Planned value (PV) is a fundamental metric in project management that represents the authorized budget planned for the work scheduled to be completed by a given point in time. The formula for planned value is:
Planned value = Planned percentage of project completed x BAC
Understanding Planned Value in Project Management
Planned value serves as a crucial baseline in Earned Value Management (EVM), helping project managers assess project progress against the original plan. It reflects the value of the work that should have been accomplished according to the project schedule and budget.
It's important to distinguish planned value from other EVM metrics like earned value (EV) and actual cost (AC). While planned value is what was scheduled to be done, earned value measures the value of the work actually completed, and actual cost represents the total cost incurred for the work performed. Planned value is a forward-looking metric based on the initial project plan, differing significantly from earned value, which is calculated as the project progresses.
Components of the Planned Value Formula
To calculate planned value accurately, you need two key components:
| Component | Definition |
|---|---|
| Planned Percentage of Project Completed | This is the scheduled percentage of the total project work that should be finished by a specific point in time, as outlined in the project's baseline schedule. |
| BAC (Budget at Completion) | This represents the total approved budget allocated for the entire project. It is the overall budget that the project is expected to cost when it's fully completed. |
Practical Example of Planned Value Calculation
Let's illustrate how planned value is calculated with a straightforward example:
Imagine a project with a total budget (BAC) of $50,000. According to the project schedule, after two months, 40% of the project work should be complete.
- Project Budget (BAC): $50,000
- Planned Percentage of Project Completed: 40%
Using the formula:
Planned Value = Planned percentage of project completed x BAC
Planned Value = 40% x $50,000
Planned Value = 0.40 x $50,000
Planned Value = $20,000
In this scenario, the planned value after two months is $20,000, meaning that by this point, $20,000 worth of work should have been completed according to the project's budget and schedule.
Importance of Planned Value
Planned value is a cornerstone of effective project control. It provides the initial benchmark against which actual project performance is measured. By regularly comparing planned value with earned value and actual cost, project managers can:
- Monitor Progress: Understand if the project is ahead of, behind, or on schedule.
- Assess Performance: Determine if the project is performing as expected against its baseline plan.
- Identify Variances: Pinpoint deviations early, allowing for timely corrective actions.
Understanding and calculating planned value is the first step in applying Earned Value Management (EVM), a robust technique for integrating project scope, cost, and schedule to measure performance objectively. For more details on this comprehensive approach, you can explore resources on Earned Value Management (EVM).
