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The role of planned value in budgeting and tracking

Blog: Monday Project Management Blog

The role of planned value in budgeting and tracking

Successful project management means keeping projects on track both in terms of the timeline and the budget. This can be challenging when a project takes a long time to complete and there are several tasks that must be done. Planned value (PV) is a useful metric that helps project managers identify whether a project is behind schedule or not.

This guide looks at the role of planned value as a tool for budgeting and tracking. We’ll also look at how monday.com Work OS and its wide variety of tools and integrations can help make planned value calculations and earned value management a simpler process.

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What is planned value?

Planned value is a measure of how much work should have been completed at a certain point in the project’s schedule. The Project Management Institute defines planned value as “the authorized, time-phased budget assigned to accomplish the scheduled work.” This measure can be used alongside the earned value to determine whether a project is on schedule or not. Planned value is often used as a part of earned value management, which can be a powerful way of understanding schedule variance.

Planned value is a tool used to describe how much work should have been completed for a project at a given point in time.

“Planned value” is a part of our Project Management Glossary — check out the full list of terms and definitions!

Planned value vs. earned value

The planned value and earned value metrics are designed to be compared against each other. While planned value refers to the work that should have been completed by a specific point in the schedule, earned value is the amount of work that has actually been completed. If the earned value is greater than the planned value, this indicates that the project is ahead of schedule. If the opposite is true, the project is behind schedule. If the two figures match, it means the project is on schedule. Together, the two metrics can help you assess the progress of your project and plan your next steps.

How planned value affects project development

Planned value, or PV, is one of three data points project managers use as a part of earned value management (EVM). The other elements are actual cost (AC) and earned value (EV). As explained previously, earned value refers to the value of the work that has actually been completed at a given point in time. In an ideal scenario, the goal would be to have earned value and planned value match each other. Actual cost is a measure of how much you have spent on the project so far. It’s not unusual for the actual cost to be higher than the planned value if you have to spend a significant amount of money upfront on materials or other costs. However, if the actual cost is higher than expected while the earned value is lower than the planned value, this could be a sign the project is in danger of failing to meet budget goals and deadlines. Let’s look at how to calculate planned value so you can take advantage of these comparisons:

How to calculate planned value

Calculating planned value is simply a matter of dividing the project budget by the amount of work that should have been completed by that point (expressed as a percentage). In the simplest example, you may have a project that takes one year and has a budget of $200,000. At the three-month mark, you expect to have completed 25% of the work and spent $50,000:

By itself, the planned value metric doesn’t show very much, but when this measure is used alongside other values, it can be incredibly helpful for project analysis.

Benefits of planned value for project analysis

Knowing the planned value gives you a yardstick for whether you’re running on time and within budget. For example, using planned value, you can calculate schedule variance. Schedule variance is simply a measure of the actual progress made towards completion of the project compared with the progress that was expected. At each milestone of the project, planned value and earned value can be examined to give you some insight into your progress. Sometimes, the labor part of the project is proceeding as planned, but the cost of materials or other expenses is mounting up, which may lead to cost variance issues. Project managers can look at the cost of work performed to determine if delays or unforeseen expenses will impact the budget at completion (BAC). Armed with the planned value and earned value figures, it becomes possible to calculate the Schedule Performance Index. This is simply the ratio of EV to PV and provides an idea of whether the project is progressing as planned.

By using cost variance and schedule variance, you can condense complex schedule charts and expense tables into some simple numbers that give you a high-level overview of the status of your project. If those figures indicate the project is proceeding on time and on budget, you don’t have to worry too much. If your analysis shows variance, you’ll know you need to delve deeper into the figures to understand what’s gone wrong. All these references to PV and EV may be difficult to visualize when they’re purely theoretical, but a real-world example may bring the concept to life.

A real-world example of planned value

Planned value and earned value measures are equally applicable to large and small projects. An example of how planned value can be used to track smaller projects is shown in this simple case study. Where planned value truly comes into its own, however, is with more complex projects. Earned value management can even be applied to large infrastructure projects, tracking the budgeted cost of work performed, the work completed, and other metrics.

Let’s consider the example of a construction project. You have several teams working on it and a budget of $1,000,000. You expect to spend $300,000 at the start of the project on materials and $200,000 on administrative costs, including legal fees and salaries for the first three months. The whole project will take 1 year. This means the budgeted cost of work performed is $500,000. If you encounter supply difficulties and the cost of materials is higher, this will increase the actual cost (AC) of the project, giving you a warning sign you may run over budget. However, if your team was able to get to work on time and make use of those materials to start the construction work as expected, the earned value (EV) of the project should still line up with the planned value (PV). In terms of work being performed, you’re on schedule.

If the earned value of the project is higher than the planned value, this is a sign you’re ahead of schedule. In many cases, being ahead of schedule is a good thing. However, that isn’t always the case. If your projects are consistently ahead of schedule, consider whether your team members are at risk of burning out from working at the pace they are. Also, check the work being done to confirm it’s of high quality and still meeting client expectations. Using a powerful Work OS with earned value analysis templates is an efficient way of implementing planned value in your project management.

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Tracking planned value with monday.com

Once you’ve got some experience with calculating the cost performance index/schedule performance index and working with EV and PV, you’ll likely find they become invaluable tools for project management. If you’re unsure how to integrate these measures into your project management, take advantage of the monday.com tools and templates for earned value management. These tools can help you assess the total cost of the project and the cost of each milestone of your project, making it easier to plan your schedule and draw up a cost performance index.

The templates on monday.com make handy prompts to help project managers break down resources, costs, and tasks. If you’re not sure where to start, they’ll serve as a useful project budget framework to help you get started. If you’re already working with other project management or resource management software, the app marketplace may offer integrations that support pulling data from those apps, greatly simplifying the process of making reports or performing analytics on your data.

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Frequently asked questions

How do you calculate planned value?

To calculate the planned value, multiply the project budget by the percentage of work that should have been completed. For example, if you anticipated that 3 months into a project your team will have completed 50% of the work and the project cost was predicted to be $150,000, the planned value would be $75,000 (0.5 x 150,000).

What are planned value and actual value?

Planned value is an indication of how much work should have been completed at a given point in time. Actual value, more typically called earned value, is an indication of how much work has really been completed. If the earned value is lower than the planned value, this is a sign the project is behind schedule.

Planned value metrics keep your project on track

Planned value, actual cost, and earned value are all important parts of project management. monday.com’s Work OS helps you keep track of every aspect of your project, including resources and scheduling, and the suite includes templates to help with earned value analysis. If you’re working on complex projects, having an overview of your team’s progress makes it much easier to adapt to delays or other unexpected challenges.

The post The role of planned value in budgeting and tracking appeared first on monday.com Blog.

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