Planned value: Meaning, Criticisms & Real-World Uses

What Is Planned Value?

Planned value (PV) is a fundamental metric in project management that represents the authorized budget assigned to the work scheduled to be completed by a specific point in time. It is a core component of earned value management (EVM), a widely adopted methodology within project management finance that integrates project scope, schedule, and cost. Planned value serves as a baseline against which actual project performance is measured, helping project managers assess whether a project is on track in terms of its planned progress and budgeting.⁴² In essence, planned value answers the question: "How much work, in monetary terms, should have been completed by now according to the project plan?"⁴¹

History and Origin

The foundational concepts behind planned value are rooted in the broader development of earned value management (EVM), which began to formalize in the late 19th and early 20th centuries. Early industrial engineers in American factories employed methods to evaluate the efficiency of performance by relating actual work performed to its planned values and associated costs.⁴⁰

The formalization of EVM, including the concept of planned value, gained significant traction in the United States Department of Defense (DoD). In 1967, the DoD introduced the Cost/Schedule Control Systems Criteria (C/SCSC) policy, driven by the need to manage increasingly complex defense programs.³⁸, ³⁹ This policy laid out criteria for tracking and managing project schedules and costs in an integrated manner.³⁷ The Project Management Institute (PMI) later incorporated earned value management, including planned value, into its A Guide to the Project Management Body of Knowledge (PMBOK® Guide), further promoting its adoption across various industries beyond defense and construction.
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Key Takeaways

Planned value (PV) is the budgeted cost of work scheduled to be completed by a specific point in a project.
It acts as a performance baseline, providing a reference point for evaluating project progress.
³⁵* PV is a crucial input for earned value management, used in conjunction with earned value and actual cost to assess project health.
³⁴* Calculating planned value before project execution helps establish a clear financial roadmap for project tasks and deliverables.
³³* Deviations from planned value can signal potential schedule or cost issues, prompting project managers to take corrective action.

Formula and Calculation

Planned value (PV) is calculated by multiplying the planned percentage of work completion by the total budget allocated for the project. ³²It provides a quantitative measure of the budgeted cost of work scheduled to be completed at a specific point in time during the project's lifecycle.
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The formula for planned value is expressed as:

PV = \text{Planned \% Complete} \times \text{Total Project Budget}

Where:

(PV) = Planned Value
Planned % Complete = The percentage of the project or a specific task that is scheduled to be completed by a given date.
Total Project Budget = The total approved budget at completion (BAC) for the project.
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For example, if a project has a total budget of $100,000 and is planned to be 25% complete by a certain date, the planned value at that point would be $25,000. This calculation can be applied to individual tasks or aggregated for the entire project.
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Interpreting the Planned Value

Interpreting planned value involves understanding what the project should have achieved financially by a given date according to its original project planning. It represents the budgeted expenditure for the work that was scheduled to be completed. A consistent and well-defined planned value across the project timeline creates the performance measurement baseline.
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Project managers use planned value as a benchmark to compare against what has actually been achieved (earned value) and what has actually been spent (actual cost). If the actual work completed (measured by earned value) is less than the planned value, it indicates a schedule variance, suggesting the project is behind its intended progress. While planned value itself doesn't directly tell you about cost overruns or underruns, it forms the basis for calculating these variances when combined with other EVM metrics. ²⁷It helps guide decisions related to resource allocation and budget adjustments.
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Hypothetical Example

Consider a software development project with a total budget of $500,000, scheduled to be completed in 10 months. At the end of month 3, the project plan dictates that 30% of the work should be completed.

To calculate the planned value at the end of month 3:

Identify the total project budget: $500,000
Determine the planned percentage complete: 30%
Apply the planned value formula:
(PV = 0.30 \times $500,000 = $150,000)

Therefore, the planned value at the end of month 3 is $150,000. This means that, according to the project's schedule, $150,000 worth of work should have been completed by this point. This figure will then be compared to the earned value (the actual value of work completed) and the actual cost incurred to assess the project's real performance. This comparison is critical for effective cost management.

Practical Applications

Planned value is a foundational element within earned value management systems, finding widespread application in managing complex undertakings across various sectors. It is used to establish clear financial expectations and track progress against a baseline.

