Sunday, October 21, 2018

Planned Value (PV), Earned Value (EV) & Actual Cost (AC)

Planned Value (PV)

This is the first element of earned value management. Planned Value is the approved value of the work to be completed in a given time. It is the value that you should have been earned as per the schedule.
As per the PMBOK Guide, “Planned Value (PV) is the authorized budget assigned to work to be accomplished for an activity or WBS component.”
You calculate Planned Value before actually doing the work, which also serves as a baseline. Total Planned Value for the project is known as Budget at Completion (BAC).
Planned Value is also referred to as Budgeted Cost of Work Scheduled (BCWS).

Formula for Planned Value (PV)

The formula to calculate Planned Value is simple. Take the planned percentage of the completed work and multiply it by the project budget and you will get Planned Value.
Planned Value = (Planned % Complete) X (BAC)

Example of Planned Value (PV)

You have a project to be completed in 12 months. The budget of the project is 100,000 USD. Six months have passed and the schedule says that 50% of the work should be completed.
What is the project’s Planned Value (PV)?
Given in this question.
Project duration: 12 months
Project cost (BAC): 100,000 USD
Time elapsed: 6 months
Percent complete: 50% (as per the schedule)
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
= 50% of BAC
= 50% of 100,000
= (50/100) X 100,000
= 50,000 USD
Therefore, the project’s Planned Value (PV) is 50,000 USD.

Application of Planned Value (PV)

Planned Value is used to calculate Schedule Variance and Schedule Performance Index.

Actual Cost (AC)

This is the second element of earned value management. Actual Cost is the total cost incurred for the actual work completed to date. Simply put, it is the amount of money you have spent to date.
As per the PMBOK Guide, “Actual Cost (AC) is the total cost actually incurred in accomplishing work performed for an activity or WBS component.”
Actual Cost is also known as Actual Cost of Work Performed (ACWP).

Formula for Actual Cost (AC)

Finding Actual Cost is the simplest of all.
There is no special formula to calculate Actual Cost. It is an amount that has been spent and you can find it easily in the question.

Example of Actual Cost (AC)

You have a project to be completed in 12 months. The budget of the project is 100,000 USD. Six months have passed and 60,000 USD has been spent, but on closer review, you find that only 40% of the work has been completed so far.
What is the project’s Actual Cost (AC)?
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.
Hence,
The project’s Actual Cost is 60,000 USD.

Application of Actual Cost (AC)

Actual Cost is used to calculate Cost Variance and Cost Performance Index.

Earned Value (EV)

This is the third and last element of earned value management. Earned Value is the value of the work actually completed to date. If the project is terminated today, Earned Value will show you the value that the project has produced.
As per the PMBOK Guide, “Earned Value (EV) is the value of work performed expressed in terms of the approved budget assigned to that work for an activity or WBS component.”
Although all three elements have their own significance, Earned Value is more useful because it shows you how much value you have earned from the money you have spent to date.
Earned Value is also known as Budgeted Cost of Work Performed (BCWP).
There is a difference between Planned Value and Earned Value. Planned Value shows you how much value you have planned to earn in a given time, while Earned Value shows you how much value you have actually earned on the project.

Formula for Earned Value (EV)

The formula to calculate Earned Value is also simple. Take the actual percentage of the completed work and multiply it by the project budget and you will get the Earned Value.
Earned Value = % of completed work X BAC (Budget at Completion).

Example of Earned Value (EV)

You have a project to be completed in 12 months. The budget of the project is 100,000 USD. Six months have passed and 60,000 USD has been spent. On closer review, you find that only 40% of the work has been completed so far.
What is the project’s Earned Value (EV)?
In the above question, you can clearly see that only 40% of the work is actually completed, and the definition of Earned Value states that it is the value of the project that has been earned.
Earned Value = 40% of the value of total work
= 40% of BAC
= 40% of 100,000
= 0.4 X 100,000
= 40,000 USD
Therefore, the project’s Earned Value (EV) is 40,000 USD.

Application of Earned Value (EV)

Earned Value is used to calculate Schedule Variance, Cost Variance, Schedule Performance Index, Cost Performance Index, Estimate at Completion, and To Complete Performance Index.

Summary

Earned Value, Planned Value, and Actual Cost are basic elements of earned value management. They can be used to generate a basic overview of your project status. Earned Value is the value of the work actually completed to date, Planned Value is the value that you should have earned as per the schedule, and Actual Cost is the amount spent on the project to date. Once you have this information on hand, you can find the current status and compare it with the planned progress.

No comments:

Post a Comment