A proven method, rarely well tooled
Earned value management (EVM) was born in the 1960s at the United States Department of Defense, which formalised it in 1967 in its cost and schedule control systems criteria. It is now standardised, notably by the American standard ANSI/EIA-748 and the international standard ISO 21508, and is used in defence, aerospace, energy and large infrastructure projects.
Its principle fits in one sentence: compare, at the same date, what should have been done, what has been done and what it cost, all three expressed in money. That is what separates a delay from an overrun, and what makes it possible to project the final cost from the pace actually observed.
The method is well known; what is usually missing is the data to apply it. It needs a budget spread over time and tied to the schedule, an objective measure of the work done, and actual costs at the same level of detail as the budget. In most organisations these three live in three different tools (MS Project, Excel and the ERP), and earned value is rebuilt by hand once a quarter, if at all. Waterfall is built so that all three exist from the start.
Four quantities, and the project manager’s view
Waterfall’s indicators relate four quantities, all built by the other functions of the software:
| Quantity | Abbreviation | What it says |
|---|---|---|
| Baseline budget | BAC | what was promised |
| Planned value | PV | what should have been done by a date |
| Earned value | EV | what has been done, at the budgeted price |
| Actual cost | AC | what it cost |
The estimate to complete adds the project manager’s view of what remains. Planned value is obtained by spreading the budgeted amounts over the dates of the baseline revision’s tasks; actual cost comes from ERP imports.
A completed task earns its value
Earned value at a date is the sum of the budgeted amounts of the lines carried by tasks completed by that date, excluding provisions. This is the so-called “0/100 rule”: a task contributes nothing until it is finished, and its whole budgeted amount once it is. A task is completed when its estimate to complete is brought down to zero.
This choice removes the most common source of dispute in dashboards: the percentage of progress entered by guesswork, which quickly reaches 90% and stays there. It has a consequence, and an accepted one: progress is read in steps, and its granularity is that of the schedule breakdown. A subcontracting instalment is earned when its milestone is passed, a supply on receipt, provided the corresponding milestone exists.
It is always the budgeted amount that is earned, never the amount spent: the gap between the two is precisely what the cost performance index measures.
Cost and schedule performance indices
cost performance index (CPI) = earned value / actual costschedule performance index (SPI) = earned value / planned value
cost variance = earned value − actual cost
schedule variance = earned value − planned value
A cost performance index below 1 means that the work done cost more than promised; a schedule performance index below 1, that less work was done than planned by that date. Each index is shown with its zone (nominal, watch or alert) based on two thresholds set in the reference data, and with its trend: one point per marked revision, the last one at the current date.
An index that has no meaning is not displayed: the cost performance index cannot be computed until some actual cost exists, nor the schedule performance index until the first baseline task has started.
Three estimates at completion
Waterfall presents three estimates of the final cost, each based on an assumption about the remaining work:
- at-budget: the remainder will cost what was planned. actual cost + (baseline budget − earned value)
- project manager’s: the remainder will cost what the project manager estimates. actual cost + estimate to complete
- at-current-performance: the remainder will cost, proportionally, what the delivered work cost. baseline budget / cost performance index
None is truer than the others: it is the gap between them that tells you something. A project manager’s estimate lower than the at-current-performance estimate assumes that the overrun will stop. That is the assumption the review must examine.
Two measures of progress that say different things
- Physical progress is the share of the promised work that is done: earned value / baseline budget.
- Financial progress is the share of the final spending already committed: actual cost / (actual cost + estimate to complete).
- Budget consumption relates actual cost to the baseline budget.
Read together, they say whether you are spending fast, and whether you are spending too much.
Worked example
A project has a baseline budget of €1,000,000. At the review date, planned value is €400,000, earned value €350,000, actual cost €420,000, and the project manager puts the estimate to complete at €700,000.
| Indicator | Calculation | Value |
|---|---|---|
| Cost performance index | 350,000 / 420,000 | 0.83 |
| Schedule performance index | 350,000 / 400,000 | 0.88 |
| Cost variance | 350,000 − 420,000 | −€70,000 |
| Schedule variance | 350,000 − 400,000 | −€50,000 |
| At-budget estimate | 420,000 + (1,000,000 − 350,000) | €1,070,000 |
| Project manager’s estimate | 420,000 + 700,000 | €1,120,000 |
| At-current-performance estimate | 1,000,000 / (350,000 / 420,000) | €1,200,000 |
| Physical progress | 350,000 / 1,000,000 | 35% |
| Financial progress | 420,000 / 1,120,000 | 37.5% |
| Budget consumption | 420,000 / 1,000,000 | 42% |
The project manager forecasts €1,120,000, but the current performance leads to €1,200,000. Their estimate assumes that the remaining work will go better than the work done so far: the review must say why.
The curves
The cumulative cost S-curve
This is the budget view: what the project was supposed to cost, what it has cost, what it will cost. It plots the cumulative baseline budget, the cumulative actual cost up to the calculation date and, beyond that, the project manager’s estimate. Each contract amendment appears on it as a dated step, since it is the only event that moves the budget. Shifted by payment terms, the same curve becomes the cash outflow forecast: when the money will go out.
Earned value curves
This is the performance view: planned value, earned value and actual cost on the same axis. Their vertical gaps are the cost and schedule variances, their horizontal gaps the delay in time.
The milestone trend chart
It shows how the planned date of each contractual milestone has slipped from one review to the next. Each marked revision is a point on the horizontal axis, the date it planned for the milestone a point on the vertical axis. A milestone that holds traces a horizontal line, a milestone that slips rises, and its curve stops on the diagonal on the day it is passed.
What Waterfall adds to the method
Earned value management is demanding about the quality of the data it is fed. Waterfall’s other principles exist precisely to guarantee it:
- Planned value without re-entry: the budget is carried by the schedule’s tasks, so it spreads over time by itself (schedule and estimate on one tree).
- Objective earned value: the 0/100 rule leaves no room for a declared percentage.
- Comparable actual costs: imported from the ERP without double counting and reconciled with the budget per sub-project (ERP exchanges).
- A baseline that does not drift: only a contract amendment moves the baseline budget, never a re-estimate (two amounts per line).
- Provisions kept out of the baseline: like the management reserve of EVM standards, the risk reserve stays outside the budget used to measure performance.
- A reproducible history: each review freezes its indicators in a revision, so their trend and milestone slippage can be traced.
- A consistent portfolio: indices are aggregated by sums, never by averaging (portfolio).
Dated indicators, at the ERP’s level of detail
Three rules apply to all indicators:
- An indicator is computed at a date: the marking date for a marked revision, the current date for the draft revision. A marked revision keeps the actual costs known when it was marked, as they were then, which makes its indicators reproducible.
- Everything monetary is computed per sub-project and for the project, since the sub-project is the level at which the ERP books expenses.
- Nothing is computed before contract award: without a baseline budget, there is no index and no progress, only the estimate totals.
At organisation level, these same quantities are aggregated in the portfolio views, by sums and never by averaging indices.