7- Cost Management

- 7
Unit 7
7 -

Agenda

Estimate
Costs .
Determine
Budget .
Control Costs.

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7 - Project Cost Management

-7
Includes the processes
involved in planning,
estimating, budgeting, and
controlling costs that the
project can be completed
within the approved budget.
A process required to assess
the economics of changes.
Requires involvement by
multiple organizations:
Accounting To establish
Structure.
Management Information
System MIS. To integrate the
data.
Department To provide the
data.

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7 - Project Cost Management

-7
7.1 Estimate Costs:
The process of developing an
approximation of the
monetary resources needed
to complete project activities.

7.2 Determine Budget:

The process of aggregating
the estimated costs of
individual activities or work
packages to establish an
authorized cost baseline.

7.3 Control Costs:

The process of monitoring the
status of the project to
update the project budget
and managing changes to the
cost baseline.

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7.1 Estimate Costs

17.
Cost Estimating is
the determination of
approximately how
much it will cost the
performing
organization to
provide the product
or service involved.

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Cost Management Plan

The work involved
in performing the
three processes of
Project Cost
Management is
preceded by a
planning effort of
the project
management team.

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Life Cycle Cost (LCC) of a System

Summation of all expenses of

acquiring, owning, and operating the
system over its life.
All costs are included in the analysis
of the project life cycle :
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

Design.
Recurring.
Initial acquisition.
Direct costs.
Incurred .
Indirect costs.
Forecasted.
Operation.
Insurance .
Maintenance.
development .
Taxes.
Energy.
Replacement.
Depreciation .
Disposal.

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Life Cycle Costing VS. Value Engineering

Life-Cycle Costing (LCC):
is the total cost to the
organization for the
ownership and acquisition of
the product over its full life
cycle.
LCC = R&D costs + production
cost + construction cost +
operation and maintenance
cost + product retirement and
phase-out cost.
Value Engineering (EV) :
is a creative approach used
to optimize life-cycle costs,
save time, increase profits,
improve quality, expand
market share, solve problems,
and/or use resources more
effectively.

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Cost vs. Price

Cost Estimating
is the determination of
approximately how
much will it cost the
performing organization
to provide the product
or service involved.

Pricing
is a business decision
that determines how
much to charge for the
product or service

Cost + profit = Price

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Feasibility Study

Includes the methods &
techniques for
determining:
Technology feasibility
(Sources, Selection,
Support, Etc).
Marketing feasibility
(markets, methods, etc).
Economic feasibility study
(capital costs, operation
costs, depreciation,
interest rate, economic
return, etc).
Environmental impacts.
Capital Costs :
Purchasing an equipment/asset with a useful life
more than one business cycle ( Usually one year).

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Project Cost Categories

Direct Costs:
Examples : Labor Costs,
Materials Costs, Subcontract
Costs, And equipment /Assets
Costs.

Project Overhead
(Indirect) Cost:
Examples : Supervision and
Project Electricity.

Company Overhead
(Indirect) Cost:
Examples : CEO Salary, Office
Supplies and utilities, Taxes,
Insurance, and Office Rent.

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Project Cost Categories

Variable Costs :
Changes with the
amount of production or
the amount of work .
Examples : cost of
materials, supplies, and
wages .

Fixed Costs :
Not changed as
production changes .
Example : set up cost ,
rental cost .

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Production Cost Categories

Fixed Cost (F).

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( ) .

Not related to the level

of production.

Variable Costs (V).

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Variable Costs

Fixed Costs

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Directly related to the

level of production.
$

V
F
Production

Learning Curve Labor Cost

A person engaged in a
repetitive work will
improve his/her
performance.
Affects labor cost :
average unit cost
decreases as more units
produced.
Learning Rate:
Each time production output
doubles worker hours per
unit decrease to a fixed
percentage of their previous
value.

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Example - Learning Curve

-
=
10 .
=
9 .
= %90

8
:16
X 9 =16
8,10 = 0,90 .

