Assessing Earned Value to Track Progress & Measure Risk

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  • 0:03 The Risk Management Plan
  • 1:18 Key Metrics
  • 5:55 Lesson Summary
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Lesson Transcript
Instructor: Christian George

Christian has a PhD in Business Management and an MA in Accounting & Financial Management

This lesson discusses how assessing earned value and other metrics can help a manager track the progress of a project while managing risk. Learn the eight primary metrics used in tracking project progress.

The Risk Management Plan

Risk management is an essential part in the planning process of a project. It ensures that projected risks are identified, and qualitative analysis is conducted to prioritize risk and determine the probability of occurrence. Quantitative analysis is also conducted to determine the overall numerical effects on the project. Options and actions are developed to enhance opportunities to reduce threats and track identified risks, while monitoring for potential new risk identification.

A risk management plan is created as part of the planning process for a project and updated as needed. It helps the manager foresee risks, estimate impacts of risks involved, and provide definitions for the responses available. The plan includes the four strategies used to determine one's responses to risks within a project. These strategies include avoidance, reduction, transfer, and acceptance. The choice by management to adopt one of these strategies is dependent on the company's goals, strategies for operations, and overall risk management of resources. Continual monitoring and evaluation of the risk management plan ensures that companies are consistently modifying their plans to fit the environmental and other factors that affect their operations.

Key Metrics

The goal of any project is to not fail. Managers can manage risk as they track the progress of the project by using various key metrics, which provide quantitative reasoning behind decisions that directly affect the project. The remainder of this lesson will list and describe each of the key metrics that managers have available to them to measure the progress of the project and allow them to manage any risks.

Budgeted Cost

Prior to beginning a project, a company must create a projected budget of costs that it reasonably expects to incur during the project process. These costs are called budgeted cost. They make up the foundation of the project plan and set the tone for the risk management plan. They provide a key benchmark for managers, as they use quantitative analysis to determine project progress through key indicators.

Planned Value

Managers need certain information at various times during the project process. Planned value is the total costs of the work scheduled on a specified date. For example, a manager wants to know how much should have been spent half way through the project. The planned value equation allows him to determine this number. This number will tell the manager if the project is behind or on schedule, based on the costs of the work scheduled on that date. Planned value is calculated as follows:

Planned Value (PV) = Hourly Rate * Hours Planned / Scheduled

Actual Cost

Actual cost is the metric used to provide the true and accurate cost of a project as of a specified date. If the project manager wants to know how much it actually cost to complete 25% of the project, he will calculate the actual cost of the project. Actual value is calculated as follows:

Actual Cost (AC) = Hourly Rate * Total Hours Spent

Earned Value

Earned value is the metric used to compute the total cost of the work completed on a specified date. It is partners with the actual cost, in that it is the value of the project with respect to real money spent on the project. Earned value is calculated as follows:

Earned Value (EV) = Baseline Cost * % Complete Actual

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