Earned value is one of the most misunderstood tools in construction.
The terminology puts contractors off. Planned Value. Earned Value. Actual Cost. Cost Performance Index. Schedule Performance Index. It can sound like a reporting system designed for a business much larger than yours.
The underlying idea is much simpler.
Earned value compares three things:
- What you planned to have done.
- What you have actually done.
- What it has cost you.
That is it. The vocabulary is the complicated part. This article explains the terms in plain English and shows what they can tell you before a final account exposes the problem.
The three numbers behind earned value
Planned Value: PV
Planned Value is the budgeted value of the work you planned to have completed by now.
It comes from your approved programme and budget. If you planned to complete major programme-scaleworth of budgeted work by the end of month four, your PV is major programme-scale.
It does not mean you have spent major programme-scale. It means that is the value of work you intended to have delivered by the reporting date.
Earned Value: EV
Earned Value is the budgeted value of the work you have actually completed.
This is the crucial point: EV is measured against your budget or allowance. It is not what you have invoiced. It is not what you have been paid. It is not what you have spent.
If you have completed 35% of a major programme-scale job, your EV is major programme-scale, assuming your progress measurement supports that assessment.
Actual Cost: AC
Actual Cost is what the completed work has actually cost you so far.
That should include the costs needed to deliver the work being measured: labour, materials, plant, subcontractors and other relevant project costs.
If your completed work has cost major programme-scale, your AC is major programme-scale. That is the cost you compare with the major programme-scaleof budgeted value earned.
The two indices that show performance
Cost Performance Index: CPI
CPI = EV ÷ AC
CPI tells you how efficiently you are converting cost into completed work.
- A CPI of 1.0 means you are performing against the allowance.
- A CPI above 1.0 means you are getting more budgeted work done per pound than planned.
- A CPI below 1.0 means the work is costing more than you allowed.
For example:
- EV = major programme-scale
- AC = major programme-scale
- CPI = major programme-scale ÷ major programme-scale = 0.92
A CPI of 0.92 means every major programme-scaleof allowance is buying about 92p of work.
That does not automatically mean the job will finish at the same level of overrun. It does mean you need to understand the cause and review the forecast.
Schedule Performance Index: SPI
SPI = EV ÷ PV
SPI compares the value of work completed with the value of work planned by the same date.
- An SPI of 1.0 means you have earned value in line with the plan.
- An SPI above 1.0 means you have earned more value than planned.
- An SPI below 1.0 means you have earned less value than planned.
But be careful.
SPI uses cost value as a proxy for progress. It does not measure calendar time directly. A high-value activity completed late can affect the result differently from a lower-value activity that controls the completion date.
SPI can be a useful warning indicator. It cannot prove that you are three weeks late, identify the critical path or establish an entitlement to an extension of time.
For time-based schedule performance, use your programme, critical path, milestone dates and records alongside SPI. Our guide to schedule control for contractors explains why those records matter.
Forecasting the finish: EAC and VAC
Estimate at Completion: EAC
EAC is your current forecast of the final cost of the job.
A simple trend test is:
EAC = Original Budget ÷ CPI
If your original budget is major programme-scaleand your CPI is 0.92:
EAC = major programme-scale ÷ 0.92 = approximately major programme-scale
This is a useful test of the forecast. It asks what could happen if current cost performance continues.
It is not a replacement for a proper bottom-up forecast. You still need to review the remaining quantities, procurement position, subcontractor commitments, risks, compensation events, productivity and cost to complete.
A forecast should change when the facts change. Computing EAC once and leaving it untouched is not control.
Variance at Completion: VAC
VAC = Original Budget − EAC
Using the example above:
VAC = major programme-scale − major programme-scale = −major programme-scale
This is the gap between what you allowed and what you now expect to spend.
VAC is the number directors actually want to understand. Are we heading towards a surplus, holding the budget or carrying a forecast loss?
A negative VAC does not explain the cause. It tells you where to focus the investigation.
Worked example: what the numbers tell a contractor
The following example is illustrative only.
| Measure | Result | Calculation |
|---|---|---|
| Original budget | major programme-scale | Approved budget |
| PV | major programme-scale | Budgeted value planned by the reporting date |
| EV | major programme-scale | Budgeted value of work actually completed |
| AC | major programme-scale | Actual cost incurred for completed work |
| CPI | 0.92 | major programme-scale ÷ major programme-scale |
| SPI | 0.88 | major programme-scale ÷ major programme-scale |
| EAC | major programme-scale | major programme-scale ÷ 0.92 |
| VAC | −major programme-scale | major programme-scale − major programme-scale |
Plain-English reading
The contractor planned to have completed major programme-scaleof work. The measured progress supports only major programme-scale. The job is therefore behind the value plan.
The contractor has spent major programme-scaleto deliver that major programme-scaleof budgeted work. Cost performance is below the allowance.
The simple trend forecast points to a final cost of approximately major programme-scale, creating a negative variance at completion of about major programme-scale.
That is not a conclusion to hide behind. It is a prompt to find out what is driving the movement:
- Has productivity fallen?
- Are subcontractor costs exceeding the allowance?
- Are commitments missing from the cost report?
- Has rework inflated the actual cost?
- Is the progress assessment too optimistic or too conservative?
- Has approved change been incorporated correctly?
The value comes from asking those questions early rather than presenting a cleaner story late.
Earned value is not cash flow or entitlement
Earned value measures performance. It does not measure cash.
