This Guest paper was submitted for publication and is copyright to Roger L. Parish, PMP, © 2009
published March 2010

Introduction | Cost Management as Described in the Guide 3rd Edition 
Management Reserves | Cost Management as Described in the Guide 4th Edition 
Vocabulary - An Alphabet Soup | The Project Manager's Challenge
A Recommended Solution | Project Performance (Earned Value) Reporting | Conclusion

Project Performance (Earned Value) Reporting

The first consideration in establishing how to conduct performance reporting is to identify the audience using the data, and for what purposes. That should establish the necessary measures and metrics to be used as inputs to our decision-making processes. Therefore, the measures we focus on should provide us with the information that will be the most useful in making those decisions. However, the types of decisions project managers need to make differ from those being made by mid-management and these in turn differ from those being made by senior management. Hence, the way that we construct the measures, and report on progress, may need to be tailored to each audience.

How we calculate performance measures (in this case, earned value measures) is an important consideration in determining how to incorporate time and cost reserves into the project plan. In general an approach that allocates these reserves incrementally over time is generally better than positioning them all at the end of the project. The reason for this has to do with how earned value calculations are made. Firstly, these reserves will get incorporated into the project performance baseline, or planned value, and inserting them over time avoids skewing the data by either front-end or back-end loading the funds all at once. Secondly, the earned value calculations are derived directly from the planned value, so they must be congruent with how planned value is calculated.

Figure 7: Setting the baseline based on the audience's needs
Figure 7: Setting the baseline based on the audience's needs

Note that one could have a performance measurement baseline that does not incorporate any project reserves (i.e., Performance Measurement Baseline without contingency reserves, as shown in Figure 7). This is what is proposed in the PMBOK®, 4th Edition. The project manager who is trying to manage to realistic estimates should use this approach.

However, a different approach might be used for reporting to senior executives, the customer, or other stakeholders. In this model, one would incorporate the contingency reserves into the performance measurement baseline (Performance Measurement Baseline with contingency reserves as shown in Figure 8). This makes sense for these audiences because they likely care more about the amount they have actually budgeted for the project, or their expected delivery date, to which you have committed.

Figure 8: Redefining the term "project budget"
Figure 8: Redefining the term "project budget"

For reasons cited earlier (e.g., increasing the probability that one will have allocated enough time and money to actually complete the work), I recommend that the project budget include contingency reserves (as shown in Figure 8). Note that this defines the project budget to mean something different than that proposed in the 4th Edition, because the approach proposed here automatically ensures that the contingency reserve is loaded and available for use by the project manager. After all, from a customer perspective, more often than not they care most about the promised delivery date and the amount they have agreed to pay, both of which should have taken contingency planning into account.

However, from the project manager's perspective, he or she might want to see both types of baselines. That is, the one based on realistic estimates, i.e., the one without contingency reserves, and the alternative that includes contingency reserves. Performance that fails to conform to the original baseline, but is within the limits of the baseline that incorporates contingency planning, becomes indicative of how much of the project's contingency reserves have been consumed.

Note that in Figures 7 and 8, we have only taken cost contingency into account. If we take both time and cost contingencies into account, the graph looks more like that presented in Figure 9.

Figure 9: Accounting for both time and cost in reserve planning
Figure 9: Accounting for both time and cost in reserve planning
A Recommended Solution  A Recommended Solution

Home | Issacons | PM Glossary | Papers & Books | Max's Musings
Guest Articles | Contact Info | Search My Site | Site Map | Top of Page