Planned value

From CEOpedia | Management online
The printable version is no longer supported and may have rendering errors. Please update your browser bookmarks and please use the default browser print function instead.

Planned Value (PV) is a term used in Earned Value Management is the baseline cost estimated up to the status date used[1]. That value includes all the relevant costs in the project or any given part of the project[2].

What Includes Planned Value

It was originally called the Budgeted Cost of Work Scheduled. Now it has been simplified to Planned Value. It records four key things[3]:

  • How much work will be required to carry out the project;
  • How long it will take to complete the work;
  • When it will be completed;
  • How much it will cost.

At the set up of a project, the Planned Value represents the total estimated Earned Value of the project. It is also referred to as the Budget at Completion (BAC). However, Planned Value is time-based and because of that Planned Value at any given point in time (the status date) will be the cumulative planned cost of the project up to that status date[4].

Difference Between Planned Value and Earned Value

Earned Value is another value important in Earned Value Management. In the case of calculating Planned Value, we haven't done the work yet, so we are looking ahead. Earned Value is a backward look. It tells us how much work a team has completed so far in worth, in the same monetary terms as Planned Value[5].

If the Earned Value is greater than the Planned Value, it results in a positive schedule variance. For example, schedule variance equals EV ($6,000) minus PV ($10,000), which stands for -$4,000. The negative schedule variance means that the project is behind schedule[6].

Developing Planned Value

Planned Value is developed through the following five steps[7]:

  1. Development of a Work Breakdown Structure (WBS), to determine all of the Work Packages that need to be carried out to complete the project successfully;
  2. Estimate the amount of Work Effort each of the Work Packages will require to complete it;
  3. Convert the Work Effort into a monetary value which represents the financial cost of performing the Work Package.
  4. Schedule when each of the Work Packages will need to occur, based on duration and when it is required;
  5. Plot the Planned Value onto a graph with the Monetary Value on the vertical axis and time on the horizontal axis.

As the amount and timing for all the Work Packages have been established, the Planned Value for the project should be set or baselined. The baseline for tracking purposes is referred to as the Performance Measurement Baseline. It should then only be changed by implementing formal project changes[8].

Examples of Planned value

  • Planned Value (PV) is the budgeted cost assigned to a work package or schedule activity. This is used to compare actual performance to the planned performance. For example, a construction project may have a budget of $1,000,000. The Planned Value (PV) would be the amount of money that is planned to be spent on each specific task of that project.
  • Planned Value (PV) is also used for project management. It is the sum of all costs estimated for the completion of the project activities. For example, a software development project may have a planned value of $200,000. This is the estimated cost of all the tasks required to complete the project.
  • Planned Value (PV) can also be used in budgeting. It is the total estimated cost of all activities planned for the upcoming period, such as a month, quarter, or year. For example, a company may have a planned value of $3,000,000 for the next fiscal year. This is the estimated cost of all activities that the company plans to complete during that period.

Advantages of Planned value

Planned Value (PV) is a key concept in Earned Value Management that allows organizations to measure and track the progress of projects against the planned timeline and budget. It provides key advantages, including:

  • The ability to forecast the overall budget of a project and assess the likelihood of completing it on time and within budget.
  • A clear and accurate snapshot of the current status of a project, which can be used to inform decisions about how to manage and allocate resources.
  • The ability to compare actual performance to the planned performance, which can help identify areas of potential success or failure.
  • The ability to identify and address any issues related to the project's timeline or budget before they become a larger problem.

Limitations of Planned value

Planned Value (PV) is a term used in Earned Value Management and is the baseline cost estimated up to the status date used. It is important to understand the limitations of Planned Value in order to manage project costs effectively:

  • PV is an estimate, and thus may not accurately reflect the true cost of the project. It is based on assumptions and the actual costs may differ from the estimated costs.
  • PV is calculated at the beginning of the project, so any changes to the scope, timeline, and budget that occur during the project will not be reflected in the PV.
  • PV does not take into account any external factors such as economic conditions, inflation, or other market trends, which can affect the cost of the project.
  • PV does not account for any unforeseen risks or contingencies that may arise during the project.
  • PV does not provide any insight into the progress of the project or the quality of the work that has been completed.

Other approaches related to Planned value

Planned Value (PV) is a term used in Earned Value Management and is the baseline cost estimated up to the status date used. Other approaches related to Planned Value include:

  • Budget at Completion (BAC): This is the total budget for the project, including both costs and duration.
  • Cost Performance Index (CPI): This is the ratio of the budgeted cost of work performed to the actual cost of work performed.
  • Variance At Completion (VAC): This is the difference between the budget at completion and the estimated cost at completion.
  • Schedule Performance Index (SPI): This is the ratio of the budgeted cost of work completed to the budgeted cost of work scheduled.

In summary, Planned Value is an important term used in Earned Value Management and is related to other approaches such as BAC, CPI, VAC, and SPI. These approaches all help to measure and understand the progress of a project and its associated costs.

Footnotes

  1. ↑ Biafore B. Stover T.(2012)
  2. ↑ Venkataraman R. Pinto J. (2011)
  3. ↑ Carroll J. (2017)
  4. ↑ Carroll J. (2017)
  5. ↑ Furman J. (2014)
  6. ↑ Biafore B. Stover T.(2012)
  7. ↑ Carroll J. (2017)
  8. ↑ Carroll J. (2017)


Planned value — recommended articles
Schedule variance — Earned value calculation — Baseline schedule — Earned value analysis — Actual cost — Statement of affairs — Critical activities — Project status report — Project cost management

References

Author: Michał Dembowski

Retrieved from "https://ceopedia.org/index.php?title=Planned_value&oldid=95264"