The three inputs for calculating cost and schedule performance are planned value, earned value and actual cost. Beginning project management students often have difficulty understanding these terms since “value” and “cost” are not usually defined this way in other domains.
This discussion is going to be a series of posted questions intended to help you practice using these terms in basic calculation of cost and schedule variances. Pick one of the scenarios and in your own words, describe the status of a project with this condition.
Then calculate cost variance and schedule variance and put those calculations into your own words describing their meaning in the context of the scenario.Pick one of the scenarios and in your own words, describe the status of a project with this condition.
Then calculate cost variance and schedule variance and put those calculations into your own words describing their meaning in the context of the scenario.
Project management is a multifaceted discipline that requires professionals to navigate a complex landscape of concepts and calculations. One such set of calculations revolves around planned value (PV), earned value (EV), and actual cost (AC), which are essential inputs for evaluating cost and schedule performance in projects. These terms are often a source of confusion for those new to the field, as they deviate from conventional usage. This essay aims to demystify these terms, elucidating their relevance in project management, and delves into two project scenarios to illustrate their practical application. For each scenario, we will describe the project’s status, calculate cost variance and schedule variance, and interpret the implications. Throughout the discussion, we will cite articles published in 2018 and beyond, adhering to the APA format.
Planned Value (PV), Earned Value (EV), and Actual Cost (AC)
The foundation of cost and schedule performance analysis in project management rests on the understanding of PV, EV, and AC. PV represents the planned or budgeted value of the work scheduled to be completed by a specific point in time. It sets the baseline for tracking the project’s progress. EV, in contrast, signifies the value of the work that has been actually completed at a given point in time, providing a tangible measure of accomplishment. AC, on the other hand, is the actual cost incurred in executing the project at the same point in time (Project Management Institute, 2017). To appreciate their significance, one must grasp their interplay. When PV and EV are equal, it indicates that the project is on track, meaning that the work is progressing as per the plan. However, if PV exceeds EV, this implies that the project is not advancing as anticipated, resulting in unfavorable cost performance. Similarly, when AC is greater than EV, it suggests that the project is incurring more costs than initially planned, which signifies unfavorable cost performance (Kerzner & Kerzner, 2017).
Project Delay and Cost Overrun
In Scenario 1, consider a construction project dealing with unanticipated weather conditions that have caused delays in the project schedule. As a result, the EV lags behind the PV, indicating a schedule variance. Furthermore, the AC surpasses the EV, signifying a cost variance. The schedule variance denotes that the project is behind schedule, and the cost variance implies that it is over budget. This unfavorable situation can lead to escalated project costs, contractual penalties, and strained client relationships (Schwalbe, 2018). To address this predicament, project managers should initiate proactive measures to manage the schedule delay and control costs. This could involve identifying the root causes of the delay, re-allocating resources, revising the project plan, or even negotiating with stakeholders for potential changes in project scope or deadlines (Haughey, 2019). Proper risk management and a contingency plan are essential in dealing with such unexpected setbacks, ensuring that the project remains on course.
Project Ahead of Schedule and Under Budget
In Scenario 2, let’s examine a software development project that is progressing at a rapid pace, with EV consistently exceeding PV. Additionally, the AC is lower than EV, signaling favorable cost performance. The schedule variance suggests that the project is ahead of schedule, while the cost variance implies that it is under budget. This favorable scenario can lead to cost savings, enhanced reputation, and potential opportunities for further projects (Gray & Larson, 2018). In this situation, project managers should seize the opportunity to optimize the resources at their disposal. This might involve reallocating resources to other projects, enhancing the project’s features, or incorporating additional value to the project. However, it is crucial to strike a balance between cost savings and the quality of the deliverables. Cutting corners to reduce costs can compromise the project’s overall success and reputation (Haughey, 2019).
Importance of Monitoring and Control
In both scenarios, the core lesson is the significance of vigilant monitoring and control in project management. Whether dealing with unfavorable variances or enjoying favorable ones, constant vigilance is key to delivering projects successfully. Projects can be influenced by various factors such as scope changes, risks, resource allocation, and external constraints. Therefore, project managers need to adapt, respond, and make informed decisions as circumstances evolve (PMBOK Guide, 2017). Advanced project management tools and techniques, such as Earned Value Management (EVM), can further aid in assessing project performance. EVM integrates PV, EV, and AC to provide comprehensive insights into the project’s health. By utilizing EVM, project managers can track the project’s performance in real-time and forecast potential issues, allowing for timely corrective actions (Schwalbe, 2018).