:
= 32
7,29 = 0,90 X 8,10 .

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Duration (4th item) = 10

Days.
Duration (8th item) = 9
Days.
Learning Rate = 90%.

If output is doubled
from 8 to 16, then :
= ) Duration (16th item
9(0.9) = 8.10 Days.

Similarity :
= ) Duration (32th item
8.10(0.90) = 7.29 Days.

Depreciation
) (
For large assets .
Lose value over time .
Two Forms :
Straight line :
Example A $1,000 item
with 10 years useful life (
No saving value ) would be
depreciated at $100 per
year.

Accelerated Depreciation :
Double Declining Balance .
Sum of the years digits .

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1,0000$
( 10
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. $ 100
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Equipment / Asset Depreciation Cost

/
To calculate
depreciation cost,
you need:
Original Price.
Useful life ( Usually
in Years).
Salvage Value .
The expected cash
value at the end of an
assets useful life.

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7.1 Estimate Costs

1.7
Inputs

Tools & Techniques

1.
2.
3.
4.
5.

Scope baseline
Project schedule
Human resource plan
Risk register
Enterprise environmental
factors
6. Organizational process
assets

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Expert judgment
Analogous estimating
Parametric estimating
Bottom-up estimating
Three-point estimates
Reserve analysis
Cost of quality
PM estimating software
Vendor bid analysis

1. Activity cost estimates

2. Basis of estimates
3. Project document
updates

Tools & Techniques

Outputs

1.
2.
3.
4.
5.
6.
7.
8.
9.

Inputs
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Outputs

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7.1 Estimate Costs ( Planning )

) ( 1.7
1. Scope baseline
2. Project schedule
3. Human resource
plan
4. Risk register
5. Enterprise
environmental
factors
6. Organizational
process assets

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7.1 Estimate Costs

1.7
1.
2.
3.
4.
5.
6.
7.
8.
9.

Expert judgment.
Analogous estimating.
Parametric estimating.
Bottom-up estimating.
Three-point estimates.
Reserve analysis .
Cost of quality .
PM Estimating
software.
Vendor bid analysis.

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Analogous Estimating

Using the actual cost of
previous, similar projects
as the basis for estimating
the cost of the current
project.
Frequently used to
estimate costs when
there is a limited amount
of detailed information
about the project.
Uses historical
information and expert
judgment.
Generally less costly than
other techniques.
It is also generally less
accurate.

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Parametric Estimating

Parametric estimating uses a
statistical relationship between
historical data and other variables
(e.g., square footage in
construction) to calculate an
estimate for activity parameters,
such as cost, budget, and
duration.
Can produce higher levels of
accuracy depending upon the
sophistication.
Involves multiplying the planned
quantity of work to be performed
by the historical cost per unit to
obtain the estimated cost.

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Bottom-up Estimating
) (
Involves estimating the cost of
individual work packages or
individual schedule activities.
This detailed cost is then rolled
up to higher levels for reporting
and tracking purposes.
The cost and accuracy of bottomup cost estimating is typically
motivated by the size and
complexity of the individual
schedule activity or work
package.
Generally, activities with smaller
effort increase the accuracy of
the schedule activity cost
estimates.

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Three-Point Estimates

This concept originated with
the Program Evaluation and
Review Technique (PERT),
PERT uses three estimates
to define an approximate
range for an activitys
duration:
Most likely
Optimistic
Pessimistic

PERT analysis calculated an

expected activity duration
using a weighted average of
these three estimates.

) PERT(
) PERT (

:
.(MC) ) (
.( OC )
.(PC)

) PERT(

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Three-Point Estimates (Probabilistic Estimate)

) (
OC = Optimistic cost

PC = Pessimistic cost

MC = Most likely cost

EC = Estimated cost

S.D. = Standard Deviation

(EC) = OT + 4MT + PT
6

S.D. = PT OT
6

Final Cost Estimate (FCE) = EC +\- S.D

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)Three-Point Estimates (Probabilistic Estimate

( )
= PT

= OT

=EC

= MT

= S.D.

