ABSTRACT

The fundamental ideas that have come to form the earned value approach to project control stem from two distinct lines of thought: those that originated with industrial engineers and those that come from project managers. Industrial engineers wishing to measure the performance of production lines realized, perhaps as far back as the nineteenth century, that three measures were needed to establish how well and cost-effectively the manufacturing process was working. They created the concept of a ‘cost standard’; that is, the amount of cost or value to be attributed to a single unit of output. This is a very important measure as it is usually based on a detailed study of the labour content, charge rates, overhead structure, material content and their associated costs. Such figures are vital when it comes to both product pricing and the expected profitability of the production process. To assess the efficiency of the production line in operation, they counted the number of items actually made, compared it with the planned or expected number of items to be made and finally, from the material accounts, the time bookings and the current overhead rates, they worked out the actual costs incurred. Applying the cost standard to the actual and planned output figures generated standard costs that could be compared with the actual costs. Three figures were generated:

• the planned output at standard cost rates • the actual output at standard cost rates • the actual cost incurred.