Impact of Revenue Recognition Methods in Project Cost Control Through Earned Value
Earned value theory or earned value management (EVM) is a standardized method used to monitor and control projects. It introduces an objective criterion about the status of projects through measures for deviations in costs and schedule. It also permits a quick evaluation of the status of projects with regard to execution timelines, costs, and tasks. EVM can be seen as a unique and simple system that integrates multiple evaluations into a unique reporting system. Through this method, it is possible to monitor and control, in a homogeneous way and using the same methodology, different projects with different timescales, different volumes, or different resource needs.
One of the inputs EVM uses to obtain an indicator about the cost performance of projects is the cost incurred by the project until a certain date. Typically, such information about costs incurred is provided by the finance departments of organizations. If this is the case, the project manager will need to know and understand how the finance department is calculating and measuring these incurred costs.
This paper reviews the different methods that can be used by the finance departments to calculate and measure the incurred costs in projects, and how these methods may impact the way the project manager applies the EVM to measure, control, and track the status of his or her project.
The Earned Value
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