S.D. = PT OT
6

(EC) = OT + 4MT + PT
6

)(EC( -\+ ) =

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7.1 Estimate Costs

1.7

1. Activity cost
estimates.
2. Basis of
estimates.
3. Project
document
updates.

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Activity Cost Estimates

A quantitative assessment
of the likely costs of the
resources required to
complete schedule
activities.
This type of estimate can
be presented in summary
form or in detail.
Costs are estimated for all
resources that are applied
to the activity cost
estimate.

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Activity Cost Estimates

This includes, but is
not limited to:

Labor
Materials
Equipment
Services
Facilities
Information
technology
Special categories
such as an inflation
allowance or cost
contingency reserve

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Standard Estimating Classes

Could be different depending on the
company & application

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WBS
Level

Type of
Estimate

Estimating Method

Accuracy

Order of
Magnitude

Parametric

-25% to + 75%

2,3

Budget

Analogy

-10% to + 25%

4,5,6

Definitive

Bottom up

-5% to + 10%
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General Accounting Terms

Term
Present Value (PV)

Indicates
The value today of future cash flows

Net Present Value (NPV)

The sum of the present value of all income and
expenditures of a project. Greater than 0 is good.
.
.
Internal Rate of Return (IRR)
The determination of the discount rate at the point of
. NPV = 0.
. ( )
Payback Period

The amount of time that will pass before the net

. revenues = costs incurred.
.

A comparison of revenue to costs. Greater than 1 is

Benefit Cost Ratio (BCR)
. ( ) good.
. 1 .
Opportunity Costs

The loss of selecting one project vs. another.

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Project Selection Approach

Economic Attractiveness of the
project/ Economic Forecasting
Methods.

Net Present Value(NPV).

Payback Period.
Internal Rate of Return.
Benefit/Cost Ratio.
Annual Equivalent Method.
Capitalized Cost Method:
A special case of present
worth method in which the
project is assumed to last
forever.
To understand some of these methods, one
should understand Time Value of Money

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Economic Methods

Present Value .
.
Net Present
.
Value.
.
Internal Rate of

Return .
.
Payback Period .

Benefit Cost
.
Ratio.

Net Present Value (NPV) or - Discounted Cash Flow (DCF)

Calculates todays value of future money.

It is the opposite of compounding, which is the future value of todays money.

Future Value Profit

n = Number of Years

NPV (DCF)= Total of

(1+Interest Rate) n
.

n =

. ,

= ) (
n ) + 1(
34

Present Value

. =

Present Value (P) = Present Worth

The value today of future cash flows.
n
Formula : P = F/(1+i)
F = Future Value
i = Interest Rate
n = Number of Years
Example : What is the present
value of US$ 200,00 received 2
years from now, if the interest
rate is 10%?
2
Answer : P = 200K/(1+01) =
200K/1.21 = $ 165,289
The answer is less than
US$200,000 (Time Value of
Money).

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n
P = F/(1+i) :
. = F
. = i
. = n

F
P
0

1 2

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200 :
, 2
.%10
:
2
P = 200K/(1+01)
= 200K/1.21 = $ 165,289
200
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Payback Period

The point in time at which the
benefits delivered by the
project are equal to the costs
incurred.
Expression like This
investment will pay for itself
in less than 3 years are
common in business and
emphasize the tendency to
evaluate projects &
investment in terms of
payback or payout period.
Two types :
Payback without interest (Time
Value of Money).
Payback with interest.

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Example - Payback Period

-
Cash

End of
Years

-$1,000
500
300
200
200
200
200

0
1
2
3
4
5
6

37

Payback without interest:

:
-1,000+500+300+200=0
Payback Period = 3 years.
= 3

Payback with interest:

:
:
= By trial and error, the payback period1,000+500 (P/F,15%,1) + 300 (P/F,15%,2) +
200 (P/F,15%,3) + 200 (P/F,15%,4) + 200
~
)(P/F,15%,5
= $7 = 0
Payback Period = 5 Years.
= 5

Net Present Value (NPV) Method

One tool, two names:
Net Present Value or Net
Present Worth (NPV or
NPW).
Discounted Cash Flow
(DCF).

