2. Project Cost Management
Project Cost Management includes the processes involved in planning,
estimating, budgeting, financing, funding, managing, and controlling costs so
that the project can be completed within the approved budget
On some projects, especially those of smaller scope, cost estimating and cost
budgeting are tightly linked and can be viewed as a single process that can be
performed by a single person over a relatively short period of time.
3. 3
Knowledge Areas
Project Management Process Groups
Initiating Planning Executing Monitoring and Controlling Closing
Project Integration
Management
4.1 Develop
Project
Charter
4.2 Develop Project Management
Plan
4.3 Direct and Manage Project
Work
4.4 Manage Project Knowledge
4.5 Monitor and Control Project
Work
4.6 Perform Integrated Change
Control
4.7 Close
Project
Project Scope
Management
5.1 Plan Scope Management
5.2 Collect Requirements
5.3 Define Scope
5.4 Create WBS
5.5 Validate Scope
5.6 Control Scope
Project Schedule
Management
6.1 Plan Schedule
6.2 Define Activities
6.3 Sequence Activities
6.4 Estimate Activity Durations
6.5 Develop Schedule Management
6.6 Control Schedule
Project Cost
Management
7.1 Plan Cost Management
7.2 Estimate Costs
7.3 Determine Budge
7.4 Control Costs
Project Quality
Management
8.1 Plan Quality Management 8.2 Manage Quality 8.3 Control Quality
Project Resource
Management
9.1 Plan Resource Management
9.2 Estimate Activity Resources
9.4 Acquire Resources
9.5 Develop Team
9.6 Manage Team
9.7 Control Resources
Project
Communications
Management
10.1 Plan Communications
Management
10.2 Manage Communications 10.3 Monitor Communications
Project Risk
Management
11.1 Plan Risk Management
11.2 Identify Risks
11.3 Perform Qualitative Risk
Analysis
11.4 Perform Quantitative Risk
Analysis
11.5 Plan Risk Responses
11.6 Implement Risk Responses 11.7 Monitor Risks
Project Procurement
Management
12.1 Plan Procurement Management 12.2 Conduct Procurements 12.3 Control Procurements
Project Stakeholder
Management
13.1 Identify
Stakeholders
13.2 Plan Stakeholder Engagement
13.4 Manage Stakeholder
Engagement
13.5 Monitor Stakeholder
Engagement
Project Cost management = 4 process (3 process in planning +1 in monitoring and contorting )
4. Key concepts for Project Cost Management
Project Cost Management processes are applied. Considerations for tailoring include :
1- Knowledge management. Does the organization have a formal knowledge
management and financial database repository that a project manager is required to
use and that is readily accessible?
2-Estimating and budgeting. Does the organization have existing formal or informal
cost estimating and budgeting-related policies, procedures, and guidelines?
3- Earned value management. Does the organization use earned value management
in managing projects?
4- Use of agile approach. Does the organization use agile methodologies in managing
projects? How does this impact cost estimating?
5- Governance. Does the organization have formal or informal audit and governance
policies, procedures, and guidelines?
5. 5
1- Projects with high degrees of uncertainty or those where the scope is not yet fully defined may
not benefit from detailed cost calculations due to frequent changes. Instead, lightweight estimation
methods can be used to generate a fast, high-level forecast of project labor costs, which can then be
easily adjusted as changes arise. Detailed estimates are reserved for short-term planning horizons in
a just-in-time fashion.
2- In cases where high-variability projects are also subject to strict budgets, the scope and schedule
are more often adjusted to stay within cost constraints.
6. Cost Estimation and Pricing
Pricing: Assessing how much
the organization will charge for
the product or service . It is a
business decision.
Cost estimating: Assessing how
much it will cost the organization
to provide the product or service .
Cost Price
Profit
+taxes
… etc.
7. Types of Cost
• Direct Costs: Cost that are directly
attributable to the work on project.
Examples are
team travel, team wages, recognition and
cost of material used on the project like
servers used for a software project .
• Indirect costs Overhead items or
costs incurred for the benefit of more
than one project. Examples include
taxes, fringe benefits, and janitorial
services, electricity or rent.
Direct Cost Indirect Cost
Total
Cost
8. • Variable Cost Fluctuate with what is
produced. The higher the quantity of
production, the higher the cost. Ex: the cost of
printing a single book; the more you print the
higher your cost
8
• Fixed Cost Are consisting on a project
regardless of how many are used. Ex: designing a
book cover to print many books(regardless of the
quantity)
Types of Cost
9. Life Cycle Costing
LIFE CYCLE COSTING
Means to look at operation and maintenance Cost and balance them with the
project costs to try to reduce the cost across the entire life of the project.
The project team should consider life cycle costs rather than limiting their
responsibility only to project costs.
Life Cycle Cost
(LCC)
Operation &
Maintenance
COST
Project Cost
10. 7.1 Plan Cost Management
1.Project charter
2.Project management
plan
•Schedule
management plan
•Risk management
plan
3.EEF
4.OPA
1.Expert judgment
2.Data analysis
3.Meetings
1.Cost management plan
7.1 Plan Cost Management
The process of defining how the project costs will be estimated,
budgeted, managed, monitored , and controlled
PLAN Estimate Determine CONTROL
Inputs Tools & Techniques Outputs
11. 11
Key benefit of this process is that it provides guidance and direction on how the project
costs will be managed throughout the project
This process is performed once or at predefined points in the project
The cost management planning effort occurs early in project planning and sets the
framework for each of the cost management processes so that processes performance
will be efficient and coordinated
- The cost management plan is a component of the project management plan.
Key benefit
12. 7.1 Plan Cost Management
1- Project Charter
Provides the preapproved financial resources from which the detailed project costs
are developed .
Defines the project approval requirements that will influence the management of
project costs .
2- Project Management Plan
Includes (Schedule management plan and Risk management plan)
3- Enterprise Environmental Factors
4- Organizational Process Assets
13. 190
7.1 Plan Cost Management
1- Expert Judgment
2- Data Analysis
Alternative Analysis: Review strategic funding (self-funding, funding with equity or debt)
and include considerations to acquire project resources (making, purchasing, renting and
leasing) .
3- Meetings
14. 191
7.1 Plan Cost Management
Cost Management Plan
cost management plan is a component of the project management plan and describes
how the project costs will be planned, structured, and controlled.
Cost management plan can establish the following
Units of measure: Time measures (hours, days, weeks). Quantity measures (meters, liters, tons) or
lump sum .
Level of precision: Degree to which cost estimates will be rounded up or down(ex: 100$ to 110$)
Level of accuracy: Acceptable range used in determining realistic cost estimates (ex: ±20% )
Organizational procedures links: WBS provides the framework for the cost management plan,
allowing for consistency with the estimates, budgets, and control of costs.
Control thresholds: Variance thresholds for monitoring cost performance may be specified to
indicate an agreed-upon amount of variation to be allowed before some action needs to be taken
and usually expressed as percentage .
