Performance: EVM Three Key Dimensions
PMBOK v8 Definition
Earned Value Management (EVM) integrates the scope baseline with the cost baseline and schedule baseline to form the performance measurement baseline. EVM develops and monitors three key dimensions for each work package and control account: Planned Value (PV), Earned Value (EV), and Actual Cost (AC). PV is the authorized budget assigned to scheduled work; EV is the measure of work performed expressed in terms of the budget authorized for that work; and AC is the total cost incurred for the work performed.
This concept belongs to the Monitoring and Controlling Process Group and the Project Cost Management Knowledge Area.
Why It Matters for the Exam
The three EVM dimensions (PV, EV, AC) appear in approximately 15-20% of PMI exam questions related to cost and schedule performance. You will encounter them in calculation questions (CPI, SPI, CV, SV) and interpretation questions (status of project, forecast estimates). Mastery of these three definitions is non-negotiable for passing the exam.
Key Points to Remember (for the exam)
- Planned Value (PV) = Authorized budget assigned to scheduled work. It is the budget planned for work to be accomplished not including management reserve. The total PV is the Performance Measurement Baseline (PMB) and is also known as Budget at Completion (BAC).
- Earned Value (EV) = Measure of work performed expressed in terms of the budget authorized for that work. EV cannot be greater than the authorized PV budget for a component. EV is used to calculate percent complete.
- Actual Cost (AC) = Total cost incurred for the work performed (not explicitly in the provided context but tested together with PV and EV).
- Common Confusion: PV is NOT the same as the budget at a point in time—PV is the authorized budget for scheduled work, while BAC is the total PV for the entire project.
- Key Rule: EV is measured incrementally (current status) and cumulatively (long-term performance trends).
- Critical Link: The three dimensions are monitored for each work package and control account, not just at the project level.
- Progress Measurement: Progress measurement criteria must be established for each WBS component to measure work in progress.
Typical PMI Exam Example
A project has a Budget at Completion (BAC) of $500,000. At month 3, the planned work should have accomplished $200,000 worth of work (PV). The team has completed work worth $180,000 (EV). Actual costs incurred are $210,000 (AC). Question: What is the Cost Performance Index (CPI) and Schedule Performance Index (SPI)? Answer: CPI = EV/AC = 180,000/210,000 = 0.86; SPI = EV/PV = 180,000/200,000 = 0.90. The project is over budget and behind schedule.
PMI Exam Traps
- Trap: Confusing PV with the total project budget → Reality: PV is the authorized budget for scheduled work at a specific point in time; BAC is the total PV for the entire project.
- Trap: Thinking EV can exceed the authorized PV budget → Reality: EV cannot be greater than the authorized PV budget for a component.
- Trap: Believing EV is measured only at completion → Reality: EV is monitored both incrementally (current status) and cumulatively (long-term trends).
- Trap: Forgetting that management reserve is excluded from PV → Reality: PV does not include management reserve; it only includes the authorized budget for scheduled work.
Important PMI Connections
| Related Concept | Relationship Type | Exam Attention Point |
|---|---|---|
| Performance Measurement Baseline (PMB) | Output of EVM integration | PMB = PV total = BAC. PMB integrates scope, cost, and schedule baselines. |
| Control Account | Monitoring unit | EVM dimensions are monitored for each control account. Each control account links to the performing organization's accounting system. |
| Variance Analysis | Tool/Technique | Variance thresholds (e.g., ±10%) are specified for monitoring cost performance. Thresholds trigger action when exceeded. |
| Work Breakdown Structure (WBS) | Framework | WBS provides the framework for the financial management plan. WBS components used for cost accounting are called control accounts. |
Quick Review Questions
- What is the difference between Planned Value (PV) and Budget at Completion (BAC)?
- Can Earned Value (EV) exceed the authorized Planned Value (PV) budget for a component? Why or why not?
- What are the three key dimensions that EVM develops and monitors for each work package and control account?
- How is EV used to calculate percent complete of a project?
- What does the Performance Measurement Baseline (PMB) integrate, and what is its relationship to PV?
PMBOK v8 Reference
Section 7.4.2.2 – Earned Value Analysis (Monitoring and Controlling Process Group, Project Cost Management Knowledge Area)
Note: The provided context references "Section 4 – Inputs and Outputs" and "Section 5" for WBS. The exact section numbers may vary by PMBOK v8 edition.