In project management, keeping track of how your project is progressing can be a nightmare. But don’t worry; Planned Value offers a solution to alleviate this concern. According to the Project Management Body of Knowledge by PMI, planned Value is a fundamental concept in project management.
In this blog, we’ll break down Planned Value for your better understanding. I will provide details about its calculation, offer real-life examples, and explore why it holds significant value for project managers. Let’s begin!
What is the Planned Value in Project Management?
Planned Value in project management represents the authorized budget assigned to the work scheduled to be completed up to a certain point in time. It serves as a baseline against which actual project performance is measured, as well as the planned progress of the project at a specific stage, and helps project managers assess whether the project is on track in terms of schedule and budget. You can learn more about Project Management training online
Planned Value (PV) Formula
To calculate Planned Value, the following formula is used:
Planned Value (PV)=Planned % Complete × Total Budget
The Planned Value formula multiplies the percentage of planned completion of the project by the total budget allocated for the project. It provides a quantitative measure of the budgeted cost of work scheduled to be completed at a specific point in time during the project.
PMBOK covers this calculation in detail; you can learn more from the Project Management Professional training course
Why is Planned Value Important in Project Management?
According to the PMBOK, Planned Value in project management is essential for the following reasons:
- Performance Baseline: PV serves as a baseline against which actual project performance is measured. It provides a standard against which project progress can be evaluated.
- Objective Measurement: PV offers an objective measurement of the planned progress of the project. It quantifies the budgeted cost of work scheduled to be completed, aiding in assessing project performance.
- Early Warning System: By comparing PV with actual performance metrics such as Earned Value (EV) and Actual Cost (AC), project managers can identify variances early, allowing for timely corrective actions to keep the project on track.
- Decision Support: PV provides project managers with valuable information for decision-making. It assists in determining the effectiveness of project strategies, resource allocation, and scheduling adjustments.
- Stakeholder Communication: PV serves as a common metric for communicating project progress to stakeholders. It helps in clear and consistent communication about project status, forecasts, and potential risks.
Representation below may help to understand the concept better
How Does Planned Value Affect Project Development?
Planned Value plays a significant role in planning the project in several ways:
- Setting Performance Baseline: PV establishes a performance baseline by representing the planned value of work scheduled to be completed at various project stages. This baseline serves as a reference point for measuring actual project performance and progress.
- Guiding Resource Allocation: PV provides project managers with insights into the planned distribution of resources across different project activities. By comparing PV with actual performance, Project managers can identify areas where resource allocation may need adjustment to ensure project objectives are met.
- Supporting Decision-Making: PV assists project managers in making informed decisions throughout the project lifecycle. By analyzing PV alongside actual performance metrics such as Earned Value (EV) and Actual Cost (AC), managers can identify variances and adjust project strategies, schedules, and resource allocations.
- Driving Accountability: PV helps drive accountability among project team members by establishing clear expectations for planned work completion. Team members are aware of their responsibilities and deadlines, which fosters a sense of ownership and ensures alignment with project objectives.
How to Calculate Planned Value (PV)?
To calculate Planned Value, you can use the following formula:
Planned Value = Planned % Complete × Total Budget
For example, if you have planned to complete 50% of the project’s work with a total budget of $100,000, the Planned Value would be:
PV= 50% × $100,000 = $50,000
So, the Planned Value for the project at that specific stage would be $50,000.
A real-world example of planned value
Example 1
Let’s consider a construction project to build a new office building. The project has a total budget of $1,000,000 and is scheduled to be completed in six months. After two months, the project team planned to have completed 30% of the work according to the project schedule.
Using this information, we can calculate the Planned Value as follows:
PV = 30%×$1,000,000 = $300,000
Therefore, after two months, the Planned Value for the project would be $300,000. According to the project schedule, the planned value of completed work at that stage should be $300,000.
Example 2
Let’s consider a software development project to create a new mobile application. The project has a total budget of $50,000 and is expected to be completed in four months. After one month, the project team planned to have completed 20% of the work according to the project schedule.
Using this information, we can calculate the Planned Value as follows:
PV= 20%×$50,000 = $10,000
Therefore, after one month, the Planned Value for the project would be $10,000. According to the project schedule, the planned value of completed work at that stage should be $10,000.
