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CCP_SEC4_Progress and Cost Control

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A CCP is an experienced practitioner with advanced knowledge and technical expertise to apply the broad principles and best practices of Total Cost Management (TCM) in the planning, execution and management of any organizational project or program. CCPs also demonstrate the ability to research and communicate aspects of TCM principles and practices to all levels of project or program stakeholders, both internally and externally.

Published in: Leadership & Management
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CCP_SEC4_Progress and Cost Control

  1. 1. PPROGRESS ANDROGRESS AND CCOSTOST CCONTROLONTROL Hisham Haridy, PMP, PMI-RMP, PMI-SPCCP_Section 4
  2. 2. 1. Earned Value Overview 2. Performance and Productivity Management CContentontent P R O G R E S S A N D C O S T C O N T R O L
  3. 3. The following elements are required for establishing an Earned Value System: 1. Organization of Program The project or program organization may be managed by the Project Management Office (PMO). 2. Work Breakdown Structure (WBS) The WBS is an organized, hierarchical decomposition of project scope that EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW The WBS is an organized, hierarchical decomposition of project scope that serves as the backbone for the planning and management of the project. 3. Organizational Breakdown Structure (Project Organization Structure) Reflects the company’s organization as integrated with a particular PMO to support a specific project. The following are types of organizational structures: a) Functional Organizational b) Matrix Organization c) Project Organization P R O G R E S S A N D C O S T C O N T R O L
  4. 4. 4. Responsibility Assignment Matrix (RAM) A resource matrix of the organizational breakdown structure with the WBS, which identifies the resources associated with the control account levels established for the project, and cross references these levels to the appropriate WBS elements. At lower levels of the OBS, the intersection with the WBS defines control EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW accounts. 5. Work Authorization (WA) Must be documented by a Work Authorization Directive (WAD). Typically, a WAD contains a scope of work, start and finish dates, WBS, responsible person, amount of budget authorized, and signatures of at least the CAM and the Project Manager. Authorization approval are two types; a) Outside or customer/client authorization b) Internal authorization within the organization performing the work. P R O G R E S S A N D C O S T C O N T R O L
  5. 5. 6. Planning, Scheduling, and Budgeting Initial planning of a project requires a good definition of the scope of the project and the steps and resources required to accomplish the work. From the development of the milestone schedule, the project or program will develop a critical path based schedule. 7. Performance Measurement Baseline (PMB) EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW PMB reflects the approved baseline of the project, time phased and loaded to cost accounts into which the program is managed. 8. Control Accounts (CA) A management control point, at which budgets (resource plans) and actual costs are accumulated and compared to earned value for management control purposes. P R O G R E S S A N D C O S T C O N T R O L
  6. 6. 9. Risk Management The review of the schedule, budget, process, and management of the program, to determine the exposure to risk on the program 10.Work Package (WP) Set of tasks performed within a control account that it has both schedule and resources. EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW 11.Planning Package (PP) A logical aggregation of work, usually future efforts, that can be identified and budgeted, but which is not yet planned in detail at the work package or task level P R O G R E S S A N D C O S T C O N T R O L
  7. 7. 12.Management Reserve (MR) and Contingency Management Reserve (MR) is an amount added to the budget to allow for discretionary management purposes, outside the scope of the project. Contingency is an allowance or reserve added to the cost estimate and schedule duration for anticipated, but not certain events. 13.Earned Value Definitions EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW Definitions of Earned Value are based on the development of the program Budget, Actual Cost, and Performance. The value is then divided into measurement classifications which determine the performance index and variances of the program. 14.Variance Reporting A variance analysis is the evaluation of the differences between the actual and expected project performance. P R O G R E S S A N D C O S T C O N T R O L
  8. 8. 15.Change Management The formal process for the review and approval of new/revised work scope versus original contract base scope. 16.Performance Review At least on a monthly basis, generate the following information at the control account and higher levels as necessary for management control, using actual EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW cost data (plus accruals) from, or reconcilable with, the accounting system: Comparison of the amount of planned budget and the amount of budget earned for work accomplished. Comparison of the amount of the budget earned vs. the actual (applied where appropriate) direct costs for the same work for both monthly and cumulative. P R O G R E S S A N D C O S T C O N T R O L
