For a decent cost performance index, project managers need to be effective and creative. That means figuring out how to complete all objectives within the project budget. Thus, they should avoid completion methods that don’t justify the actual cost.
The project manager should aim to produce each activity’s planned value. Hence, they should complete it without spending too much time or other resources. Plus, they should account for any cost variance that might conflict with the expected outcome.
A good management system can help you keep the PV (Planned Value) in check. That also ties in with the overall project cost management. As a result, you’ll get a clear overview of the schedule performance index.
Here’s how to utilize the PV and Actual Cost AC metrics when budgeting.
Definitions and Relevant Metrics
To complete a task, you first need to reserve a portion of your budget for it. Next, you need to understand what is PV in project management. To compare it to the Planned Value metric, review that task’s place and estimated cost on the initial timeline. So, PV refers to the total budget assigned for completing a specific task.
As such, PV is the starting reference point that project managers use to craft a project schedule. Afterward, they add the Earned Value EV and actual cost metrics. Combining them gives you a thorough look at the work performed thus far.
Aside from that, PV plays a hand in discovering the Budget at Completion value. Hence, managers include the PV rating before the project begins. Thus, the Budgeted Cost of Work Scheduled is another name for it.
Background and Starting Frameworks
The Earned Value Management System is the frame for measuring progress. You can use it for the correct evaluation of the completed work and data analysis. Generally, you’ll need to add values like cost and scope baseline when inspecting a given point in time. Together, they comprise much of what is PV in project management.
This will allow you to gauge the three essential aspects:
- The Planned Value
- The Earned Value
- The Actual Cost metrics
The Budget at Completion value rounds up this system. That is the final input of the EVMS method. However, calculating the BAC is easier than the other three. Thus, it refers to the total project budget.
Take the “to build a home” analogy. To create a comfortable home for you, you’ll need to envision the final look. Also, you’ll need to set proper foundations and invest in the building’s exterior. Hence, you’ll need to schedule which resources to spend and for what.
However, many roadblocks can cause you to lose time. To notice them, you’ll need to compare your current progress with the estimated optimal pace. This same scheme applies to project management also. To gauge your progress there, use the PV and AC values.
The Importance of EV
Unlike Planned Value, Earned Value highlights the actual results achieved at a given moment. As such, it cannot surpass the initial PV figure. So, when reviewing your planned budget, consider the current EV metric to get the right idea.
In other words, EV distills your progress in percentages in relation to the project’s schedule. Then, you can compare it to the criteria set for the next WBS component. Use this approach to calculate EV: EV= % of the completed work x BAC.
The Actual Cost Metric
This refers to the total sum you’ve spent to achieve your current progress. So, it’s about how much funds you have to funnel to stay on the critical path. Thus, another name for this is the Actual Cost of Work Performed.
As a result, calculating the AC is a simple mathematical operation. You won’t need any formulas to deduce that sum.
The Basic Mathematical Operations
The project’s scheduled performance index and budget pinpoint the PV value. This is the total value of the project’s final outcome or list of deliverables. To build up that formula, managers use the Work Breakdown Structure approach. Those results reveal what is PV in project management for each particular case.
That’s the starting point when summarizing project duration. Every WBS aspect covers a percentage of the total work roadmap. At the same time, the project manager will note the optimal delivery time for that activity.
Fulfilling each task by following that principle should lead to project completion. That way, we can group one chain into a milestone, which will further simplify tracking. Next, we can accurately postulate which deliverable can be sent ahead of schedule.
As for calculating the PV, you can use this formula: completed %X the task’s budget. Depending on your situation, add the proper currency and measure units. However, note that the whole team must follow once you pick a monetary value.
Otherwise, the reports will turn incoherent, and you’ll have to spend time rethreading your steps. The same goes if you don’t use monetary values at all. The Cost Variance is the key pain point in such scenarios. Figuring out how off-track budget-wise you are will also be a hassle.
For example, you should divide the total budget of $500,000 into several milestones. Next, your WBS values might show a 20% completion goal for a given date. That means the PV for that part of the project’s schedule will be $100,000.
If you continue adding milestones, you’ll produce the entire roadmap. The line will begin at the 0 mark during the first day. The final date will fit with the 100 mark later on. That is the total cost or total budget for the project.
However, the line will not be straight at all times. Instead, it will curl depending on the value of the completed tasks at certain points. Thus, you’ll be able to track the progress via that chart.
Granted, that value will be trickier to summarize for some projects. It depends on the type of work and how much value each task brings. So, the project manager will have to deduce the completion percentage by using all metrics.
Benefits and Applicable Know-How
Keeping an eye on the Planned Value will allow you to switch gears when needed. Schedule variance is the practice of changing the pace of a workflow. To identify when it’s time to do so, compare the initial outline and the current achievements. So, review the PV and EV values after clearing a milestone.
Cost variance issues also happen when resource costs exceed labor costs. Hence, delays may happen that will push back the completion date. At the same time, they will affect the BAC rating, too.
Following those calculations lead to the Schedule Performance Index. Then, use both schedule and cost variance to simplify even the most complex charts. That will allow you to diligently oversee a project.
Conclusion on What Is PV in Project Management
Identifying the current project status demands pulling raw data and a lot of comparing. Things like the Planned Value and Earned Value also warrant frequent updates. Together, they show how your team is doing in relation to the proposed timeline. As such, PV is the target value, while EV is the currently completed work.
Those two metrics tie in with the Actual Cost value, which refers to the total funds spent thus far. Taken as a whole, those metrics comprise a detailed overview of the project status. Lastly, use that knowledge to summarize whether you need to make significant changes before long.
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