It will not tell you:
- when the client must pay you;
- whether an application for payment is correct;
- how retention affects cash flow;
- whether a compensation event is notified or assessed;
- whether a cost is contractually recoverable;
- whether a disputed instruction gives you an entitlement.
Those are commercial and contractual questions.
A job can show reasonable earned value performance while cash flow remains tight because of payment terms, delayed certification or retention. Equally, a contractor can invoice successfully while actual delivery performance is deteriorating.
Keep the measures separate. Use earned value to understand performance, cost control to manage the forecast and contract administration to protect entitlement. Our cost control guide covers commitments, forecasting and cost to complete in more detail.
The real power: seeing the trend early
Earned value shows movement before the final account does.
Suppose your CPI is:
- Month one: 1.02
- Month two: 0.97
- Month three: 0.92
The raw spend may still look comfortable. The project may still have cash in the bank. But the trend is moving in the wrong direction.
That is the point of project controls for contractors. You are not waiting for a completed job to discover what happened. You are tracking the direction of travel and deciding whether intervention is needed.
A falling CPI might require a package review, a productivity check, a revised procurement decision or a more realistic cost-to-complete forecast.
A falling SPI might require a programme review, better progress evidence or a focused discussion about the activities affecting key dates.
Early rather than late. Truth rather than presentation.
Earned value is only as good as its data
Earned value does not repair weak project information.
If progress is measured by effort spent rather than work done, EV is fiction. A team can spend 80% of a package budget and still have a substantial amount of physical work remaining.
If commitments are not captured, AC is wrong. Unrecorded subcontractor applications, purchase orders, accruals and material liabilities can make performance appear better than it is.
You need:
- a clear budget structure;
- agreed progress rules;
- reliable cost capture;
- a current programme;
- consistent reporting dates;
- a process for approved change and revised baselines.
Do not hide variances in optimistic progress credit. Do not use earned value as a reporting ritual. Use it to challenge the job.
Right-sized earned value for smaller contractors
You do not need a full earned value management system or a formal accredited process on every project.
For many SME contractors, a monthly table covering PV, EV, AC, CPI and SPI across a handful of important packages will show the trend. Add EAC and VAC for the project as a whole. Review the result with the person responsible for delivery.
That may be enough.
Apply the method where it makes sense:
- major subcontract packages;
- high-risk work sections;
- long-duration projects;
- jobs with tight margins;
- projects with several workstreams or interfaces.
Do not build systems for projects many times larger than your own. Proportionate controls are more useful than oversized processes nobody maintains.
The same principle runs through our guide to what project controls actually mean on a construction project. Controls should produce a usable plan, not a descriptive report.
The final post in this cluster will look at reporting that gets used: how to turn project information into decisions, actions and accountable follow-up.
Earned value glossary
| Acronym | Plain-English meaning |
|---|---|
| PV | The budgeted value of work you planned to complete by now. |
| EV | The budgeted value of work you have actually completed. |
| AC | What the completed work has actually cost you. |
| CPI | EV divided by AC; a measure of cost efficiency. |
| SPI | EV divided by PV; a value-based indicator of progress against plan. |
| EAC | Your current forecast of the final cost. |
| VAC | The original budget minus EAC; the expected gap at completion. |
Common earned value mistakes
Avoid these errors:
- Using invoiced amounts as EV.
- Measuring progress by cost spent rather than work done.
- Treating SPI as proof of delay entitlement.
- Computing EAC once and never reviewing it.
- Hiding variances in optimistic progress credit.
- Using earned value as a reporting ritual instead of a control.
- Applying it at company level when it only makes sense per project or package.
- Ignoring commitments, accruals and subcontractor liabilities.
- Failing to update the baseline when approved scope changes.
Earned value is not difficult because the calculations are advanced. It is difficult because the inputs must be honest.
Frequently asked questions
What is earned value in simple terms?
Earned value compares the work you planned to complete, the work you have actually completed and what that completed work has cost. It shows whether delivery is matching the budget and plan.
What is a good CPI?
A CPI of 1.0 means cost performance is matching the allowance. Above 1.0 indicates better cost efficiency. Below 1.0 indicates that the work is costing more than allowed. The trend matters as much as the individual number.
Can I use SPI to prove a delay?
No. SPI can indicate that you have earned less value than planned, but it is not a time-based delay analysis and does not establish contractual entitlement. Use the accepted programme, critical path analysis, notices and contemporaneous records.
Do I need earned value on a small job?
Not necessarily in a formal system. A simple monthly table for the main packages may be enough. The right approach is proportionate project controls for contractors, not unnecessary administration.
How often should I calculate EAC?
At least monthly on an active construction project, and more frequently when the job is moving quickly or facing material change. Review it when costs, progress, commitments, risks or scope change.
What is the difference between earned value and cash flow?
Earned value measures delivery performance against the budget. Cash flow measures when money is invoiced, certified, paid or retained. They answer different questions and should not be used as substitutes.
A practical next step
BHD Limited provides project controls, including cost and schedule control, for contractors and SMEs across the UK. We bring 25 years of construction, defence and infrastructure experience to proportionate systems that help you see movement early and act on it.
BHD Commercial's team brings 25 years' experience across construction, defence and infrastructure. Our team brings collective professional memberships across the disciplines involved.
If your project reporting feels busy but does not give you a clear view of cost, progress and forecast, request a free Commercial Health Check.
We will look at the information you have, identify where control is weak and give you a straight view of what would improve it. No oversized process. No presentation for its own sake. A usable plan you can act on.