  9. 9. A management methodology for integrating scope, schedule, and resources/Cost, and for objectively measuring project performance and progress. EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW Performance is measured by determining the budgeted cost of work performed (i.e., earned value) and comparing it to the actual cost of work performed (i.e., actual cost). Progress is measured by comparing the earned value to the planned value. P R O G R E S S A N D C O S T C O N T R O L
  10. 10. General Earned Value Management Forecasting EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW Forecasting To-Complete Performance Index P R O G R E S S A N D C O S T C O N T R O L
  11. 11. AC CV SV Project slippage EAC Cost BAC Target Cost VAC ETC EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW Old Acronym Old Term New Acronym New Term BCWS Budgeted Cost of Work Scheduled PV Planned value BCWP Budgeted Cost of Work Performed EV Earned value ACWP Actual Cost of Work Performed AC Actual value PV EV SV DataDate Time Schedule slippage P R O G R E S S A N D C O S T C O N T R O L
  12. 12. Acronym Terms Interpretation PV (BCWS) Planned Value The estimated value of the work planned to be done. EV (BCWP) Earned Value The estimated value of the work actually accomplished. AC (ACWP) Actual Cost The actual cost incurred for the work accomplished. Terms EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW BAC Budget at Completion The BUDGET for the TOTAL project effort. EAC Estimate at Completion The expected TOTAL project to cost (forecast). ETC Estimate to Completion Currently, the expected cost to finish the project (forecast) VAC Variance at Completion Currently, the expected variance to be at the end of the project. P R O G R E S S A N D C O S T C O N T R O L
  13. 13. Formulas CV = EV (BCWP) - AC (ACWP) -ve Over budget +ve Under budget Cost Variance (CV) SV = EV (BCWP) - PV (BCWS) -ve Behind Schedule +ve Ahead schedule Schedule Variance (SV) EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW CPI = EV (BCWP) = Earned Value < 1 Over budget AC (ACWP) Actual >1 Under budget Cost Performance Index (CPI) SPI = EV (BCWP) = Earned Value < 1 Behind Schedule PV (BCWS) Budget >1 Ahead Schedule Schedule Performance Index (SPI) P R O G R E S S A N D C O S T C O N T R O L
  14. 14. Formulas CSI = CPI X SPI <1 Over budget and behind schedule Cost - Schedule Index (CSI) EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW CSI = CPI X SPI >1 Under budget and ahead of Schedule P R O G R E S S A N D C O S T C O N T R O L
  15. 15. Analysis Under budget A head of schedule Over budget A head of schedule + Best Case SV EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW Over budget Behind schedule Under budget Behind schedule + - - CV Worst Case P R O G R E S S A N D C O S T C O N T R O L
  16. 16. 2. Forecasting Estimated at Completion (EAC); There are three scenarios i. Assumes that work from a specific point forward will progress at planned rates where or not these rates have prevailed to this point. ii. Assumed that the rate of progress to date will continue to prevail. EAC = AC + (BAC – EV) EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW ii. Assumed that the rate of progress to date will continue to prevail. iii. Uses current project status and tender for forecasting (SPI and CPI) EAC = BAC CPI EAC = AC + ETC (Estimated to complete) (BAC – EV) CPI X SPI P R O G R E S S A N D C O S T C O N T R O L
  17. 17. Variance at Completion (VAC); Estimate to Complete (ETC); VAC = BAC - EAC ETC = EAC - AC EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW ETC = EAC - AC P R O G R E S S A N D C O S T C O N T R O L
  18. 18. 3. To-complete performance index (TCPI) In order to stay within budget, what rate must we meet for the remaining work? It 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. EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW Equation for the TCPI based on the BAC: Equation for the TCPI based on the EAC: = (BAC – EV) work remaining (BAC – AC) Funds remaining = (BAC – EV) work remaining (EAC – AC) Funds remaining P R O G R E S S A N D C O S T C O N T R O L
  19. 19. Example Activities 1 2 3 4 5 6 7 Budget Cost A 2,000 2,000 4,000 B 2,000 2,000 2,000 6,000 C 2,000 2,000 2,000 6,000 EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW C 2,000 2,000 2,000 6,000 D 1,500 1,500 3,000 E 500 500 1,000 Cost/month 2,000 2,000 2,000 4,000 5,500 4000 500 20,000 cumulative 2,000 4,000 6,000 10,000 15,500 19,500 20,000 P R O G R E S S A N D C O S T C O N T R O L
  20. 20. Activities 1 2 3 4 5 6 7 % of Completion A 2,000 2,000 100% B 2,000 2,000 2,000 16.5% C 2,000 2,000 2,000 25% EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW C 2,000 2,000 2,000 25% D 1,500 1,500 0 E 500 500 0 Cost/month 2,000 2,000 2,000 4,000 5,500 4000 500 20,000 Cumulative 2,000 4,000 6,000 10,000 15,500 19,500 20,000 Cutoff date P R O G R E S S A N D C O S T C O N T R O L