15. Rules of performance measurement: Earned value management (EVM)
rules of performance measurement are set. Cost management plan may
define WBS points which measurement of control will be performed, Establish
EVM techniques (weighted, milestone) and specify tracking methodologies
and EVM computation
Reporting Formats: Formats and frequency for the various cost reports
are defined.
Additional details: Additional details about cost management activities
include description of strategic funding choices, currency exchange rate
and project cost recording
15
Cost Management Plan
16. 7.2 Estimate Costs
1. Project management plan
• Cost management plan
• Quality management plan
• Scope baseline
2. Project documents
• Lessons learned register
• Project schedule
• Resources requirements
• Risk register
3. EEF
4. OPA
1. Expert judgment
2. Analogous estimating
3. Parametric estimating
4. Bottom-up estimating
5. Three-point estimating
6. Data analysis
• Alternatives analysis
• Reserve analysis
• Cost of quality
7. PMIS
8. Decision making
1. Cost estimates
2. Basis of estimates
3. Project documents updates
• Assumption log
• Lessons learned register
• Risk register
7.2 Estimate Costs
The process of developing an approximation of the cost of resources
needed to complete project work
PLAN Estimate Determine CONTROL
Inputs Tools & Techniques Output
s
17. 17
Key benefit of this process is that it determines the monetary resources required for the
project
This process is performed periodically throughout the project as needed.
A cost estimate is a quantitative assessment of the likely costs for resources required to
complete the activity
Cost estimates include the identification and consideration of costing alternatives to
initiate and complete the project
Cost trade-offs and risks should be considered to achieve optimal costs for the project
Cost estimates are generally expressed in units of some currency or time measure units
The accuracy of a project estimate will increase as the project progresses through project
life cycle for example project in project initiation phase have a rough order of magnitude
(ROM) estimate in the range of (-25% to +75%). Later in projects when more information
is known definitive estimate could narrow the range to (-5% to +10%)
18. Budget Estimate: This estimate is usually made during the planning phase and is
in the range of -10% to +25% from actual.
As more information is known, Definitive Estimates could narrow the range of
accuracy to -5% to +10%.
Costs are estimated for all resources that will be charged to the project. This
includes but is not limited to labor, materials, equipment, services, and facilities, as
well as special categories such as an inflation allowance, cost of financing, or
contingency costs.
18
Cost estimates may be presented at the activity level or in summary form.
19. 193
7.2 Estimate Costs
1- Project Management Plan
Includes (Cost management plan, Quality management plan and Scope baseline)
2- Project Documents
Includes (Lessons learned register, Project schedule, Resource requirements and
Risk register)
3- Enterprise Environmental Factors
3-1 Market conditions
3-2 Published commercial information.
3-3 Exchange rates and inflation.
4- Organizational Process Assets
4-1 Cost estimating policies.
4-2 Cost estimating templates.
4-3 Historical information and lessons learned repository.
20. 194
7.2 Estimate Costs Tools & Techniques
1- Expert Judgment
2- Analogous Estimating
Uses values, or attributes, of a previous project that are similar to the current project
Ex: House A is very similar to house B ,House A cost $300,000 so House B will cost $300,000.
3- Parametric Estimation
Uses a statistical relationship between relevant historical data and other variables to calculate a
cost estimate for project work. It produces higher level of accuracy (e.g., square footage in
construction) •
Ex : As per latest market prices, it costs around $2000 to build 1m2 , House B is 100m2 so House B
will cost 100*2,000 = $200,000
4- Bottom-UP Estimating
Bottom-up estimating is a method of estimating a component of work.
The cost of individual work packages or activities is estimated to the greatest level of specified
detail
Detailed cost is then summarized or “rolled up” to higher levels
The cost and accuracy of bottom-up cost estimating are typically influenced by the size or other
attributes of the individual activity or work package.
Ex : House B will cost the following: $60,000 for foundation, $70,000 for building, isolation & roof
And $25,000 for heating/cooling system so TTL = $155,000
21. • 5- Three-Point Estimating
Expected cost (cE) can be calculated using (Most Likely (cM), Optimistic (cO), Pessimistic (cP))
For Triangular distribution. cE = (cO + cM+ cP) / 3
For Beta distribution (PERT) cE = (cO + 4cM+ cP) / 6
21
Probability
of
Occurrenc
e
Lower
Possible
Cost
Les
s
More
Pessimistic
Optimistic
Higher
Most Likely
PERT WeightedAverage=
Optimistic + 4 X Most Likely +
Pessimistic
6
Triangula distribution. cE = (cO + cM + cP) / 3
Beta distribution. cE = (cO + 4cM + cP) / 6
22. 22
6- Data Analysis
Alternative Analysis: technique used to evaluate identified options in order to select which
options to use to execute and perform the work of the project
Reserve Analysis: Cost estimates may include contingency reserves (contingency
allowances) to account for cost uncertainty. And intended to address known-unknowns
• Contingency reserves are the budget within the cost baseline that is allocated for identified
risks
• Contingency reserves can be provided at any level from the specific activity to the entire
project.
• Contingency reserve may be a percentage of the estimated cost, a fixed number, or may be
developed by using quantitative analysis methods.
• When more information is available, the contingency reserve may be used, reduced or
eliminated.
• For example, rework for some project deliverables could be anticipated, while the amount of
this rework is unknown. Contingency reserves may be estimated to account for this
unknown amount of rework.
23. 23
Contingency Reserve
• You manage identified risks with the contingency reserve. This reserve can be in either cost or
time.
• The contingency reserve is not random; it is an estimate reserve based on various risk
management techniques.
• Project managers control this reserve; they have full authority to use it whenever an identified risk
occurs. They can also delegate this authority to a risk owner. The risk owner will manage it and
update the project manager in later stages
How to Calculate the Contingency Reserve
There are various techniques to calculate the contingency reserve. Some of them are as follows:
Percentage of the Project’s Cost
Expected Monetary Value
Decision Tree Analysis
Monte Carlo Simulation
Now we will discuss each technique in detail.
26. 26
Cost of Quality(CoQ):
Assumptions about costs of quality may be used to prepare the estimates. Which includes evaluating the
cost impact of additional investment in conformance versus the cost of nonconformance.
It also may include looking at short-term cost reductions vs of more frequent problems later on in the
product life cycle.
a- Prevention costs. Costs related to the prevention of poor quality in the products, deliverables, or
services of the specific project.
b- Appraisal costs. Costs related to evaluating, measuring, auditing, and testing the products,
deliverables, or services of the specific project.
Both of prevention costs and appraisal costs are costs related to conformance.
c- Failure costs (internal/external). Costs related to nonconformance of the products, deliverables, or
services to the needs or expectations of the stakeholders.
• The optimal COQ is one that reflects the appropriate balance for investing in the cost of prevention and
appraisal to avoid failure costs. Models show that there is an optimal quality cost for projects, where
investing in additional prevention/appraisal costs is neither beneficial nor cost effective.
