Project Financial Management: Issues, Factors, and Relationship with Work Breakdown Structure

This article discusses the significance of Earned Value Management (EVM) in project management and how it can address issues such as budget and actual cost. It also explains the factors that determine project status and the relationship between project nature and work breakdown structure. The article cites relevant sources to support its claims.

Running head: PROJECT FINANCIAL MANAGEMENT 1
Project Management Project Financial Management
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Issues addressed through good planning coupled with effective use of EVM
Earned Value Management (EVM) play a significant part in project as it aids project
managers in measuring the project performance. Accordingly, EVM is a systematic project
management criteria employed to determine the variances involved in a project with regard to
the difference in the work performed and planned work. Therefore EVM is employed to find
the cost as well as schedule control hence it plays a vital part in project projection. As a
result, project baseline is a critical element of EVM that serves as a point of reference for all
practices related to EVM. Thus, EVM offers quantitative data for project decision making.
According to the Project Management Institute (PMI) Project Management Body of
Knowledge (PMBOK) describe EVM as an assessment technique which assimilate resource
planning, performance as well as schedules and at the same time taking risk into
consideration (Vanhoucke, 2016). Therefore, EVM utilises the schedule and cost baseline
enclosed within the project management plan to evaluate the progress of the project as well as
any variances which baselines across the project life cycle. Consequently, some of the issues
that can be addressed by EVM include budget at complete (BAC) and actual cost of work
performed (ACWP). BAC is the budget value created for the real time work to be undertaken
which include the amount of money that should be incurred to complete a given project. On
the other hand ACWP is the total cost incurred for accomplishing a given project within a
specified period.
Factors to consider for understanding the project status
There are various factors which help to determine the project’s status, these factors
include earned value (EV) and planed value (PV). Earned value is the budget cost of work
performed (BCWP) at a specified period of time which is calculated as BAC multiplied by
the percentage of completed work. Therefore, EV is used to determine the actual work

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performed. On the same note, planned value (PV) is described as the budgeted cost of work
scheduled (BCWS) which has to be accomplished by a specified period of time (Fleming, &
Koppelman, 2016). Thus, PV help to identify the work that has to be completed by a given
time. Subsequently, when PV and EV have been identified thy can be used to determine the
cost as well as schedule adjustments while calculating the general project performance. The
general performance is calculated using the following formulas:
 Schedule Variance (SV): Schedule variance is a resourceful indicator which echoes
the schedule performance of the project. As a result SV is used for measuring the
difference between the planned work to be realised and the actual work completed.
Ultimately, SV is expected to be zero at the time of project completion because all the
planned values are supposed to have been earned (EF-PV =SV).
 Cost Variance (CV): CV is an efficient indicator that reflect the performance expense
of the project, which evaluates the difference between the budget and the real amount
used to accomplish the work (CV=EV-ACWP).
 Schedule performance index (SPI): The SPI is utilised in addition to schedule status
for projecting the completion date for the project which is at times used together with
cost performance index (CPI) to project estimate project completion time.
 Cost performance index (CPI): CPI is utilised for observing the cost of a project to
project cost overruns.
 Estimate to complete (ETC): ETC is the anticipated cost requisite to achieve the
outstanding planned work.
 Estimate at completion (EAC): EAC is the projected overall cost of the planned work
at the project completion time which is calculated as follows EAC = ACWP + ETC.

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The relationship between the nature of a project and the accuracy of the work
breakdown structure
Project control is the central focus for any project manager however, project managers
strive to regulate the project plan. The outcome of the project plan is the real results which
can be measured and quantified. The key constraints in project management include time,
cost and scope for successful project results. Accordingly, the most neglected factors of the
three constraints to measure and quantify is project scope. Therefore, the work breakdown
structure (WBS) is the estimate that best enable the time allocation as well as the cost that
should be assigned at an in-depth project execution level. Once the WBS is established it
becomes possible to determine the project schedule. Consequently, after determining the
WBS it become easier to assign the cost and duration of any project. Certainly, this play a
significant part for development of the cumulative cost curve. Thus, the rate at which the
project expenditure is planned is what EV is used to measure against (Bryde,
Unterhitzenberger, & Joby, 2018). The cumulative curve help to determine the value at any
level in time of work which is planned to be accomplished that is planned value.

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References
Bryde, D., Unterhitzenberger, C., & Joby, R. (2018). Conditions of success for earned value
analysis in projects. International Journal of Project Management, 36(3), 474-484.
Fleming, Q. W., & Koppelman, J. M. (2016, December). Earned value project management.
Project Management Institute.
Vanhoucke, M. (2016). Earned Value Management. In Integrated Project Management
Sourcebook (pp. 199-250). Springer, Cham.

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