Value Measurement

Using "earned value" measurement, the actual cost for work performed represents those direct and indirect costs identified specifically for the project (contract) at hand. Both the recorded and reported costs must relate specifically to this effort. Recording direct labor costs usually presents no problem since labor costs are normally recorded as the labor is accomplished. Therefore, recorded and reported labor will be the same.

Material costs, on the other hand, may be recorded at various times. Material costs can be recorded as commitments, expenditures, accruals, and applied costs. All provide useful information and are important for control purposes.

Because of the choices available for material cost analysis, material costs should be reported separately from the standard labor hour/labor dollar earned value report. For example, cost variances associated with the procurement of material may be determined at the time that the purchase orders are negotiated and placed with the vendors since this information provides the earliest visibility of potential cost variance problems. Significant variances in the anticipated and actual costs of materials can have a serious effect on the total contract cost and should be reflected promptly in the estimated cost at completion (EAC) and explained in the narrative part of the project status report.

Separating labor from material costs is essential. Consider the following example:

Example 15-1. You are budgeted to spend $1,000,000 in burdened labor and $600,000 in material. At the end of the first month of your project, the following information is made available to you:

Labor:

ACWP =

$90,000

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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