Some key practical applications include:

Government Contracting: Agencies such as the National Aeronautics and Space Administration (NASA) extensively utilize earned value management, with planned value as a core metric, for their major programs and contracts. NASA requires an EVMS on contracts for development or production work, particularly for those valued at $20 million or more. ²⁴, ²⁵This ensures rigorous oversight and accountability for taxpayer funds.
²³* Construction Industry: Large-scale construction projects often employ planned value to monitor progress against detailed schedules and budgets, identifying potential delays or cost overruns early.
Information Technology (IT) Projects: In IT, planned value helps track the progress of software development, system implementations, and infrastructure upgrades, ensuring they align with projected timelines and expenditures.
Product Development: Businesses use planned value to manage the budget and schedule for new product introductions, from research and development to market launch.
Financial Analysis and Reporting: Financial analysts use planned value as part of financial analysis to provide stakeholders with objective project status reports, aiding in transparent stakeholder communication.
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Limitations and Criticisms

While planned value is a vital tool in project management, it is not without limitations. A primary criticism is that planned value, by itself, does not reflect the actual work accomplished or the costs incurred. It is solely based on the planned schedule and budget, assuming static conditions throughout the project lifecycle. ²¹Project parameters, such as scope or budget, can change, potentially rendering the initial planned value less accurate over time.
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Furthermore, planned value relies heavily on the accuracy of initial estimates for work completion and budget allocation. If these initial estimates are flawed or overly optimistic, the planned value may not accurately reflect the true scope or complexity of the project, leading to misleading performance measurements. ¹⁹It also lacks the flexibility to easily accommodate significant project plan or scope changes without re-baselining.
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Some critiques of earned value management in general, which apply to planned value, point out that EVM may not fully account for external factors impacting project costs or schedules. ¹⁶Moreover, EVM primarily measures the "amount of work performed" but does not inherently consider if that work was executed in the most appropriate order or if it aligns with the critical path. ¹⁵This means that a project might appear on track regarding its planned value, but underlying issues such as activity duration variability or "merge event bias" (where parallel tasks converging can cause delays) might not be immediately evident, potentially leading to optimistic completion date forecasts. ¹³, ¹⁴To mitigate these limitations, it is essential to conduct regular risk assessment and maintain robust data collection processes.
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Planned Value vs. Earned Value

Planned value (PV) and earned value (EV) are both integral components of earned value management, but they represent distinct aspects of project performance. Planned value signifies the budgeted cost of work scheduled to be completed by a specific point in time, reflecting the project's original financial and timeline plan. ¹⁰, ¹¹It answers the question, "What value should have been earned by now?"
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In contrast, earned value represents the budgeted cost of work actually performed and approved up to that same point in time. ⁷, ⁸It answers the question, "What value has actually been earned by now?" ⁶The key difference lies in their focus: planned value looks forward to what should be done, while earned value looks backward at what has been accomplished. Comparing planned value to earned value allows project managers to determine the schedule variance, indicating whether the project is ahead of or behind its planned schedule in terms of the value of work completed.
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Aspect	Planned Value (PV)	Earned Value (EV)
Definition	Authorized budget for work scheduled by a specific time.	Budgeted cost of work actually performed by a specific time.
Purpose	Establishes a baseline for planned progress.	Measures actual progress against the planned baseline.
Timing	Calculated before work is executed.	Evaluated after work is completed.
Focus	Planned progress according to the schedule.	Actual progress achieved.
Key Question	How much should have been done by now (in budget terms)?	How much has actually been done by now (in budget terms)?
Relationship	Compared with EV to determine schedule performance.	Compared with PV for schedule and AC for cost performance.

FAQs

What is the primary purpose of planned value in a project?

The primary purpose of planned value is to establish a time-phased budget baseline for a project. It serves as a financial representation of the work that is scheduled to be completed by a specific date, providing a benchmark against which actual project performance can be assessed.
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How does planned value relate to the total project budget?

Planned value is a portion of the total project budget, known as the budget at completion (BAC), that is allocated to the work scheduled to be finished by a certain point in time. As the project progresses, the cumulative planned value will eventually equal the total project budget at the planned completion date.
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Can planned value change during a project?

Planned value is based on the initial project plan and performance measurement baseline. While it can be re-baselined if there are significant, approved changes to the project scope or schedule, it is generally considered a fixed benchmark for the current plan. Frequent changes to planned value can undermine its utility as a reliable baseline for performance measurement.

Why is it important to track planned value alongside actual cost and earned value?

Tracking planned value alongside actual cost and earned value provides a comprehensive view of project performance. Planned value tells you where you should be, earned value tells you what you have achieved, and actual cost tells you what you have spent. Comparing these three metrics allows project managers to identify cost and schedule variances, enabling proactive management and informed decision-making.¹