Accounting Measures to Control Project Cash Flow: Earned Value Management

Accounting Measures to Control Project Cash Flow: Earned Value Management
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How Do You Use This Tool?

To use Earned Value Management (EVM) effectively in controlling cash flow within your project plan, carefully quantify defined methods for accomplishing work on the project within a certain time frame. To determine the value (EV) for each completed element, total the percent complete times the budget at completion.

Compare this figure with the planned value (PV) and actual cost (AC). Only by adding the EV comparison will you be able to determine the financial health of your project. This comparison will indicate if your cash flow is over budget or under budget, and it will give you a frame of reference by which you can determine where you need to reign-in your spending.

Control your cash outlay by staying within the same range the PV versus the EV. Instead of agreeing to pay 100 percent of the AC for the specific goods or service you receive as a part of your project, set up markers at the PV level and when the EV hits that marker, release those funds as a percentage payment.

Cash Flow Adjustments

Keeping a clause in your contract that allows for you to withhold funds until certain markers are met and when the EV is relative to the

EVM Chart

PV. This will garner you control of your project, therefore negating any out-of-control spending or delayed work schedules.

Combining weighting milestones and the level of effort, with a quick snapshot of AC, PV, and EV is an effective approach to controlling both scheduling and cash flow on your project.

Earning Rules

Earning rules such as fixed formulas of 0/100, 50/50 and 25/75 for each terminal element assigns weight to the work being tracked. This works well for simple projects rather than complex projects because each element tends to have a short duration. Using 25/75 or 20/80 fixed earning rules assigns more weight to finishing work than starting it and forces the project team to pay closer attention to the beginning of the element of work.