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Planned Value (PV), Earned Value (EV) & Actual Cost (AC)
Planned Value (PV), Earned Value (EV) & Actual Cost (AC)
We are going to look at these elements in detail. From this point onward, you’re
going to see mathematical calculations. Therefore, I request you go through
every step thoroughly.
If you miss any step or don’t understand the concept, further calculations will be
very difficult for you and you may have problems with understanding more
advanced cost management concepts. Therefore, understand the concepts well
before proceeding further.
The calculations for finding Planned Value, Earned Value, and Actual Cost are
simple, and once you understand them, the rest will be simple.
Although I’m going to explain them thoroughly, I suggest you obtain a good PMP
exam reference book for further reading and practice questions.
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).
Planned Value is the value of the work that should have been completed so far
(as per the schedule).
= 50% of BAC
= 50% of 100,000
= (50/100) X 100,000
= 50,000 USD
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 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,
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.
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.
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.
= 40% of BAC
= 40% of 100,000
= 0.4 X 100,000
= 40,000 USD
In your PMP exam, you will be given a scenario and asked to identify these three
elements. Please note that these elements are also known by different names,
such as: Planned Value referred to as Budgeted Cost of Work Scheduled
(BCWS), Actual Cost as Actual Cost of Work Performed (ACWP), and Earned
Value as Budgeted Cost of Work Performed (BCWP).
It is unlikely that you will see these terms in your PMP exam, so concentrate on
the terms mentioned in the PMBOK Guide rather than these outdated names.
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.
You can now move on to the next blog post on schedule variance and cost
variance which explains if you are ahead of schedule or behind schedule
and whether you are under budget or over budget.
If you are interested in learning all the mathematical formulas for the PMP exam,
you can try my PMP Formula Guide. You can also try my PMP Question
Bank and PMP Mock Test to practice PMP exam sample questions.