Performance metric is a financial tool used to evaluate contractor productivity in earned value management. It includes budget targets, project scope, and performance schedule, and is part of the Total Allocated Budget principle. The basis of performance measurement includes undistributed budget, summary-level planning, and control account. Change management concepts are also used to manage changes outside the original budget.
The performance metric is a budget plan that is used to measure the performance of the contract. A major component of earned value management, this is a financial tool used to evaluate a contractor’s productivity. The performance measurement baseline establishes the contract performance timeline against which the contract is evaluated for the purpose of generating metrics.
In this model, each SLA includes budget targets, project scope, and performance schedule. Depending on the nature of the project and the sophistication of the client, handling with this process could be included in the contract. This budget and project management model is most commonly used in large projects that span multiple years. Using an accepted performance management methodology eliminates discussions about the instrument used for contract evaluation.
This methodology is part of the Total Allocated Budget (TAB) principle which is used in Earned Value Budgeting. The TAB is the estimated budget for the entire contract. Depending on your organization’s governance, this is usually the value that is sent with your funding request and project approval. The TAB is the total value of the contract and is used as a basis for the balance sheet.
A small percentage of the TAB is set aside as a management reserve or emergency fund. The remainder of the budget is the basis of performance measurement, which has three elements: undistributed budget, summary-level planning, and a control account. These elements change over time as the project works through the various phases.
Undistributed budget is a holding category, used as the top-level account for each project. The values in this account are quickly moved to the summary and control accounts, based on the approved project plan. The summary account holds the budget for project phases that have not started. Once a detailed project plan is created and work has started, the appropriate value is moved into a controlling account.
Each project has multiple control accounts, as they are created for each milestone in the project. Costs are allocated against this budget in real time and are used to measure project effectiveness. Depending on the contract negotiated, some customers require a copy of the checking and summary accounts at regular intervals. These tools can be used to validate the resources allocated to the project and the time provided.
A key component of the basis of performance measurement is the use of change management concepts. Any changes or modifications requested are submitted on a change order. This process is used to manage changes outside the original budget. Additional funds are required for each change request and performance is not included in the overall performance measurement baseline.
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