27. • 7- Project Management Information System (PMIS)
• Spreadsheets, simulation software, and statistical analysis
are used to assist with cost estimating. Such tools can simplify the use
of some cost-estimating techniques and thereby facilitate rapid
consideration of cost estimate alternatives.
•
• 8- Decision Making
• Voting
27
28. 7.2 Estimate Costs Output
1- Cost Estimates
Cost estimates include quantitative assessments of the probable costs required to
complete project work and contingency amounts to account for identified risks, and
management reserve to cover unplanned work
Costs are estimated for all resources that are applied to the cost estimate.
Cost estimates can be presented in summary form or in detail
2- Basis of Estimates
Supporting documentation should provide a clear and complete understanding of how the
cost estimate was derived (assumptions, constraints, risks, estimate range and confidence
level) may include:
1- Documentation of the basis of the estimate (i.e., how it was developed.
2- Documentation of all assumptions made.
3- Documentation of any known constraints.
4- Documentation of identified risks included when estimating costs.
Indication of the range of possible estimates (e.g., €10,000 (±10%) to indicate that the item is
expected to cost between a range of values), and Indication of the confidence level of the final
estimate.
3- Project Documents Updates
Includes (Assumption log, Lessons learned register and Risk register)
29. 7.3 Determine Budget
A project budget includes all the funds authorized to execute the project.
The cost baseline is the approved version of the time-phased project
budget that includes contingency reserves, but excludes management
reserves.
30. 7.3 Determine Budget
1. Project management plan
• Cost management plan
• Resource management plan
• Scope baseline
2. Project documents
• Basis of estimates
• Cost estimates
• Project schedule
• Risk register
3. Business documents
• Business case
• Benefits management plan
4. Agreements
5. EEF
6. OPA
1. Expert judgment
2. Cost aggregation
3. Data analysis
• Reserve analysis
4. Historical information review
5. Funding limit reconciliation
6. Financing
1. Cost baseline
2. Project funding requirements
3. Project documents updates
• Cost estimates
• Project schedule
• Risk register
7.3 Determine Budget
The process of aggregating the estimated costs of individual activities
or work package to establish an authorized cost baseline
PLAN Estimate Determine CONTROL
Inputs Tools & Techniques Outputs
31. 31
Key benefit of this process is that it determines the cost baseline against which
project performance can be monitored and controlled
This process is performed once or at predefined points in the project.
Project budget includes all the funds authorized to execute the project.
32. 7.3 Determine Budget Input
1- Project Management Plan
Includes (Cost management plan, Resource management plan and Scope
baseline)
2- Project Documents
Includes (Basis of estimates, Cost estimate, Project schedule and Risk register)
Basis of estimates. Supporting detail for cost estimates contained in the basis for
estimates should specify any basic assumptions dealing with the inclusion or
exclusion of indirect or other costs in the project budget.
3- Business Documents
Business case: identifies the critical success factors for the project like financial
success factors
Benefits management plan: includes the target benefits, such as net present
value calculations, timeframe for realizing benefits, and the metrics associated
with the benefits
33. 4- Agreements
Applicable agreement information and costs relating to products,
services, or results that have been or will be purchased are included
when determining the budget.
5- Enterprise Environmental Factors
6- Organizational Process Assets
6-1 Existing formal and informal cost budgeting-related policies,
procedures, and guidelines.
6-2 Historical information and lessons learned repository.
6-3 Cost budgeting tools.
6-4 Reporting methods.
33
34. 1- EXPERT JUDGMENT
1-1 Previous similar projects.
1-2 Information in the industry, discipline, and application area.
1-3 Financial principles.
1-4 Funding requirement and sources.
2- COST AGGREGATION
The work package cost estimates are then aggregated for the higher component
levels of the WBS (such as control accounts) and, ultimately, for the entire project.
Tools & Techniques
7.3 Determine Budget
35. 35
3- Data Analysis
Reserve Analysis: Establish the management reserves for the project.
Management reserves are an amount of the project budget withheld for management control
purposes and are reserved for unforeseen work that is within scope of the project
Management reserves are intended to address the unknown unknowns that can affect a
project.
Management reserve is not included in the cost baseline but is part of the overall project
budget
When an amount of management reserves is used to, it should be then added to cost baseline
(require an approved change process)
36. 4- Historical Information Review
Reviewing historical information can assist in parametric or analogous estimates
Historical information may include project characteristics (parameters) to develop
mathematical models to predict total project costs
Historical information used to develop the model is accurate,
Parameters used in the model are readily quantifiable, and
Models are scalable, such that they work for large projects, small projects, and phases of a
project.
5- Funding limit Reconciliation
The expenditure of funds should be reconciled with any funding limits on the commitment
of funds for the project
Variance sometimes necessitate the rescheduling of work and this is accomplished by
placing imposed date constraints for work into project schedule
6- Financing
Financing entails acquiring funding for projects for long lasting projects. External funding
may require certain requirements.
37. 1- Cost Baseline
Approved version of the time-phased project budget, excluding any
management reserves. is used as a basis for comparison to actual results.
It is developed as a of the approved budgets for the different schedule
activities
The work package cost estimates, along with any contingency reserves
estimated for the work packages, are aggregated into control accounts. The
summation of the control accounts makes up the cost baseline.
Time-phased view of the cost baseline is typically displayed in the form of an
S-curve
For projects that use earned value management, the cost baseline is referred
to as the performance measurement baseline
7.3 Determine Budget Output
38. • 2- Project Funding Requirements
Total funding requirements and periodic funding requirements (e.g.,
quarterly, annually) are derived from the cost baseline.
Funding often occurs in incremental amounts, and may not be
evenly distributed.
• 3- Project Management Updates
Includes (Cost estimates, Project schedule and Risk register)
38
42. 204
Inputs Tools & Techniques
7.4 Control Costs
1. Project management plan
•Cost management plan
• Cost baseline
•Performance measurement
baseline
2. Project documents
• Lessons learned register
3. Project funding requirements
4. Work performance data
4. EEF
5. OPA
1. Expert judgment
2. Data analysis
• Earned value analysis
• Variance analysis
• Trend analysis
• Reserve analysis
3. To-complete performance index
4. PMIS
1. Work performance information
2. Cost forecasts
3. Change requests
4. Project management plan updates
•Cost management plan
• Cost baseline
•Performance measurement
baseline
5. Project documents updates
• Assumption log
• Basis of estimates
• Cost estimates
• Lessons learned register
• Risk register
7.4 Control Costs
The process of monitoring the status of the project to update the
project costs and manage changes to the cost baseline.
PLAN Estimate Determine CONTROL
Inputs Tools & Techniques
Outputs
43. 43
Key benefit of this process is that the cost baseline is maintained throughout the project
This process is performed throughout the project
Any increase to the authorized budget require an approved change
•Control Costs is primarily concerned with COST VARIANCES described as either being
positive (good) or negative (bad).
• it is performed when :
1- Performed regularly throughout the project, typically beginning as soon as project costs
are incurred.
2- The activities associated with Control Costs are usually performed with more frequency
as project costs increase.
