Performance measurement baseline is a budget plan that is used to measure contract performance. A primary component of earned value management, this is a financial tool used to evaluate the productivity of a contractor. The performance measurement baseline establishes the contract performance time line, against which the contract is evaluated for the purpose of generating metrics.
In this model, every service contract includes budget targets, project scope and the performance schedule. Depending on the nature of the project and the sophistication of the customer, managing with this process might be included in the contract. This budget and project management model is most commonly used in large projects that span multiple years. The use of an accepted performance management methodology eliminates arguments over the tool used for contract evaluation.
This methodology is part of the total allocated budget (TAB) principle that is used in earned value budgeting. The TAB is the estimated budget for the entire contract. Depending on the governance of the organization, this is usually the value that is submitted with the request for funding and project approval. The TAB is the total value of the contract and is used as the budget baseline.
A small percentage of the TAB is set aside as management reserve or contingency fund. The rest of the budget is the performance measurement baseline, which has three elements: undistributed budget, summary-level planning and a control account. These elements shift over time as the project works through the various stages.
The undistributed budgeted is a holding category, used as an top-level account for every project. The values in this account are quickly shifted into the summary and control accounts, based on the approved project plan. The summary account holds the budget for stages of the project that have not started. Once a detailed project plan has been created and work initiated, the appropriate value is moved into a control account.
Each project has multiple control accounts, as they are created for every milestone in the project. Costs are assigned against this budget on a real-time basis and is used to measure project effectiveness. Depending on the negotiated contract, some clients require a copy of the control and summary accounts at regular intervals. These tools can be used to validate the resources allocated to the project and time contributed.
A core component of performance measurement baseline is the use of change management concepts. Any requested changes or modifications are submitted on a change order. This process is used to manage change that is outside the original budget. Additional funds are required for every change request, and performance is not included in the overall performance measurement baseline.