Benefits of planned value for project analysis
There are several benefits, but to mention a few below are the benefits I have experienced:
- Performance Measurement: PV serves as a benchmark for measuring project performance. By comparing actual progress with the planned value, project managers can assess whether the project is on track, ahead, or behind schedule.
- Variance Analysis: PV facilitates variance analysis by providing a reference point for evaluating deviations in project performance. Variances between PV and actual performance (e.g., Earned Value) highlight areas where the project is not meeting planned expectations, allowing corrective actions to be taken.
- Forecasting: PV enables forecasting future project performance based on planned work completion. Project managers can anticipate project outcomes and adjust strategies to achieve desired results. by extrapolating the planned value
- Resource Allocation: PV assists in optimizing resource allocation by providing insights into planned resource usage across different project activities. By aligning resource allocation with planned values, project managers can ensure efficient utilization of resources to meet project objectives.
- Decision Making: PV supports informed decision-making by providing a quantitative basis for evaluating project progress and performance. Project managers can use PV data to prioritize activities, allocate resources effectively, and adjust project plans as needed.
- Risk Management: PV aids in risk management by identifying potential risks early in the project lifecycle. By monitoring deviations between PV and actual performance, project managers can identify risks impacting project outcomes and develop mitigation strategies to address them.
Limitations of Planned Value
While Planned Value offers several benefits for project analysis, it also has some limitations:
- Assumes Static Conditions: PV is based on the initial project plan and assumes that project conditions will remain constant throughout the project lifecycle. Project parameters such as scope, schedule, and budget may change, rendering the planned value less accurate over time.
- Does Not Consider Actual Performance: PV does not consider actual performance or progress achieved on the project. Therefore, it may not accurately reflect the current state of the project or account for deviations from the planned schedule or budget.
- Limited Predictive Power: PV alone may not provide sufficient information for predicting future project outcomes. While it can forecast planned progress based on the initial project plan, it does not account for unforeseen events or changes in project conditions that may impact project performance.
- Dependent on Initial Estimates: PV relies on initial estimates of work completion and budget allocation. If these estimates are inaccurate or overly optimistic, the planned value may not reflect the true scope or complexity of the project, leading to discrepancies in performance measurement.
- Lack of Flexibility: PV does not easily accommodate project plan or scope changes. As project conditions evolve, adjustments to the planned value may be necessary to reflect updated objectives or priorities.
- May Encourage Micromanagement: Overemphasis on PV as a performance metric may encourage micromanagement and a focus on meeting planned targets at the expense of broader project goals or stakeholder needs. More about the effects of planned value can be learned on KnowledgeHut’s Project Management training online
Planned value vs. earned value
Aspect | Planned Value (PV) | Earned Value (EV) |
Definition | The authorized budget allocated to work scheduled to be completed up to a specific point in time. | The value of the work performed and completed up to a specific point. |
Purpose | Provides a baseline for planned project performance. | Measures actual project performance against the planned baseline. |
Calculation | Planned % Complete X Total Budget | Actual % Complete X Total Budget |
Representation | Planned progress at a specific point in time according to the project schedule. | Actual progress is achieved at a specific point in time.Actual progress achieved at a specific point in time. |
Focus | Forward-looking | Backward-looking |
Timing | Planned before the work is executed. | Evaluated after the work is completed. |
Analysis | Helps in assessing if the project is on track according to the planned schedule and budget. | Helps in evaluating if the project is achieving its objectives and delivering value as planned. |
Variances | Schedule variance (SV) and Cost variance (CV) can be calculated using PV. | Schedule performance index (SPI) and Cost performance index (CPI) are calculated using EV. |
Conclusion
Planned Value is a very important concept in project management, offering a crucial framework for measuring and assessing project progress. It also enables us to gauge whether the project is on track according to the planned schedule and budget. By utilizing PV, project managers can identify variances, forecast future performance, allocate resources effectively, and make informed decisions to steer the project toward successful completion. In essence, Planned Value is a fundamental tool for project planning, monitoring, and control, contributing to the overall success of projects across various industries and domains.