  21. 21. Activities Perform Work Budget Cost EV (BCWP) Actual Cost A 100% 4,000 4,000 4,500 B 16.5% 6,000 1,000 1,500 C 25% 6,000 1,500 1,000 D 0 % 3,000 0 0 EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW D 0 % 3,000 0 0 E 0% 1,000 0 0 20,000 6,500 7,000 PV EV AC 6,000 6,500 7,000 P R O G R E S S A N D C O S T C O N T R O L
  22. 22. Analysis CV = 6,500 - 7,000 = - 500 Over budget Cost Variance (CV) SV = 6,500 - 6,000 = 500 Ahead of Schedule Schedule Variance (SV) EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW Cost Performance Index (CPI) SPI = 6,500 = 1.08 Ahead of Schedule 6,000 CPI = 6,500 = 0.93 Over budget 7,000 Schedule Performance Index (SPI) P R O G R E S S A N D C O S T C O N T R O L
  23. 23. Analysis Under budget A head of schedule Over budget + SV EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW Over budget A head of schedule Over budget Behind schedule + - - CV Under budget Behind schedule P R O G R E S S A N D C O S T C O N T R O L
  24. 24. 2. Forecasting Estimated at Completion (EAC); EAC = 7,000 + (20,000 – 6,500) = 20,500 EAC = 20,000 = 21,505 0.93 EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW EAC = 7,000 + 13,441 = 20,441 Variance at Completion (VAC); Estimate to Complete (ETC); VAC = 20,000 - 21,505 = - 1,505 ETC = 21,505 - 7,000 = 14,505 P R O G R E S S A N D C O S T C O N T R O L
  25. 25. Equation for the TCPI based on the BAC: Equation for the TCPI based on the EAC: TCPI = (13,500) work remaining = 1.04 (13,000) Funds remaining TCPI = (13,500) work remaining = 0.93 (14,505) Funds remaining EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW (14,505) Funds remaining Baseline plan 1.00 + - TCPI (EAC) TCPI (BAC) Status Date P R O G R E S S A N D C O S T C O N T R O L
  26. 26. Objective: Optimize or maximize the company's performance and beat the competition. Tools (Programs): Productivity improvement, total quality management, re- engineering, time-based competition, horizontal management, downsizing, and right-sizing, they reorganize, trim staffs, invest in training, automate, and computerize. The goal: Spend less to make more money or spend less to provide the same or PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT The goal: Spend less to make more money or spend less to provide the same or better service. P R O G R E S S A N D C O S T C O N T R O L For production type activities, reducing worker and equipment hours per unit of output—i.e., improving productivity. For support and professional activities, improving efficiency. For all activities, reducing waste of time, materials, and equipment. Altogether, it means improving the outcome of the total organization.
  27. 27. Success Index (SI) / Performance Index: Numerical evaluation of total organizational performance For a profit-oriented business PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT Success index = Net profit Total cost Success index = Net profit For a service organization (such as a government) P R O G R E S S A N D C O S T C O N T R O L Success index = Essential costs + Cost of waste Success index = Value of services rendered Costs of providing services Success index = Value of services rendered Essential costs + Cost of waste
  28. 28. Essential costs Personnel, material, equipment, tax, and other costs that would be incurred if the organization were efficiently organized and running perfectly. Types of waste cost Inefficiencies inherent in the design and operation of the work place PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT Inefficiencies inherent in the design and operation of the work place Individual inefficiencies Non-contributing (wasted) time by individuals Waste of materials, supplies, and services (misuse, overuse, loss) Waste of equipment (abuse, misuse, loss) Functions that no longer add value to the output of the organization P R O G R E S S A N D C O S T C O N T R O L
  29. 29. PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT Performance Issues Inefficiencies Losses Organizational: Shortage of material or equipment and lack of procedures Individual: Failure to plan, refusing to use labor-saving equipment (such as a word processor), and poor filing. Waste Through Interruptions P R O G R E S S A N D C O S T C O N T R O L Phone calls and visitors Try to avoid interruption using e-mails and visitor screening Other time wasters a. Events that are accepted parts of life; Elimination potential is not significant b. Events in office that create time loss; Significant potential for elimination and reduction by better planning. c. Events in construction site; Controllable time wasters. Certain actions or policies
  30. 30. PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT Waste Through Rework Excessive levels of supervision Double handling of materials before use Receiving data in hard copy and reentering it into another computer Computer Illiteracy (Computer averse) Scope Revision During Detailed Engineering Excessive reviews/approvals P R O G R E S S A N D C O S T C O N T R O L Excessive reviews/approvals Failure to provide management guidance Reinventing the Wheel and failing to develop lessons learned. Out-of-Date or incorrect soecifications results in rework.
