What is earned value?

Earned value is the budgeted cost of work actually completed on a project, providing a measure of project progress in financial terms. For professional service firms, earned value analysis compares work completed (earned value) to work planned (planned value) and actual costs incurred (actual cost), revealing whether projects are on schedule and budget. The technique provides early warning of project problems.

Key characteristics

• Measures project progress in financial terms

• Compares earned value to planned value and actual cost

• Reveals schedule and cost variances early

• Requires defined project milestones and budget

• Enables forecast of final project cost

• Standard project management technique

Why it matters for professional service firms

Earned value answers the question: Is this project on track? Comparing earned value to actual cost reveals cost efficiency. Comparing the planned value to the actual value reveals schedule performance. Professional service firms with fixed fee projects should use earned value analysis to identify problems early, when correction is possible. A project with earned value significantly below planned value is behind schedule. One with actual cost above the earned value is over budget. Either requires intervention.

Real-world example

Kevin's firm had a $200K fixed-fee project with a 6-month timeline. At month 3 (halfway), the traditional view showed $95K spent (under the $100K midpoint, seemingly good). Earned value analysis: planned value at midpoint $100K, actual cost $95K, but earned value only $72K (project was only 36% complete despite being 50% through the timeline). The project was behind schedule and would overrun. Analysis revealed scope additions not captured in change orders and resource constraints delaying work. Actions: negotiated change order for additional scope ($25K), added resources to accelerate. Project completed at $215K versus $225K projected without intervention.