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7 - PROJECT COST MANAGEMENT

• Planned value. Planned value (PV) is the authorized budget assigned to scheduled work. It is the
authorized budget planned for the work to be accomplished for an activity or work breakdown structure
component, not including management reserve. This budget is allocated by phase over the life of
the project, but at a given moment, planned value defines the physical work that should have been
accomplished. The total of the PV is sometimes referred to as the performance measurement baseline
(PMB). The total planned value for the project is also known as budget at completion (BAC).

• Earned value. Earned value (EV) is a measure of work performed expressed in terms of the budget
authorized for that work. It is the budget associated with the authorized work that has been completed.
The EV being measured needs to be related to the PMB, and the EV measured cannot be greater than the
authorized PV budget for a component. The EV is often used to calculate the percent complete of a project.
Progress measurement criteria should be established for each WBS component to measure work in
progress. Project managers monitor EV, both incrementally to determine current status and cumulatively
to determine the long-term performance trends.
• Actual cost. Actual cost (AC) is the realized cost incurred for the work performed on an activity during
a specific time period. It is the total cost incurred in accomplishing the work that the EV measured. The
AC needs to correspond in definition to what was budgeted in the PV and measured in the EV (e.g.,
direct hours only, direct costs only, or all costs including indirect costs). The AC will have no upper limit;
whatever is spent to achieve the EV will be measured.

Variances from the approved baseline will also be monitored:
• Schedule variance. Schedule variance (SV) is a measure of schedule performance expressed as the
difference between the earned value and the planned value. It is the amount by which the project is ahead
or behind the planned delivery date, at a given point in time. It is a measure of schedule performance on
a project. It is equal to the earned value (EV) minus the planned value (PV). The EVM schedule variance is
a useful metric in that it can indicate when a project is falling behind or is ahead of its baseline schedule.
The EVM schedule variance will ultimately equal zero when the project is completed because all of the
planned values will have been earned. Schedule variance is best used in conjunction with critical path
methodology (CPM) scheduling and risk management. Equation: SV = EV – PV

• cost variance. Cost variance (CV) is the amount of budget deficit or surplus at a given point in time,
expressed as the difference between earned value and the actual cost. It is a measure of cost performance
on a project. It is equal to the earned value (EV) minus the actual cost (AC). The cost variance at the end
of the project will be the difference between the budget at completion (BAC) and the actual amount spent.
The CV is particularly critical because it indicates the relationship of physical performance to the costs
spent. Negative CV is often difficult for the project to recover. Equation: CV= EV − AC.

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