  31. 31. PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT The Solution 1. Plan! Plan! Plan! 2. Establish written policies and procedures. 3. Involve users (e.g., operators) and constructors in design decisions. 4. Control changes 5. Give priority emphasis to safety and quality 6. Control disturbances and interruptions 7. Take advantage of modern technology 8. Employ partnering and team building P R O G R E S S A N D C O S T C O N T R O L 8. Employ partnering and team building 9. Communicate 10. Involve employees in planning 11. Use employee group problem-solving techniques 12. Make your work place a good place to work 13. Recognize employee achievements 14. Promote first-level quality control 15. Train managers, supervisors, and workers 16. Be selective in hiring
  32. 32. Productivity Issue Production is dependent upon some combination of machines and personnel so both must be examined when seeking productivity improvements. 1. Variability—sociological (area) factors 2. Variability—location factors 3. Variability—project and contract characteristics PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT 4. Variability—human factors 5. Variability—field organization and management factors 6. Accounting for variability in estimates a. Range estimating b. Checklists and worksheets Promoting productivity By increasing the awareness of the factors affect that can the productivity. P R O G R E S S A N D C O S T C O N T R O L
  33. 33. Productivity Analysis Determining percent complete that six methods for measuring and analyzing productivity PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT 1. Units Completed This method is suitable when the total scope of an activity consists of a number of equal or nearly equal parts. P R O G R E S S A N D C O S T C O N T R O L number of equal or nearly equal parts. In construction it is useful in activities such as earthwork, concrete work, and wire pulling. 2. Incremental Milestone This method is appropriate for activities of significant duration that are composed of easily recognized. This method is ideal for control of engineering drawings and can be used in procurement.
  34. 34. 3. Start/Finish Percentages Applicable to tasks that lack definable intermediate milestones or those for which the effort/time required is very difficult to estimate. 20~50% at start to compensate for the period between start and finish when no credit is being given, 100% at completion that it’s reasonable for short duration and lower value tasks. Scheduling is detailed with multiple, short-term tasks, planning and testing. PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT Scheduling is detailed with multiple, short-term tasks, planning and testing. 4. Ratio Applicable to tasks such as project management, constructability studies, project controls – overheads summarized with production. Applicable for long period and continuous tasks which are estimated and budgeted on allocation of dollars and work hours rather than on basis of production. Percent Complete = (Actual work hours to date) / (Forecast at completion). P R O G R E S S A N D C O S T C O N T R O L
  35. 35. 5. Supervisor Opinion Supervisor makes a judgment of percent complete. It’s a subjective approach and should be used only for minor tasks 6. Weighted or Equivalent Units Applicable for a long period task that is composed of two or more overlapping subtasks, and each with a different unit of work measurement. PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT P R O G R E S S A N D C O S T C O N T R O L
  36. 36. PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT P R O G R E S S A N D C O S T C O N T R O L
  37. 37. Productivity measurement of individual work tasks Productivity analysis at a summary level 1. Credit work hours (CWH) = (budgeted unit rate*) x (units completed to date) *budgeted unit rate = budgeted hours per unit of work PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT Productivity = Number of units completed Work hours consumed 3. For a combination of work packages or for a total project P R O G R E S S A N D C O S T C O N T R O L Productivity Index = CWH to date Actual WH to date Productivity Index = CWH to date Actual WH to date
  38. 38. Use of productivity data PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT P R O G R E S S A N D C O S T C O N T R O L
  39. 39. Incentives Why incentives 1. Increase productivity and reduce waste 2. Improve employee morale and promote teamwork 3. Identify more cost-effective work procedures 4. Improve quality 5. Reduce absenteeism PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT 5. Reduce absenteeism The stimuli 1. Possibility of winning that personal satisfaction in achieving a goal, financial gain, career enhancement, pride of being in winning team, a chance to do something different. 2. Fear of losing that potential loss of job, potential loss of promotion, .. etc. Rewards within the winning scenario 1. Intrinsic value such as cash rewards 2. Extrinsic value such as medals, badges (esteem value). P R O G R E S S A N D C O S T C O N T R O L
  40. 40. Productivity Index Evaluation Worksheet Purpose: to facilitate a comparison of the productivity potential of a proposed project with respect to a completed project A productivity index of 1.0 is average A productivity index less than 1.0 is less than average (unfavorable) A productivity index greater than 1.0 is better than average (favorable) PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT Use of worksheet P R O G R E S S A N D C O S T C O N T R O L
  41. 41. PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT P R O G R E S S A N D C O S T C O N T R O L Productivity Index Evaluation Worksheet 1/2
  42. 42. PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT P R O G R E S S A N D C O S T C O N T R O L Productivity Index Evaluation Worksheet 2/2
  43. 43. 1. Project Planning 2. Scheduling PLANNING AND SCHEDULINGPLANNING AND SCHEDULING P R O G R E S S A N D C O S T C O N T R O L
  44. 44. THANK YOU P R O G R E S S A N D C O S T C O N T R O L

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