Present value of total

benefits (Income or
Revenue) less the
present value of all
the costs:
Positive = Good Potential.
Negative = Poor Potential.

: ,


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.)DCF(

( )
:
. =
. =
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Benefit/Cost Ratio Method

Mostly for public projects,
but could be used for privet
projects.
Benefits are highly
subjective and usually
involve social and political
benefits.
Example : A benefit/Cost
Ratio of 1.90 :
Means that the revenue is
1.90 times the cost.
It does not means that profits
is 1.90 times the cost.

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: 1,90
1,90
.
1,90
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Internal Rate of Return (IRR)

( IRR (
The interest rate at which

Equivalent Receipt =
Equivalent Disbursements
OR
The interest rate that reduces
the present value worth
amount of a series of
receipts and disbursements
to ZERO
Used to examine the return
from a project to see if it is a
good proposition:
Example : IRR = 15%

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%15 = IRR

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)Internal Rate of Return (IRR

( ( IRR

41

IRR
.

.

< IRR
.
:
IRR .
:
IRR

IRR
.

The cash inflows received from

the project are immediately
reinvested to earn a return equal
to the IRR for the remaining life
of the project.
IRR: the discount that sets the
NPV to zero .
Minimum Acceptance Criteria:
Accept if the IRR > required
return .
Ranking Criteria: Select
alternative with the highest IRR
Reinvestment assumption: the
IRR calculation assumes that all
future cash flows are reinvested
at the IRR .

Economic Methods - Example

-

$ 95,000

$ 75,000

Which
Project

Project A Project B

$75,000

$95,000

IRR

%13

%17

17%

13%

16

21

21
Months

16
Months

2,79

1,30

1.30

2.79

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Net
Present
Value

Payback
Period
Benefit
Cost
Ratio

7.2 Determine Budget ( Planning )

) ( 2.7
Determine Budget is the
process of aggregating
the estimated costs of
individual activities or
work packages to
establish an authorized
cost baseline.
This baseline includes
all authorized budgets,
but excludes
management reserves.

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7.2 Determine Budget

2.7
1.
2.
3.
4.
5.
6.
7.

Activity cost estimates

Basis of estimates
Scope baseline
Project schedule
Resource calendars
Contracts
Organizational process
assets

44

1.
2.
3.
4.
5.

Cost aggregation
Reserve analysis
Expert judgment
Historical relationships
Funding limit
reconciliation

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.7

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1. Cost performance
baseline
2. Project funding
requirements
3. Project document
updates

Outputs

Tools & Techniques

Inputs
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Outputs

Tools & Techniques

Inputs

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Source: PMBOK Guide Fourth Edition, page 175

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7.2 Determine Budget

2.7
1. Activity cost
estimates
2. Basis of estimates
3. Scope baseline
4. Project schedule
5. Resource calendars
6. Contracts
7. Organizational
process assets

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Two Types of Project Reserves

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: ( )
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A separately planned quantity to account for

uncertainty .Involves Cost, Schedule or both.
Intended to reduce the impact of missing cost or
schedule objectives.
Contingency Reserve [Output/Input]. The amount of
funds, Budget or Time needed above the
estimate to reduce the Risk of overruns of
project objectives to a level acceptable to the
organization.

Contingency Reserve :
Accounts for future known unknown.
Example : Rework is certain; the amount of
rework is not.
Are normally included in the projects
baseline.

Management Reserve :
Accounts for unknown unknowns
(Impossible to predict).
Using it requires in projects cost baseline.