• If the results of what was executed do not match the cost BASELINE, then appropriate steps are
taken to bring the two back in line. This could either mean CHANGING future plans or
CHANGING the way the work is being performed.
44. 44
6- Project cost control includes:-
6-1 Influencing the factors that create changes to the authorized cost baseline.
6-2 Ensuring that all change requests are acted on in a timely manner.
6-3 Managing the actual changes when and as they occur.
6-4 Ensuring that cost expenditures do not exceed the authorized funding by period, by WBS
component, by activity, and in total for the project.
6-5 Monitoring cost performance to isolate and understand variances from the approved cost baseline.
6-6 Monitoring work performance against funds expended.
6-7 Preventing unapproved changes from being included in the reported cost or resource usage.
6-8 Informing appropriate stakeholders of all approved changes and associated cost.
6-9 Bringing expected cost overruns within acceptable limits.
45. 205
7.4 Control Costs Input
1- Project management plan
• Cost management plan
• Cost baseline
• Performance measurement baseline
2- Project documents
Lessons learned register
3- Project funding requirements
4- Enterprise environmental factors
5- Organizational process assets
5-1. Existing formal and informal cost control-related policies, procedures, and
guidelines
5-2 Cost control tools.
5-3 Monitoring and reporting methods to use.
46. 7.4 Control Costs Tools & Techniques
1- Expert Judgment
2- Data Analysis
•Earned value analysis
•Variance analysis
•Trend analysis
•Reserve analysis
47. 47
Example : we have project to install 10 sites , cost of each site ( 100,000 $)and
according plan should project complete during 10 months ( site per month) . What is
cost end of project according plan ?
It is 10sites *100,000 $(cost of each site ) = 1M $
1M$ = Budget at completion (BAC ) and according plan
Case 1 : end of 6th month we spend actual 600,000 $ and we complete 6 sites , what
is planned value , Earned Value (EV),Actual Cost , Schedule Variance, Cost Variance,
Schedule Performance Index (SPI) & Cost Performance Index (CPI)?
Planned value (PV) after 6th months Budget Cost forWork Schedule = 6months
*100,000$= 600,000 $
Earned value (EV) we should complete 6 sites Budget Cost forWork Performed = 6
sites *100,000$=600,000$
Actual cost (AC) we actual spend (Actual Cost forWork Performed)
= 600,000$
ScheduleV
ariance (SV )= EV – PV = 0 project on schedule till 6th month
Cost V
ariance (CV) = EV – AC = 0 project on budget till 6th month
SchedulePerformance Index (SPI) = EV/ PV = 1 project is on schedule.
Cost PerformanceIndex (CPI) = EV / AC =1 project on budget
48. 48
Case 2 : end of 6th month we spend actual 500,000 $ and we complete 5 sites , what is planned value , Earned
Value (EV),Actual Cost , Schedule Variance, Cost Variance, Schedule Performance Index (SPI) & Cost Performance
Index (CPI)?
Planned value (PV) after 6th months Budget Cost forWork Schedule = = 6months *100,000$= 600,000 $
Earned value (EV) we should complete 6 sites Budget Cost forWork Performed =
5 sites *100,000$=500,000$
Actual cost (AC) we actual spend (Actual Cost forWork Performed) = 500,000$
ScheduleV
ariance (SV )= EV – PV = - 100,0000 $ project Behind schedule till 6th month
Cost V
ariance (CV) = EV – AC = 0 project on budget till 6th month
SchedulePerformanceIndex (SPI) = EV/ PV = 0.83 project behind schedule , execute 83% from plan
and we have delay 17% .
Cost PerformanceIndex (CPI) = EV /AC =1 project on budget
49. 49
Case 3 : end of 6th month we spend actual 550,000 $ and we complete 5 sites , what is planned value ,
Earned Value (EV),Actual Cost , Schedule Variance, Cost Variance, Schedule Performance Index (SPI) & Cost
Performance Index (CPI)?
Planned value (PV) after 6th months Budget Cost forWork Schedule = = 6months *100,000$= 600,000 $
Earned value (EV) we should complete 6 sites Budget Cost forWork Performed 5 sites
*100,000$=500,000$
Actual cost (AC) we actual spend (Actual Cost forWork Performed)
550,000$
ScheduleV
ariance (SV )= EV – PV = - 100,0000 project behind schedule till 6th month
Cost V
ariance (CV) = EV – AC = - 50,000 project over budget till 6th month
SchedulePerformanceIndex (SPI) = EV/ PV = 0.83 project behind schedule execute 83% from plan
and we have delay 17% .
Cost PerformanceIndex (CPI) = EV /AC = 0.9 project over budget , each 1$ spend equal 90
cents
50. 50
Case 4 : In the end of project we spend actual 1,100,000 $ / 10 months , what is planned value , Earned
Value (EV),Actual Cost , Schedule Variance, Cost Variance, Schedule Performance Index (SPI) & Cost
Performance Index (CPI)?
Planned value (PV) after 6th months Budget Cost forWork Schedule = = 1,000,000$
Earned value (EV) we should complete 6 sites Budget Cost forWork Performed 10 sites
*100,000$=1,000,000$
Actual cost (AC) we actual spend (Actual Cost forWork Performed)
1,100,000$
ScheduleV
ariance (SV )= EV – PV = 0 project on schedule
Cost V
ariance (CV) = EV – AC = - 100,000 project over budget till 6th month
SchedulePerformanceIndex (SPI) = EV/ PV = 1 project on schedule
Cost PerformanceIndex (CPI) = EV /AC = 0.9 project over budget , each 1$ spend equal 90
cents
51. 51
Case 5 : In the end of project we spend actual 1,100,000 $ after 10 months and half , what is planned
value , Earned Value (EV),Actual Cost , Schedule Variance, Cost Variance, Schedule Performance Index (SPI)
& Cost Performance Index (CPI)?
52. • Answer below :
Are we ahead or behind schedule?
How efficiently are we using our time?
When is this project likely to be completed?
Are we currently under or over budget?
How efficiently are we using our resources?
How efficiently must we use our remaining resources?
What is the remaining work likely to cost?
What is the entire project likely to cost?
How much we will be under or over budget at the end?
52
53. 7.4 Control Costs Tools & Techniques
2- Data Analysis
Earned value analysis (EVA):
a- Planned value (PV) is the authorized budget assigned to scheduled work. It is the authorized budget
planned for the work to be accomplished for an activity or work breakdown structure (WBS) component, not
including management reserve.
• This budget is allocated by phase over the life of the project, but at a given point in time, planned value
defines the physical work that should have been accomplished.
• The total of the PV is sometimes referred to as the performance measurement baseline (PMB).
• It is also called Budgeted Cost of Work Scheduled (BCWS)
• The total planned value for the project is also known as budget at completion (BAC).
• Planned Value = (Planned % Complete) X (BAC)
• Example : project must be completed in 10 months and the budget is 100,000 $. Six months have
passed, and the schedule says that 50% of the work should be completed. What is the project’s Planned
Value (PV)?
