The Green Earned Value Report
Your project has a approved budget at completion of $8.0M and a 12-month duration. At the end of month 6, the cumulative planned value is $4.0M, earned value is $3.6M, and actual cost is $3.9M. The project manager's dashboard is colored green because 90% of the budget has been "committed" through purchase orders and 70% of the work packages have started. The sponsor asks whether the project is on track for the $8.0M budget. There is a $400,000 management reserve held by the sponsor and a $250,000 contingency reserve in the cost baseline. A known risk-a third-party interface delay-has a 40% probability and a potential $300,000 impact, and it has not yet occurred. Your cost engineer proposes using the CPI-based estimate at completion.
1. Calculate and interpret the key earned value metrics. Is the project on track? What does the dashboard's green status miss?
Read the worked answer
At month 6: CV = EV − AC = $3.6M − $3.9M = −$300,000. SV = EV − PV = $3.6M − $4.0M = −$400,000. CPI = EV/AC = 3.6/3.9 = 0.923. SPI = EV/PV = 3.6/4.0 = 0.90. The project is behind schedule and over budget in earned-value terms: it has earned 90 cents of value per dollar planned and is spending about $1.08 for every dollar earned. The green dashboard is misleading because committed purchase orders are not earned value; commitment reflects future obligations, not work completed. A high percentage of started work packages can also hide weak completion and rework.
CPI-based EAC = BAC/CPI = $8.0M/0.923 ≈ $8.67M, implying a variance at completion of about −$670,000. TCPI to finish within BAC = (BAC − EV)/(BAC − AC) = (8.0 − 3.6)/(8.0 − 3.9) = 4.4/4.1 ≈ 1.073. That means remaining work must be performed at about 107% cost efficiency, which is demanding. However, the CPI-based EAC assumes the variance is typical and will continue; at month 6, with a known interface risk still open, that assumption should be tested against a bottom-up estimate of remaining work.
2. The sponsor asks whether the reserves can cover the overrun. How should the management reserve and contingency reserve be treated, and what recommendation should you make?
Read the worked answer
The two reserves are not interchangeable. The $250,000 contingency reserve is in the cost baseline for identified risks and should be used only if the interface risk materializes or another known risk occurs; it is not available to absorb general cost performance variance. The $400,000 management reserve is outside the baseline and is controlled by the sponsor for unforeseen work; using it requires the sponsor's approval and normally a scope or baseline change. Neither reserve should be used to make the current CPI look better.
My recommendation is to present the sponsor with a range, not a single EAC. The CPI-based EAC of $8.67M suggests an overrun of $670,000, which exceeds the combined contingency and the project's likely access to management reserve. But because the variance is only six months into a 12-month project, commission a bottom-up estimate to complete for the remaining work, including the interface risk exposure. If the bottom-up ETC confirms the trend, request a formal baseline change using management reserve, and reduce scope or secure additional funding. If the variance is driven by early procurement or timing, document that and reforecast. Do not present the green status as reassurance; present the range, the drivers, and a decision request.