Reserve Analysis

Budget reserve analysis can
establish both the contingency
reserves and the management
reserves for the project.
Contingency reserves are
allowances for unplanned but
potentially required changes
that can result from realized
risks identified in the risk
register.
Management reserves are
budgets reserved for
unplanned changes to project
scope and cost.
Management reserves are not
a part of the project cost
baseline, but may be included
in the total budget for the
project. They are not included
as a part of the earned value
measurement calculations.

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Funding Limit Reconciliation

) (
The expenditure of funds is
reconciled with the funding
limits set by the customer.
Reconciliation will
necessitate the scheduling
of work to be adjusted to
smooth or regulate those
expenditures.
Rescheduling can impact
the allocation of resources.
The final product of these
planning iterations is a cost
baseline.

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7.2 Determine Budget

2.7

1. Cost
performance
baseline
2. Project funding
requirements
3. Project
document
updates

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Cost Performance Baseline

A time-phased budget that is used

as a basis against which to
measure, monitor, and control
overall cost performance on the
project.
It is developed by summing
estimated costs by period and is
usually displayed in the form of an
S-curve.
The cost baseline is a component of
the project management plan.
Many projects, especially large
ones, have multiple cost or
resource baselines.
For example, management may
require that the project manager
track internal costs (labor)
separately from external costs
(contractors and construction
materials) or total labor hours.

( BAC)

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Project Funding Requirements

52

(
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Funding requirements, total

and periodic (e.g., annual or
quarterly), are derived from
the cost baseline.
Can be established to exceed,
usually by a margin, to allow
for either early progress or
cost overruns.
Funding usually occurs in
incremental amounts that are
not continuous.
The total funds required are
those included in the cost
baseline plus the management
contingency reserve amount.

Cash Flow, Cost Baseline and Funding Display

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53

7.3 Control Costs

3.7
Control Costs is the
process of
monitoring the
status of the
project to update
the project budget
and manage
changes to the cost
baseline.

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Control Costs Objectives

Influencing the factors that create

changes to the authorized cost
baseline.
Ensuring that all change requests
are acted on in a timely manner.
Managing the actual changes when
and as they occur.
Ensuring that cost expenditures do
not exceed the authorized funding,
by period and in total for the
project.
Monitoring cost performance to
isolate and understand variances
from the approved cost baseline.
Monitoring work performance
against funds expended.
Preventing unapproved changes
from being included in the reported
cost or resource usage.
Informing appropriate stakeholders
of all approved changes and
associated cost.
Acting to bring expected cost
overruns within acceptable limits.

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7.3 Control Costs

3.7
Inputs
1. Project management plan
2. Project funding
requirements
3. Work performance
information
4. Organizational process
assets

Inputs

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.2
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.4
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Tools & Techniques

Outputs

1. Earned value management

2. Forecasting
3. To-complete performance
index (TCPI)
4. Performance reviews
5. Variance analysis
6. Project management
software

1. Work Performance
measurements
2. Budget forecasts
3. Organizational process
assets updates
4. Change requests
5. PM plan updates
6. Project document updates

Tools & Techniques

Outputs

.
.

. (TCPI)
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.

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.2
.3
.4
.5
.6

Source: PMBOK Guide Fourth Edition, page 180

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7.3 Control Costs ( Controlling )

) ( 3.7

1. Project
management plan
2. Project funding
requirements
3. Work
performance
information
4. Organizational
process assets

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7.3 Control Costs

3.7
1. Earned value
management
2. Forecasting
3. To-complete
performance index
(TCPI)
4. Performance reviews
5. Variance analysis
6. Project management
software

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.3
.(TCPI)
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58

Earned Value Management

Earned value management (EVM) in

its various forms is a commonly used
method of performance
measurement. It integrates project
scope, cost, and schedule measures
to help the project management
team assess and measure project
performance and progress.
It is a project management technique
that requires the formation of an
integrated baseline against which
performance can be measured for
the duration of the project. The
principles of EVM can be applied to
all projects, in any industry.
EVM develops and monitors three
key dimensions for each work
package and control account .