(Project duration: 10 months , Project cost (BAC): 100,000 $ , Time elapsed: 6 months
Percent complete: 50% (as per the schedule)
Planned Value is the value of the work that should have been completed so far (as per the schedule).
We should have completed 50% of the total work in this scenario.
Planned Value = 50% of the value of the total work
= 50% of BAC
= 50% of 100,000
= (50/100) X 100,000
= 50,000 $
54. 54
b- Earned value (EV) is a measure of work performed expressed in terms of the budget authorized for that
work. It is the budget associated with the authorized work that has been completed.
• compares the performance measurement baseline to the actual schedule and cost performance. EVM
integrates the scope baseline with cost and schedule baselines to form the performance measurement
baseline. It monitors three key dimensions
• The EV being measured needs to be related to the PMB, and the EV measured cannot be greater than the
authorized PV budget for a component.
• The EV is often used to calculate the percent complete of a project. Progress measurement criteria should
be established for each WBS component to measure work in progress.
• also called Budgeted Cost of Work Performed (BCWP).
• Project managers monitor EV,
• Earned Value = % of completed work X BAC (Budget at Completion)
• Example : project completed in 10 months. The budget for the project is 100,000 $. Six months have
passed, and 60,000 $ has been spent. On closer review, you find that only 50% of the work has been
completed to date. What is the project’s Earned Value (EV)?
In the above question, you can see that only 50% of the work is finished, and the definition of Earned Value
states that it is the value of the project that has been earned.
Earned Value = 50% of the value of total work
= 50% of BAC
= 50% of 100,000
= 0.5 X 100,000
= 50,000 $
55. 55
c- Actual cost (AC) is the realized cost incurred for the work performed on an activity during a specific
time period. It is the total cost incurred in accomplishing the work that the EV measured.
• The AC needs to correspond in definition to what was budgeted in the PV and measured in the EV
(e.g., direct hours only, direct costs only, or all costs including indirect costs).
• also called the Actual Cost of Work Performed (ACWP).
• The AC will have no upper limit; whatever is spent to achieve the EV will be measured.
56. 56
2- Variance analysis
reviews the differences (or variance) between planned and actual performance
• Schedule Variance (SV)
Schedule Variance is a vital analytical tool, it lets you know if you are ahead of schedule or behind
schedule in currency (dollars , Dinars , ….,etc.) .
Schedule variance is best used in conjunction with critical path methodology (CPM) scheduling and risk
management.
Schedule Variance (SV)= Earned Value(EV) – Planned Value(PV)
From SV can conclude below :
• we are ahead of schedule if the Schedule Variance is positive.
• we are behind schedule if the Schedule Variance is negative.
• we are on schedule if the Schedule Variance is zero
• Note :When the project is complete, the Schedule Variance becomes zero because all Planned Value has
been earned.
• Example a project completed in 12 months and the budget of the project is 100,000 USD. 6 months have
passed and 60,000 USD has been spent, but on closer review you find that only 40% of the work has
been completed. What is project’s Schedule Variance (SV) ?
( Actual Cost (AC) = 60,000 USD ,Planned Value (PV) = 50% of 100,000 = 50,000 $
Earned Value (EV) = 40% of 100,000 = 40,000 USD)
Schedule Variance (SV)= Earned Value(EV) – Planned Value(PV)
= 40,000 – 50,000 = -10,000 USD
Project behind schedule since it is negative
57. 57
Cost Variance (CV)
• we must complete project within the approved budget.
• Cost Variance deals with the cost baseline of the project. It provides you with information on whether
you are over or under budget, in dollar terms.
• Cost Variance is a measure of the cost performance of a project.
• Cost Variance (CV) = Earned Value(EV) – Actual Cost(AC)
From CV can conclude below :
•You are under budget if the Cost Variance is positive.
•You are over budget if the Cost Variance is negative.
•You are on budget if the Cost Variance is zero .
• Example : a project completed in 12 months, and the budget of the project is 100,000 USD. 6 months have
passed, and 60,000 USD has been spent, but on closer review, you find that only 40% of the work has been
completed so far. Find the project’s Cost Variance (CV)?
(Actual Cost (AC) = 60,000USD ,Earned Value (EV) = 40% of 100,000 USD = 40,000 USD)
• Cost Variance (CV) = Earned Value(EV) – Actual Cost(AC)
= 40,000 – 60,000
= –20,000 USD
Project over budget since it is negative
58. 58
Schedule Performance Index (SPI)
• The Schedule Performance Index (SPI) is a measure of schedule efficiency, expressed as the ratio of
earned value to planned value.”
• The Schedule Performance Index (SPI) shows how you are progressing compared to the planned project
schedule.
• The Schedule Performance Index gives you information on the time efficiency of your project.
• Schedule Performance Index (SPI)= (Earned Value EV) / (Planned Value PV)
SPI can conclude below :
• The completed work is equal to the planned work if the SPI is equal to one; the project is on schedule
• You have completed more work than planned if the SPI is greater than one; the project is ahead of schedule.
• If you have completed less work than planned work if the SPI is less than one. The project is behind schedule.
• The completed work is equal to the planned work if the SPI is equal to one; the project is on schedule.
Example : a project to be completed in 12 months, and the budget is 100,000 $ . Six months have passed, and
60,000 $ has been spent, but upon closer review, we find that only 40% of the work has been completed so far. Find
the Schedule Performance Index ? schedule.
( Actual Cost (AC) = 60,000 $ , Planned Value (PV) = 50% of 100,000 $ =50,000 $ , Earned Value (EV) = 40% of 100,000$
= 40,000 $ )
Now,
Schedule Performance Index (SPI)= (Earned Value EV) / (Planned Value PV)
= 40,000 / 50,000 = 0.8 project behind schedule since the Schedule Performance Index is less than one
59. 59
Cost Performance Index (CPI)
• The Cost Performance Index (CPI) is a measure of the cost efficiency of budgeted resources, expressed
as a ratio of earned value to actual cost.”
• The Cost Performance Index specifies how much you are earning for each dollar, Dinar….etc spent on
the project.
• Cost Performance Index CPI = (Earned Value EV ) / (Actual Cost AC)
CPI can conclude that:
•You are earning more than what you have spent if the CPI is greater than one. The project is under budget.
•You are earning more than what you have spent if the CPI is greater than one. The project is under budget.
•Earning and spending is equal if the CPI is equal to one. You can say that the project is proceeding as per
the planned spending.
Example : a project to be completed in 12 months, and the budget of the project is 100,000 $. 6 months have
passed, and 60,000 $ has been spent, but upon closer review, you find that only 40% of the work has been
completed.
Find the Cost Performance Index ?