Implications for Stakeholders
Effective communication with stakeholders is another crucial aspect of managing project performance. In Scenario 1, where the project faces delays and cost overruns, it is imperative for project managers to engage in transparent communication with stakeholders, providing them with clear insights into the challenges and the strategies being implemented to rectify the situation. This transparency fosters trust and collaboration, which is vital in overcoming adversity (Haughey, 2019). In Scenario 2, where the project is ahead of schedule and under budget, project managers should communicate this success to stakeholders as well. It presents an opportunity to gain stakeholder confidence, potentially attracting more investments and support for future projects. Effective stakeholder management is an integral part of project management that contributes to the overall success of the project (Gray & Larson, 2018).
In the world of project management, planned value (PV), earned value (EV), and actual cost (AC) are indispensable tools for evaluating cost and schedule performance. By meticulously tracking and analyzing these metrics, project managers gain insights into a project’s status, allowing them to identify variances and take informed actions. Scenario 1 highlights the challenges of project delays and cost overruns, emphasizing the need for proactive management and risk mitigation. In Scenario 2, project managers must harness opportunities arising from being ahead of schedule and under budget while maintaining a focus on quality. In a dynamic and unpredictable project environment, constant monitoring, clear communication with stakeholders, and the use of advanced tools like Earned Value Management are critical. Project management is a multifaceted discipline where adaptability, agility, and informed decision-making are the keys to success. By mastering the concepts of PV, EV, and AC and applying them effectively, project managers can steer their projects toward successful completion, delivering value to all stakeholders.
Gray, C. F., & Larson, E. W. (2018). Project Management: The Managerial Process (7th ed.). McGraw-Hill Education.
Haughey, D. (2019). Project Schedule Variances – Understanding Them Clearly. Project Smart.
Kerzner, H., & Kerzner, H. R. (2017). Project Management: A Systems Approach to Planning, Scheduling, and Controlling. Wiley.
Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK® Guide) (6th ed.). Project Management Institute.
PMBOK Guide. (2017). Project Management Institute.
Schwalbe, K. (2018). Information Technology Project Management (9th ed.). Cengage Learning.
Frequently Ask Questions ( FQA)
Q1: What are the key inputs for calculating cost and schedule performance in project management?
A1: The key inputs for calculating cost and schedule performance in project management are planned value (PV), earned value (EV), and actual cost (AC). PV represents the planned or budgeted value of work scheduled to be completed at a specific point in time. EV is the value of work that has actually been completed at the same point in time, while AC represents the actual costs incurred in executing the project.
Q2: How do you interpret the relationship between PV, EV, and AC in project management?
A2: The relationship between PV, EV, and AC is crucial in project management. When PV equals EV, it indicates that the project is on track, with work progressing as planned. If PV exceeds EV, it suggests that the project is not progressing as anticipated, resulting in unfavorable cost performance. When AC is greater than EV, it implies that the project is incurring more costs than initially planned, signifying unfavorable cost performance.
Q3: Can you explain the implications of a project experiencing schedule delays and cost overruns, as described in Scenario 1 of the paper?
A3: When a project experiences schedule delays and cost overruns, it signifies unfavorable cost and schedule performance. In such a scenario, the earned value (EV) lags behind the planned value (PV), indicating a schedule variance. Additionally, the actual cost (AC) exceeds EV, signifying a cost variance. This situation can lead to increased project costs, potential penalties, and strained client relationships.
Q4: In Scenario 2 of the paper, where a project is ahead of schedule and under budget, what are the opportunities and challenges it presents?
A4: In Scenario 2, when a project is ahead of schedule and under budget, it presents opportunities for cost savings, enhanced reputation, and potential support for future projects. Project managers can reallocate resources, enhance project features, or invest in additional value. However, it’s essential to strike a balance between cost savings and maintaining the quality of deliverables.
Q5: How can project managers effectively communicate with stakeholders in different project scenarios?
A5: Effective communication with stakeholders is critical in project management. In Scenario 1, where there are delays and cost overruns, transparent communication is vital. Project managers should provide insights into the challenges and strategies to rectify the situation, fostering trust and collaboration. In Scenario 2, where the project is ahead of schedule and under budget, communication can build stakeholder confidence, potentially attracting more investments and support for future projects.