) EVM(

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Earned Value Concept

-
A method for
measuring project cost
performance.

Using to compares the amount of work that was

planned with what was actually accomplished to
determine if progress is as planned

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EVNS
61

Components4Earned Value
4
1.

Planned Value (PV):

Budgeted Cost of Work Scheduled
(BCWS).
The planned Value (PV) .
The sum of budgets for work
scheduled to be accomplished .
A time phase baseline budget
plan.

2.

Earned Value (EV):

Budgeted Cost of Work Performed
(BCWP).
The sum of budgets for completed
portions of the work.
Based on :
1.
2.

Estimated Cost & resource

requirements for performing
the activities.
Degree to which activities have
been accomplished.

: .1
.
.

.

.

: .2
.

.
:

.
.

.1
.2

62

Components4Earned Value
4

3. Actual Cost (AC):

Actual Cost of Work

Performed (ACWP).
The sum of actual
budgets for
completed portions
of the work.

: .3

.


.

4. Budgeted At
Completion (BAC) : : .4
.
Project budget .
63

Progress Reporting

80 %

20 %

50 %

50 %

20%

15%

* = EV
% * = EV

, = EV

:
2 1
( , .... ) .

.
.

(
) .

( )
% = EV
64

30%

35%

100 %

0 %

Progress Reporting

Tangible Outcome
Discrete Packages

Fixed Formula
(Tasks With 1-2 Planning Periods )

0 %

100 %

20 %

80 %

50 %

50 %

15%

20%

35%

30%

Weighted Milestone
(Tasks With Longer Duration )

Units Complete

EV = Completed Units * Units Budgeted Cost

Percent Complete (Simple & easy)

EV = % Completed * PV

No Tangible Outcome

Level of Effort

EV = PV , Example Project Management Effort

Apportioned Effort

For Supportive Tasks {Example (QA/QC)}

EV = % of Earned Value of The Main Task
65

Responsibility Allocation Matrix (RAM) & Control Accounts

Control Accounts (CA)

Where Projects Scope, Cost
and Schedule are Planned ,
Managed & Controlled
:
, ,
,

Assignment of a single work

element to a single team allows
better control and Facilitates rollup of efforts In both directions.

.
.

Organization Breakdown Structure

( )

Work Breakdown Structure

( )

66

Earned Value Formulas

-
Cost Variance :
()

CV = EV AC
CV = BCWP ACWP

Bad < 0

Schedule Variance :
()

SV = EV PV
SV = BCWP ACWS

Bad < 0

CPI = EV/AC

Bad < 1

Cost Performance Index :

Schedule Performance Index :

SPI = EV/PV

Bad < 1

67

Earned Value Formulas

-
:
= .

:
=((
)\ ) * . 100

:
=
.

:
= ((
) \ )
*. 100
68

Cost Variance :
CV$ = EV AC
( - ) Unfavorable , ( +) favorable
Cost Variance % :
CV% = (CV$ / EV) * 100
( - ) Unfavorable , ( +) favorable
Schedule Variance :
SV$ = EV PV
( - ) Unfavorable , ( +) favorable
Schedule Variance % :
SV% = (SV$ / PV) * 100
( - ) Unfavorable , ( +) favorable

Earned Value Formulas

-
:
=
( (
.

:
= (
( (
) * \ 100
.
69

Variance At Completion
:
VAC$ = BAC EAC
( - ) Over Budget
( + ) Under Budget
Variance At Completion
%:
VAC $ % = (BAC
EAC) * 100 / BAC
= (VAC $ /BAC) * 100
( - ) Over Budget
( + ) Under Budget

Earned Value Formulas

-
:
= \ .

:
= \
.

