The total PV is also known as performance measurement baseline (PMB), budget at completion (BAC), or more often as Budgeted Cost of Work Scheduled (BCWS). You can calculate Planned Value (PV) using the relation: PV= BAC x Planned % of complete. The following example illustrates the relationship:
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Answer
What is the cost baseline?
• The cost baseline is the approved version of the time-phased budget built from the costs and timeline for each activity or work package; it is a summation of the approved budgets for the different scheduling activities. • Time-phasing the project costs allows the funding organization to “calendar” for expenses.
What is the planned value of the project?
Planned Value is the value of the work that should have been completed so far (as per the schedule). In this case, we should have completed 50% of the total work. Planned Value = 50% of the value of the total work Therefore, the project’s Planned Value (PV) is 50,000 USD.
How to calculate planned value (PV)?
The total PV is also known as performance measurement baseline (PMB), budget at completion (BAC), or more often as Budgeted Cost of Work Scheduled (BCWS). You can calculate Planned Value (PV) using the relation: PV= BAC x Planned % of complete. The following example illustrates the relationship:
What is the actual cost of the project?
The Actual Cost is the amount of money that you have spent so far. In the question, you have spent 60,000 USD on the project so far. The project’s Actual Cost is 60,000 USD. Actual Cost is used to calculate Cost Variance and Cost Performance Index. This is the third and last element of earned value management.
What is actual cost?
Actual Cost is the realized cost incurred for the work performed on an activity during a specific time period. In other words, the cost you incur while accomplishing the work for which EV is measured.
What is project cost management?
Project Cost Management is a process that involves planning, management, and control of the project to comply with the approved budget. It provides guidance and direction on how you’ll manage the project’s costs throughout the project.
What is cost variance?
Cost Variance has a direct relationship with the project budget. It’s the amount of project budget deficit or surplus at any given point time. This also helps in the prediction of the budget at project completion.
What is EV in construction?
EV is a measure of work performed or the budget authorized for that work. In other words, it’s the budget authorized for completed work. The value of EV cannot be greater than the authorized PV budget for a component.
Why is EV important?
From the image above, you can see that EV is a very important instrument in evaluating project performance. Beyond assisting the project team to understand the project’s health, it helps bring the project back on track in case of any deviations or variations from the plan.
Project Cost Management
Project Cost Management is a process that involves planning, management, and control of the project to comply with the approved budget. It provides guidance and direction on how you’ll manage the project’s costs throughout the project. This primarily deals with the cost of resources required to complete the project activities. Cost Management ensures that project funding and d…
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Earned Value Management System
Planned Value
Planned value is the authorized budget you assign to an activity or work breakdown structure (WBS). This budget doesn’t include a management reserve. You allocate the planned value in phases over the lifetime of the project. Albeit, at a given point in time, planned value defines the physical work that you’ve accomplished. The total PV is also know...
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Earned Value
EV is a measure of work performed or the budget authorized for that work. In other words, it’s the budget authorized for completed work. The value of EV cannot be greater than the authorized PV budget for a component. Since EV calculates the percentage of the project you’ve completed, you’ll measure it with reference to the progress measurement criteria established for each WBS …
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Actual Cost
Actual Cost is the realized cost incurred for the work performed on an activity during a specific time period. In other words, the cost you incur while accomplishing the work for which EV is measured. You measure AC as it relates to PV (budgeted) and EV (measured), but this has no upper limit. whatever you spend to achieve the EV will be measured. AC is also referred to as th…
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Application of Ev
From the image above, you can see that EV is a very important instrument in evaluating project performance. Beyond assisting the project team to understand the project’s health, it helps bring the project back on track in case of any deviations or variations from the plan. Following the PMBoK 6th edition, project variations are estimated through the following theories.
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Practical Limitations
While trying to understand the EVM, you may notice certain limitations in the practical applications. A few of them are: 1. CV actually measures the cost efficiency of the physical work accomplished compared to the plan, despite the fact that you measure it in dollars (or any currency). To correct the negative CV, you prioritize the productivity rate (i.e., burn rate) at which …
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Summary
Earned value management is an important aspect of project management. EV, PV, and AC are the most important instruments in assessing project performance at any given point in time. The project manager must use these tools to take necessary corrective or preventive measures while analyzing the project’s health. The tools play a vital role in predicting project completion with res…
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