Earned Value Looks Fine Until You Read the Detail
You are the PM for a 12-month infrastructure program with a budget at completion of $6,000,000. At the end of month 6 you report CPI 1.02 and SPI 0.98, which your steering committee reads as healthy. A junior cost analyst flags that $700,000 of the recorded earned value comes from three work packages whose deliverables have not been accepted by the client - the team marked them 90% complete based on internal effort. Separately, a $250,000 contingency reserve was drawn down last month for a server refresh that was actually a planned capital expense, not a risk event. The finance director has already booked the CPI figure into the annual forecast.
1. Recalculate the position and assess what the corrected numbers tell you.
Read the worked answer
Strip the unaccepted earned value: $6,000,000 minus $700,000 of questionable EV. Recompute against actual cost.
Original CPI 1.02 implies EV = 1.02 x AC. If EV was overstated by $700,000, the corrected CPI is roughly (EV - 700,000) / AC, which will drop below 1.0 - likely into the 0.90-0.95 range depending on AC. Do the arithmetic with actual figures rather than asserting a number.
The signal: cost performance is worse than reported, and the variance is concentrated in work the client has not accepted. Effort-based percent complete is the root cause - it measures activity, not delivered value. Recommend switching those packages to 0/100 or milestone-based earning rules.
Separately, the $250,000 draw on contingency for a planned capital expense is a misclassification. Contingency is for identified risks; a known capital purchase belongs in the baseline. Correcting it restores $250,000 of reserve and moves the expense to the appropriate budget line. Net effect: the program is likely over budget and the reserve is thinner than reported.
2. The finance director has published the CPI figure. How do you correct the record?
Read the worked answer
Correct it promptly and in writing, before the forecast hardens into commitments. Silence here is a misrepresentation by omission.
Steps:
- Issue a written correction memo to the steering committee and finance within one business day, showing the original figures, the adjustments, and the corrected CPI and EAC. State the cause plainly: unaccepted deliverables counted as earned, and a misclassified contingency draw.
- Propose the revised EAC using the corrected CPI, and note the assumption behind it.
- Recommend the earning-rule change and a review of any other packages using effort-based percent complete.
- Ask finance to restate the forecast and document who approved the original number so the process gap is visible.
Expect friction. The professional obligation is accuracy over comfort. Frame the memo as protecting the forecast's credibility, not as assigning blame - the analyst who flagged it should be credited, not exposed.