(
) :
= *
.
= ( 0,8 )*
0,2 )
70

Cost Performance Index

:
CPI = EV / AC
; )> 1 (Underrun) ; < 1 (Overrun
)1 (On Budget

Schedule Performance
Index :
SPI = EV / PV
; )> 1 (Ahead) ; < 1 (Behind
)1 (On Schedule

Cost Schedule
Performance Index :
1 - CSPI = CPI * SPI
2 - CSPI = 0.8CPI * 0.2SPI

Earned Value Formulas

-

:
= \
.
= (
) \ (

) .
71

To Complete
Performance
Index (TCPI):
= Work Remaining
/ Budget
Remaining
= TCPI = (BAC-EV) /
(BAC-AC) .

To-Complete Performance Index (TCPI)

The To-Complete
performance index (TCPI) is
the calculated projection of
cost performance that must
be achieved on the
remaining work to meet a
specified management goal,
such as the BAC or the EAC.
Equation for the TCPI based
on the BAC:

( TCPI)



. BAC .EAC
TCPI
: BAC

TCPI= (BAC-EV) / (BAC-AC)

TCPI
: EAC

Equation for the TCPI based

on the EAC:
TCPI= (BAC-EV) / (EAC-AC)

TCPI= (BAC-EV) / (BAC-AC)

TCPI= (BAC-EV) / (EAC-AC)

72

)Estimate At Completion (EAC

-
( ) :
= ( \
) \ ( \ ) .
= \
.

( ) :
.1
.2
.3
.4

73

= \ .
( +
) \ .
)) +
) \(
* ).
((+
) \(0,2
* 0,8
)

EACt Estimate at Completion

(Time):
EACt = ( BAC/SPI)/(BAC/Project
) Duration
) EACt = ( Project Duration / SPI

EAC$ Estimate at Completion

($):
1 - EAC$ = BAC/CPI
2 - EAC$ = AC + (BAC EV )/CPI
3 - EAC$ = AC + [(BAC EV )/(CPI
])* SPI
4 - EAC$ = AC + [(BAC EV ) /
(0.8CPI *0.2SPI)] .

Estimate To Complete

:
Estimate To Complete
( ETC ) :
= )ETC = EAC AC (Future

)ETC = BAC - EV (Past
( ) .
=
( ).
74

Percent Completed

:
( \ ) *
( 100 ) .

(
) :
= ( \ ) *
( 100 ) .

:
( \ )
* ( 100
) .
75

Percent Completed :
= (EV/ BAC)* 100
Percent (Work
)Completed
Percent Spent (Budget) :
= (AC/BAC)*100 Percent
)(Budget Spent
Percent Scheduled :
= (PV /BAC)*100
)Percent (Time Elapsed

Example To Analyzing
Input Data
PV

Hard Wear
Soft Wear
Other
Total

170,000
175,000
70,000
415,000

EV

AC

140,000
150,000
75,000
365,000

200,000
230,000
55,000
485,000

BAC

400,000
210,000
100,000
710,000

EAC

?
?
?
?

We Will Take (Total Project) As . ( )

Sample

4+

Time Now Is (+ 4) Months.

. 8

Project Duration 8 Months

76

Earned Value Data Tables After E.V. - Results

SCHEDULE MEASUREMENTS

SV

= - 50,000

COST MEASUREMENTS

CV

= - 120,000

COST / SCH. INDICES

CSPI = 0.66

SV% = - 12.05 %

CV% = - 32.88 %

CSPI = 0.776

SPI = 0.88

CPI

TCPI = 1.53

OVERALL STATUS MEASUR.

% COMPLETED = 51.41 %
% SCHEDULED = 58.45 %
% SPENT
= 68.31 %

= 0.75

BUDGET MEASUREMENTS

TIME MEASUREMENTS
EAC (time)
= 9. 09 M.
PROJECT DELAY = 1.09 M.

BUDGET REM.= 225,000

WORK REM. = 345,000

FORECAST MEASUREMENTS

EAC ($)
- 946,667

VAC ($)
- 236,667

VAC % ($)
- 33.33%

ETC ($)
461,667

- 945,000
- 1,007,727 **

- 235,000
- 297,727 **

- 33.10%
- 41.93% **

460,000
522,727 **

- 929,587 *

- 219,587 *

- 30.93% *

444,587 *

* MINIMUM

* * MAXIMUM

77

Earned Value Data Elements S Curve Before E.V. - Input Data

Estimate at completion (EAC) = ?

