This post is the continuation of a series of articles I started last year on measuring performance beyond the traditional approach. So if you’ve read”Getting to the Nuts and Bolts”, and the subsequent posts on the WBS, RAMs,and the OBS, we can see how Earned Value is used on projects.
Earned Value is a tool different from earlier generations of accounting or performance measuring tools in that it establishes criteria by which to measure performance quantitatively.
Project status can be determined not in a subjective way with guesses, or gut feels, but with concrete answers. Additionally the methods that will be described in the coming posts, allow the PM and Control Account Managers (CAMs) to forecast potential future pitfalls in cost accounts. In order to do this however we must always remember that Earned Value Management (EVM) does all of this by assessing the project using cost with a baseline schedule, and comparing the two to the work being performed.
To find the status of a project the PM needs to know what the cost and schedule baseline looks like, how much effort is actually being expended, and the overall cost of the effort.
The three basic EVM building blocks are:
- The budgeted cost of work scheduled (BCWS) or Planned Value (PV)
- The budgeted cost of work performed (BCWP) or Earned Value (EV)
- The actual cost of work performed (ACWP) or Actuals (AC)
We’ve already determined that you need a cost and schedule baseline to measure performance. That cost and schedule baseline really reflects the physical work scheduled to be done for a contractually approved budget. When considering this concept what the reader should understand is that when you have an approved time phased budget and schedule baseline, what you really have is the concept of planned value or PV.
In other words if you take the physical work that needs to be done and apply a budget to it, you’re really defining the planned value that will result.
So another way to look at this is simply:
Planned Value = Physical work + Contractually Approved Budget
Planned value (PV) can be measured monthly, or over a defined agreed upon time period. When PV is measured monthly it’s considered current PV. The sum of the monthly PV (s) is called cumulative PV. Cumulative PV is the sum of all the approved budgeted tasks scheduled since the beginning of the project.
So to briefly recap, PV can be reported as monthly or current PV. PV can be summed to produce Cumulative PV, as in the sum of several months’ worth of PV. These are expressed as:
PV curr, or BCWS curr for the current period
PVcum, or BCWS cum for the cumulative period
Planned Value or BCWS can also be thought of as the scope of the work you are doing. It is defined in the WBS as assigned scope or tasks. PV is time phased and sequenced logically in a project schedule, with a defined budget. One more item to consider is that the total budget that the PM negotiates is also known as the budget at completion, and is the sum of the entire planned value in currency. This is also known as the BAC. We’ll get into the lexicon in the coming posts, and all the definitions.
I’m going to continue this tread for a while, explaining how to use earned value management and to go beyond simply comparing a budget to the amount of people doing the work. I’ll describe how planned value, actuals and earned value all fit together. In my next post we’ll get into earned value management in greater depth by describing EV and AC. In future posts we’ll get into the various ways to use EV formulas to plot a successful course for you project’s management. Hope you’ll join me for the duration. Thanks for reading!