( Actual Cost (AC) = 60,000$ , Planned Value (PV) = 50% of 100,000 $ = 50,000 $ , Earned Value (EV) = 40% of 100,000
USD = 40,000 $)
Cost Performance Index CPI = (Earned Value EV ) / (Actual Cost AC)
= 40,000 / 60,000 = 0.67
This means we are earning 0.67 USD for every 1 USD spent since the Cost Performance Index is less than one. This
means you are over budget
61. 61
Trend Analysis: examines project performance over time to determine if performance is
improving or deteriorating. Graphical analysis techniques are valuable for understanding
performance to date and for comparison to future performance goals in the form of BAC versus
estimate at completion (EAC) and completion dates. Examples of the trend analysis techniques
include but are not limited to:-
a- Charts In earned value analysis, three parameters of PV, EV, and AC can be monitored and
reported on both a period-by-period basis (typically weekly or monthly) and on a cumulative basis
using S curves. (see below figure )
62. 62
b- Forecasting.
• As the project progresses, the project team may develop a forecast for the estimate at completion (EAC) that may
differ from the budget at completion (BAC) based on the project performance.
• If it becomes obvious that the BAC is no longer viable, the project manager should consider the forecasted EAC.
• Forecasting the EAC involves making projections of conditions and events in the project’s future based on
current performance information and other knowledge available at the time of the forecast.
• Forecasts are generated, updated, and reissued based on work performance data that is provided as the project is
executed.
• The work performance information covers the project’s past performance and any information that could impact
the project in the future.
• EACs are typically based on the actual costs incurred for work completed, plus an estimate to complete (ETC)
the remaining work.
• It is incumbent on the project team to predict what it may encounter to perform the ETC, based on its
experience to date.
• Earned value analysis works well in conjunction with manual forecasts of the required EAC costs.
• The most common EAC forecasting approach is a manual, bottom-up summation by the project manager and
project team.
• The project manager’s bottom-up EAC method builds upon the actual costs and experience incurred for the
work completed, and requires a new estimate to complete the remaining project work.
• Equation: - EAC = AC + Bottom-up ETC.
• The project manager’s manual EAC is quickly compared with a range of calculated EACs representing various
risk scenarios.
• When calculating EAC values, the cumulative CPI and SPI values are typically used.
63. 63
While EVM data quickly provide many statistical EACs, only three of the more common methods are
described as follows:-
- EAC forecast for ETC work performed at the budgeted rate. This method accepts the actual project
performance to date (whether favorable or unfavorable) as represented by the actual costs, and predicts that all
future ETC work will be accomplished at the budgeted rate. When actual performance is unfavorable, the
assumption that future performance will improve should be accepted only when supported by project risk
analysis.
Equation:- EAC = AC + (BAC – EV).
- EAC forecast for ETC work performed at the present CPI. This method assumes that what the project has
experienced to date can be expected to continue in the future. The ETC work is assumed to be performed at
the same cumulative (CPI) as that incurred by the project to date.
Equation:- EAC = BAC / CPI.
- EAC forecast for ETC work considering both SPI and CPI factors. In this forecast, the ETC work will be
performed at an efficiency rate that considers both the cost and schedule performance indices. This method
is most useful when the project schedule is a factor impacting the ETC effort. Variations of this method
weight the CPI and SPI at different values (e.g., 80/20, 50/50, or some other ratio) according to the project
manager’s judgment.
Equation:- EAC = AC + [(BAC – EV) / (CPI × SPI)].
64. 64
Example I
You are constructing a house with a budget of 100,000 USD. You are halfway to completion, and you find
that you may have to spend more than you planned. Therefore, you ask a team member to give you a new
estimate for the remaining work.
They calculate the cost of the remaining work and informs you that from now it will take 70,000 USD to
finish building the house.
This 70,000 USD is the Estimate to Complete.
Example II
You are working on a project that is 30% completed.
The Estimate to Complete is the expected cost to complete this 70% of the remaining work
Example III
There is another scenario to calculate the Estimate to Complete.
You are constructing a five-story building and, because of financial issues, you cannot complete the project.
Therefore, you cut your building down from five to three stories to adjust to the budget.
The Estimate to Complete will help you calculate your savings.
There is another forecasting tool that is often confused with the Estimate to Complete. This tool is the Estimate at
Completion (EAC).
Estimate at Completion is the total cost of the project at the end, while the Estimate to Complete is the cost required
to complete the remaining work.
When the project starts, the EAC is equal to the ETC. As the project progresses, the ETC starts decreasing, and at the
end it becomes zero
65. 65
How to Calculate the Estimate to Complete (ETC)
There are two methods.
1.Bottom-up Cost Estimation
2.ETC = Estimate at Completion – Actual Cost
Case I: Bottom-Up Cost Estimation
Here, you calculate the cost of the remaining work. Afterwards, you add them to get the total cost of
the remaining work.
There is no formula for the Bottom-Up Cost Estimation technique.
Example : a project to build a government department’s building for 500,000 $. You have spent 200,000 $ to
date. However, you realize that your cost estimation was flawed, and you need to re-calculate your budget for
the remaining part of the project.
So, we re-estimate the cost of the remaining work. The new estimate is: 125,000$ for construction, 75,000 $
for plumbing, 150,000 $ for painting, and 50,000 $ for other expenditures.
Calculate the Estimate to Complete (ETC)?
(BAC = 500,000 $ , AC = 200,000$ , Construction Cost =125,000 $ , Plumbing Cost = 75,000$
Painting Cost =150,000 $ ,Other expenditures =50,000 $)
You are using Bottom-Up Cost Estimation. You will calculate the cost of each activity/work package, and then
you will add them to get the final figure.
Estimate to Complete = Cost of construction + Cost of plumbing + Cost of painting + Other expenditures
= 125,000 + 75,000 +150,000 + 50,000
= 400,000 USD
66. 66
Case II: ETC = EAC – AC
Finding the Estimate to Complete is straightforward in this case. You will calculate the Estimate at
Completion and then you will subtract the actual cost from it.
Estimate to Complete = Estimate at Completion – Actual Cost
ETC = EAC – AC
There are several ways to calculate the EAC. You can visit my blog post on Estimate at Completion to
calculate the EAC in different cases.
Example : a project with a BAC of 100,000 USD and a duration of 12 months. 6 months have passed, and you have
spent 60,000 USD. Upon closer view, you find that only 40% of the work has been completed. Your project is
expected to perform with the same cost. Find the Estimate to Complete (ETC) for this project?
(Budget at Completion (BAC) = 100,000 USD Actual Cost (AC) = 60,000 USD
Planned Value (PV) = 50% of 100,000 USD = 50,000 USD
Earned Value (EV) = 40% of 100,000 USD = 40,000 USD
To determine the ETC, you need the EAC.
And, EAC = BAC / CPI
Hence, Cost Performance Index (CPI) = EV / AC = 40,000 / 60,000 = 0.67
Estimate at Completion (EAC) = BAC / CPI= 100,000 / 0.67= 149,253
Now, Estimate to Complete (ETC) = EAC – AC= 149,253 – 60,000= 89,253 USD
Hence the Estimate to Complete (ETC) for this project is 89,253 USD.
