# What are earned hours?

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I'm new to earned value management and I assume that "earned hours" is an EVM term. So, for all the EVM gurus who visit this website, what do you mean by earned hours? And how can the project manager know the number of earned hours on his project? (please correct me if my question doesn't make any sense)

Thank you in advance for your help!
asked 7 years ago

## 1 Answer

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Best answer
The correct term is Earned Value. There are four terms you MUST know for EVM.

Budget at complete  (BAC) = the approved dollars and time for the total project.

Planned Value (PV) = the value of the work you planned to do on day X.

Actual Cost (AC) = the value that it actually cost to do the work completed on day X, This may or may not equal the PV. Where less is good and more is bad.

Earned Value (EV) is the value of the work actually completed on day X.

Example.
BAC = 10 weeks & \$10K
I plan on producing a total of 20 units, two each week (each unit is worth \$500, this is the PV for each unit) thus my PV for each week is \$1K.

Let's say we just completed week 4 and the team completed 7 units and spent \$6k to completed the 7 units. I now know the following.

PV is 8 units = 8 * \$500 = \$4K
AC is \$6K as reported by the accountant
EV is 7 completed units * \$500 = \$3500
BAC = \$10K

The two most critical values are CPI (Cost Performance Index) and SPI (Schedule Performance Index) where

CPI = EV/AC = \$3500/\$6000 = .593 (anything less than one is bad)
SPI = EV/PV = \$3500/\$4000 = .875

The forecast for \$ (EAC, e.g. Estimate At Completed) is
EAC(dollars) = BAC(dollars)/CPI = \$10K/.593 = \$16,863.41
EAC(time) = BAC(time)/SPI = 10 weeks/.875 = 11.43 weeks

Based on the forecast the project is in DEEP trouble it is going to cost \$6,863.41 more and take 1.43 weeks longer.

You MUST get approval from the stakeholders before you can move forward but because of the bad news they may cancel the project.

It appears that we have two issues, (1) cost estimates are WAY off on the bad side (2) time estimates are also on the bad side but not as much at the cost.
answered 7 years ago by anonymous

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