Let's take a very basic example. We've budgeted $200 to buy, set up, network and test a new system. We've budgeted $50, $75, $50 and $25, respectively, in materials, labor and other costs for those four phases.

Keep in mind, though, that the $50 set aside to buy the system doesn't just cover the cost of the actual hardware and software. It also takes into account the value of time that will be required to find the right system, the time that will be needed to fill out the purchase orders, the time it will take to actually buy the system and so on.

"The basis for earned value management is worked performed, not money spent," says Marilyn S. McCauley, owner of McManagement Group, an EVM consulting and training firm. Our PVs are $50, $75, $50 and $25.

Budgeted (cost) at completion (BAC): This is the sum of all PVs -- the total for all phases. In our example, BAC is $200.

Earned value (EV): As our team completes portions of the planned work, we check off that work and the amount of money (or time) it should have taken to do it according to the project plan. Project managers calculate EV at predetermined times based on the plan, typically at the end of the company's accounting period, McCauley says. We've completed Phase 1 -- buying the system -- within the planned time frame. Check that off as done. Our EV is $50.