Variance at
Completion (VAC)
=?

Estimate to Complete (ETC) = ?

Budgeted Cost At Completion (BAC) = 710,000

Actual Cost ( AC ) = 485,000

MANHOURS / $

Planned Value (PV) = 415,000

Cost Variance
(CV) = ?

Earned Value (EV) = 365,000

Schedule Variance
(SV) = ?
Forecasted Time
Variance
Time Now

4 Months

=?

8 Months

TIME

Estimated Project
78
Duration = ?

Earned Value Data Elements S Curve After E.V. - Results

Estimate at completion (EAC) = 929,587 To 1,007,727
Variance at
Completion
(VAC) =
- 219,587 To
- 297,727

Estimate to Complete (ETC) = 444,587 To 522,727

Budgeted Cost At Completion (BAC) = 710,000

MANHOURS / $

Actual Cost ( AC )

= 485,000

Planned Value (PV) = 415,000

Cost Variance
(CV) = - 120,000

Earned Value (EV) = 365,000

Schedule Variance
(SV) = - 50,000
Forecasted
Time Variance
Time Now

4 Months
79

TIME

= 1.09 Months

8 Months

9.09 Months

Earned Value Project Level

A project consists of 4 Activities . After
sometimes of its start you want to
evaluate its performance as follows:
Network computation show the dates.
Here we show the budgets
The practice is more professional . With
the help of computers, the S curve
can be drawn for the project
ACTIVITY
A
B
C
D
TOTALS

PV
4,000
2,000
6,000
4,000

EV
5,000
1,500
3,600
800

. 4
:


.
( )
.
. S
AC
3,000
1,600
3,000
1,000

CV
2,000
100600
2002,300
Favorable

SV
1,000
5002,4003,2005,100Unfavorable
80

Earned Value Equations

Term

Equation

Indicates

Schedule Variance

SV = EV - PV

Good if >=0

Cost Variance

CV = EV - AC

Good if >=0

Schedule Performance Index

SPI = EV/PV

Good if >=1

Cost Performance Index

CPI = EV/AC

Good if >=1

Estimate at Completion

EAC = BAC/CPI

Actual cost

Estimate to Complete

ETC = EAC AC

How much more will

be spent

Variance at Completion

VAC = BAC - EAC

Good if >=0

81

Earned Value Equations

Indicates

=<0

SV = EV - PV .

=<0

CV = EV - AC .

=<1

SPI = EV/PV .

=<1

CPI = EV/AC .

(
)
=<0

(
EAC = BAC/CPI
) .
(
ETC = EAC AC
) .
(
VAC = BAC - EAC
) .
82

Performance Reviews

Variance
analysis
Trend analysis
Earned value
performance

.
.

.

83

Variance Analysis

Cost performance
measurements
(CV, CPI) are used
to assess the
magnitude of
variation to the
original cost
baseline.

(CV, CPI)


.
84

7.3 Control Costs

3.7
1. Work Performance
measurements
2. Budget forecasts
3. Organizational
process assets
updates
4. Change requests
5. PM plan updates
6. Project document
updates

. .1
. .2
.3
.
. .4
.5
.
. .6
85

Cost Breakdown structure

8 Cost Budget

$ 2290

7 Management Reserve

$ 90

6 Cost Baseline

$ 2200

5 Contingency Reserve
4 Project Estimates
3 Control Account Estimates
2 Work Packages Estimates

$ 180

$ 2120

CA 1

CA 2

$ 920

$ 1200

WP 1

WP 2

WP 3

WP 4

$ 270

$ 250

$ 400

$ 550

A1

A2

A3

A4

A5

A6

$ 25

$ 75

$ 110

$ 60

$ 120

$ 130

1 Activity Estimates
86

Questions?

87