67. 67
2-4 Reserve analysis. (XI No.25) is used to monitor the status of contingency and management reserves for
the project to determine if these reserves are still needed or if additional reserves need to be requested.
As work on the project progresses, these reserves may be used as planned to cover the cost of risk responses
or other contingencies. Conversely, when opportunities are captured and resulting in cost savings, funds may
be added to the contingency amount, or taken from the project as margin/profit.
If the identified risks do not occur, the unused contingency reserves may be removed from the project budget
to free up resources for other projects or operations.
Additional risk analysis during the project may reveal a need to request that additional reserves be added to
the project budget.
68. 68
4- TO-COMPLETE PERFORMANCE INDEX (TCPI)
TCPI is the calculated cost performance index that is achieved on the remaining work to meet a specified
management goal, such as the BAC or the EAC.
-The equation based on the BAC:
TCPI = (BAC – EV) / (BAC – AC)
-The equation based on the EAC:
TCPI = (BAC – EV) / (EAC – AC)
70. 70
The To Complete Performance Index (TCPI) is the third forecasting tool mentioned in the PMBOK
Guide.
TCPI is a relatively a new term. This excellent tool helps project managers in calculating the future
cost performance of the project. Since the TCPI is a new term and not much research is available,
it often confuses professionals.
So, I am writing a blog post on this topic.
First, I will explain the definition, and then I will show a real-world example. Finally, I will give
mathematical examples using different cases.
I hope that after reading this blog post, you will have a better understanding of the To Complete
Performance Index
To Complete Performance Index (TCPI)
The To Complete Performance Index (TCPI) gives you the future Cost Performance Index. You have to follow
it for the remaining work to complete the project within the budget.
According to the PMBOK Guide:
“TCPI is the calculated Cost Performance Index that is achieved on the remaining work to meet the
specified management goal, such as the BAC or the EAC.”
The To Complete Performance Index is the estimate of the future cost performance that you may need to
complete the project within the approved budget. This budget may be your initial approved budget (BAC),
or a newly calculated on (Estimate at Completion).
You can calculate the TCPI by dividing the remaining work by the remaining funds.
TCPI = (Remaining Work) / (Remaining Funds)
You can calculate the remaining work by subtracting the Earned Value from the total budget.
Remaining Work = Total budget – Earned Value
= (BAC – EV).
You can find the remaining funds in two cases; when you are under budget and when you are over budget.
The To Complete Performance Index formula will be different in both case
71. 71
Let's discuss these two cases.
Case I: You’re Under Budget
Here, you will calculate the remaining funds by subtracting the “actual cost incurred to date” from the “initial
budget”.
The remaining funds = Budget at Completion – Actual Cos = BAC – AC
The TCPI formula will be:
TCPI = (BAC – EV) / (BAC – AC)
Example : You are working on a project to be completed in 24 months. The BAC of the project is 200,000 USD. 12
months have passed, you have spent 110,000 USD, and 60% of the work has been completed.
Find the To Complete Performance Index (TCPI) for this project.
Given in the question:
Budget at Completion (BAC) = 200,000 USD
Actual Cost (AC) =110,000 USD
Planned Value (PV) = 50% of 200,000 = 100,000 USD
Earned Value (EV) = 60% of 200,000= 120,000 USD
Cost Performance Index (CPI) = EV / AC = 120,000 / 110,000= 1.1
Since the Cost Performance Index is 1.1, which is greater than one, you are under budget. Therefore, you will use the
TCPI formula based on the BAC in this case.
TCPI = (BAC – EV) / (BAC – AC) = (200,000 – 120,000) / (200,000 – 110,000)= 80,000 / 90,000 = 0.89
This means that you can continue with a Cost Performance Index of 0.89 to complete the project.
72. 72
Case II: You’re Over Budget
Here, the remaining funds will be calculated by subtracting the actual cost incurred to date from the Estimate at
Completion.
The remaining funds = Estimate at Completion – Actual Cost = EAC – AC
Here, the TCPI will show you the required cost performance to complete the project with the newly calculated
budget.
TCPI= (BAC – EV) / (EAC – AC)
example : You have a project to be completed in 12 months. The budget of the project is 100,000 USD. 6 months have
passed, and you have spent 60,000 USD, but on closer examination, you find that only 40% of the work has been
completed so far.
Find the To Complete Performance Index (TCPI) for this project.
Given in the question:
Budget at Completion (BAC) = 100,000 USD
Actual Cost (AC) = 60,000 USD
Planned Value (PV) = 50% of 100,000 = 50,000 USD
Earned Value (EV) = 40% of 100,000= 40,000 USD
Cost Performance Index (CPI) = EV / AC = 40,000 /60,000= 0.67
Since the Cost Performance Index is less than one, you are over budget. Now you will calculate the new Estimate at
Completion and use a formula based on the EAC.
Estimate at Completion (EAC) = BAC / CPI = 100,000 / 0.67= 149,253.73 USD
73. 73
• A Real World Example of To Complete Performance Index (TCPI)
• Suppose you have a project to paint 10,000 square feet in 10 days. This means you have to paint
1,000 square feet per day.
• When you review your progress halfway through, you find that only 3,000 square feet has been
painted.
• Now, you have five days left and 7,000 square feet yet to be painted. You calculate that you will have
to paint 1,400 square feet per day if you are to complete the task within ten days.
• This must be your future performance to complete the task on time. This future performance is the To
Complete Performance Index (TCPI).
• The Cost Performance Index (CPI) is your past performance, and the TCPI is your future
performance that you must meet to complete the project within the approved budget.
• You can also calculate what will happen if you painted 7,000 square feet to this date. This means that
you now have to paint 3,000 square feet in 5 days. Here, you can paint 600 square feet per day to
complete the task. Which is a more comfortable goal.
• Before concluding this post, let’s revisit a few key points:
•CPI is the past cost performance of the project, and TCPI is the future cost performance of the project.
•You will calculate the TCPI based on the BAC if you are under budget.
•You will calculate the TCPI based on the EAC if you are over budget.
•If the To Complete Performance Index is less than one, you are in a comfortable position.
•You have to perform with a better cost performance than the past cost performance if the To Complete
Performance Index is greater than one.You can continue with the same cost performance if the To
Complete Performance Index is equal to one.
77. 77
•Allows for common understanding of the amount of work that actually has been done
•Allows for objective assessment of variance
•Allows for forecast of future performance
•Is incorporated in ALL major modern project management software packages
•Can be done at the work element, summary or project level
Data Date
•A point in time when the status of the project is recorded.
•The date that is used as the starting point to schedule all remaining work.
•During the Planning phase, the data date should match the project Start date.
80. Example
Wall Construction Time
= 1 week per wall Cost
= SR 1,000 per
wall, materials and labor
T
otal Schedule = 4
weeks
T
otal Cost = IQD 4M
Working days 5 day
per week starting on
Sunday and finish on
Thursday by 5 PM
Assume production is
linear
81. How much work
should have been
completed - PV?
Wall 1 100% = IQD 1M
Wall 2
Wall 3
Wall 4
80% = IQD 800K
0% = 0
0% = 0
BCWS = IQD 1,800 K
5 pm Wednesday, Week 2
PLANNED
82. Total = IQD 1,600K
What is the budgeted
value of actual work -
EV?
Wall 1 100% = IQD 1M
IN-11
Wall 2
Wall 3
Wall 4
50% = IQD 500K
10% = IQD 100K
0% = 0
5 pm Wednesday, Week 2
%
10 %
EARNED
50
84. Earned Value
IQD 1,800 K
IQD 1,600 K
IQD 2,250K
PV
EV
AC
Schedule Variance = EV - PV
= IQD 1,600K - IQD 1,800K
= (IQD 200K)
Cost Variance = EV - AC
= IQD 1,600K - IQD 2,250K
= (IQD 650K)
5 pm Wednesday, Week 2
85. 5 pm Wednesday, Week 2
Performance Indices
PV
EV
AC
IQD 1,800k
IQD 1,600 k
IQD 2,250k
SPI = EV / PV
= IQD 1,600k / IQD 1,800k
= .9
CPI = EV / AC
= IQD 1,600k / IQD 2,250k
= .7
86. Case 1
This is the ideal situation, where
everything goes according to plan.
1
PV EV AC
Series1 1,860 1,860 1,860
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-
2,000
Axis
Title
Chart Title
87. 1,600
PV AC
In this Case, without Earned Value measurements, it
appears we’re in good shape. Expenditures are less
than planned.
Spending Variance = - $ 200
1,900 1,700
1,950
1,900
1,850
1,800
1,750
1,700
1,650
Case 2
2-A
88. -
PV EV AC
This is the worst kind of scenario, where all performance indicators are
negative.
SV = - $ 400; SPI =
0.79 CV = - $ 200; CPI =
0.88
Case 2 (cont.)
1,900 1,500 1,700
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
2-B
IN-17
89. EstimateAt Completion (EAC)
▪ This is the baseline cost of the total
project.
▪ How much we planned to spend by the time
we finished.
• Example
• After 4 months, we have completed
Activity 1 and 50% ofActivity 2
• The projectcosts at this point in time are
• $29,000.
• The total project budget is $100,000. The
BudgetAt Completion is $100,000.
BudgetAt Completion (BAC)
Based on where we are now, how much
will itcost when the project is done?
The answer depends on whether your past
performance is a good indicator of expected
future performance.
90. • Forecasting: Project team may develop a forecast for the estimate at
completion (EAC) that may differ from the budget at completion (BAC).
Forecasts are generated updated, and reissued based on work performance
data. And work performance information covers the project’s past
performance and any information that could impact the project in the future.
• Most common EAC forecasting approach is a manual, bottom-up summation
• Bottom-up EAC builds upon the actual costs and experience incurred for the
work completed, and requires a new estimate to complete the remaining
project work
• Manual EAC is quickly compared with a range of calculated EACs representing
various risk scenarios. Manual forecast more accurate to determine remaining
works When calculating EAC the most common methods are
EAC forecast for ETC work performed at the budgeted rate
EAC forecast for ETC work performed at the present CPI
EAC forecast for ETC work considering both SPI and CPI factors
90
91. Method 1
➢ If we know that we can finish the
rest of the work as it was originally
planned …
➢ Use actual to-date plus budgeted
amount for the rest of the work
➢ EAC =AC + (BAC – EV)
= $29,000 +($100,000-$24,000)
=$105,000
Estimate At Completion Calculation Methods
• Method 2
➢ If the original estimates were
flawed, we should build new
estimates for all the remaining
work …
➢ ETC is the Estimate to Complete
the remaining work.
➢ EAC =AC + ETC =
• =$29,000+ $120,000
• . =$149,000
92. ØWe will consider both CPI and SPI ,
this method is most useful when the
project schedule is a factor impacting
the ETC effort
ØEAC = AC + (BAC –EV)
(CPI x SPI )
Estimate At Completion Calculation Methods
➢ If we assume that past
performance is a good indicator of
future performance
➢ Use actual to-date plus budgeted
amount for the rest of the work,
modified by a performance factor,
such as CPI
➢ EAC = AC + (BAC –EV)
(CPI )
➢ EAC = BAC/CPI
= $100,000/0.83
= $120,481 (rounded off)
Method 3 Method 4
93. EXAMPLE 1
Given:
BAC = 200
ACc = 120
EVc = 80
CPIc = 0.666
Assuming that current variances are
atypical , the estimate at completion
(EAC) is:
A. 120.
B. 160.
C. 200.
D. 240.
94. EXAMPLE 2
Given:
BAC = 200
ACc = 120
EVc = 80
CPIc = 0.666
Assuming that current variances are
typical of future variances, the
estimate at completion (EAC) is:
A. 220.
B. 260.
C. 300.
D. 320.
95. • Reserve Analysis: reserve analysis is used to monitor the status of
contingency and management reserves for the project to determine if these
reserves are still needed or if additional reserves need to be requested.
• These reserve may be used as planned to cover cost of risk response.
Conversely, when opportunities are captured and resulting in cost savings,
funds may be added to the contingency amount, or taken from the project as
margin/profit.
• 3- To-Complete Performance Index (TCPI)
• Measure of the cost performance (CPI) that is required to be achieved with
the remaining resources in order to meet a specified management goal
expressed as the ratio of the cost to finish the outstanding work to the
remaining budget
• If it becomes obvious that the BAC is no longer viable, the project manager
should consider the forecasted EAC. Once approved, the EAC may replace the
BAC in the TCPI calculation.
95
96. 96
4- Project Management Information System (PMIS)
The efficiency that must be maintained in order to complete the current EAC.
TCPI = (BAC – EV)/(EAC – AC)
PROJECT MANAGEMENT INFORMATION SYSTEM (PMIS)
03
TCPI > 1.0 Harder to complete
TCPI = 1.0 Same to complete
TCPI <1 .0 Easier to complete
97. 7.4 Control Costs Output
1- Work Performance Information
Includes information on how the project work is performing compared to the cost baseline
Variances in the work performed and the cost of the work are evaluated at the work
package level and control account level
projects using earned value analysis, CV, CPI, EAC, VAC, and TCPI are documented for
inclusion in work performance reports
2- Cost Forecasts
Either a calculated EAC value or a bottom-up EAC value is documented and
communicated to stakeholders
3- Change Requests
4- Project Management Plan Updates
Includes (Cost management plan, Cost baseline and Performance measurement
baseline)
5- Project Document Updates
Includes (Assumption log, Basis of estimates, Cost estimates, Lessons learned register
and Risk register)
99. Earned Value Management
Assume 4 equal sides, budget 200$ per side, schedule 1 side per day.
Finish 4 days & cost 800$.
Day1: side 1 complete, budget of 200$ spent.
Day2: side 2 started but not complete, Incurred cost will be 220$
Day3: side 2 completed, and half of side 3 completed but team left early
and only spent 140$
Where we are now? Ahead or Behind
Exercise
