EVM in Cost Control - Presentation

8/23/2015
Project Cost Management
7.4 COST CONTROL
2014 3FOLD Education Centre . All rights reserved . contact@pmexamstudy.com . www.pmexamstudy.com . www.3foldtraining.com . PMP Exam Review
7.4 Control Costs

Control Costs is the process of monitoring the status of
the project to update the project costs and managing
changes to the cost baseline. *
The key benefit of this process is that it provides the
means to recognize variance from the plan in order to
take corrective action and minimize risk. *
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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7.4 Control Costs
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifth Edition, Project Management Institute, Inc., 2013, Figure 7-10, Page 215
Control Costs: Inputs

1.
2.
3.
4.
Project Management Plan

Project Funding Requirements
Work Performance Data
Organizational Process Assets
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Control Costs : T&T

1.
2.
3.
4.
5.
6.
Earned Value Management

Forecasting
To-complete Performance Index (TCPI)
Performance Reviews
Project Management Software
Reserve Analysis
Control Costs : T&T

1. Earned Value Management
EVM develops and monitors three key dimensions for each
work package and control account:
Planned value
Actual cost
Earned Value
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Planned Value
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 component, not
including management reserve.
This budget is allocated by phase over the life of the project, but at a
given moment, 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). The total planned value for the
project is also known as budget at completion (BAC).
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Actual Cost
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).
The AC will have no upper limit; whatever is spent to achieve
the EV will be measured.
Earned Value
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.
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.
Project managers monitor EV, both incrementally to determine
current status and cumulatively to determine the long-term
performance trends.
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Earned Value
Earned Value = % completed x Budget

Progress measurement technique measures the percent
complete which will assist in calculating the earned value. The
budget is the budgeted cost of the measured component
which could be a work package, control account, or the
project.
Progress Measurement
Units completion, Start/Finish, Incremental
Milestone, Supervisor Opinion, Cost Ratio and
Equivalent Units/Weighted Average
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Units Completion
Formula

x 100
Start/Finish (Fixed Formula)
30%
Start
70%
Finish
This method is applicable to tasks that lack readily definable

intermediate milestones or those for which the effort/time
required is very difficult to estimate.
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Incremental Milestone
This method is applicable

to any control account that includes subtasks
that must be handled in sequence.
Supervisor Opinion
In this method, the supervisor

simply makes a judgment of percent
complete.
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Cost Ratio
This method is applicable to tasks that involve a long
period of time or that are continuous during the life of a
project, and which are estimated and budgeted on bulk
allocations of dollars and work hours rather than on the
basis of production.
Weighted or Equivalent Units

This method is applicable when the task being controlled
involves a long period of time and is composed of two or
more overlapping subtasks, each with a different unit of
work measurement.
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Equivalent Units - Example
Performance Measurement
Cost Variance, Cost Performance Index,
Schedule Variance, Schedule Performance
Index
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Earned Value Calculation
Calculate BAC, PV, AC and EV
Schedule Plan
Schedule: To complete the work in 4 weeks
work is equally distributed
Wall 2
Wall 4
Budgeted Cost
USD 10000 / wall
Wall 1
Status at the end of week 3

Wall 1 100% - $ 12000
Wall 2 100% - $ 13000
Wall 3 50% - $ 7000
Wall 4 0% - $ 0
Wall 3
Solution
Work Package Planned Value
Actual Cost
Progress
Earned Value
Wall 1
10000
12000
100 %
10000
Wall 2
10000
13000
100 %
10000
Wall 3
10000
7000
50 %
5000
Wall 4
10000
0%
Total
40000
32000
25000
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Definitions
Cost Variance (CV). The amount of budget deficit or
surplus at a given point in time, expressed as the
difference between the earned value and the actual
cost.*
Schedule Variance (SV). A measure of schedule
performance expressed as the difference between the
earned value and the planned value.*
Definitions
Cost Performance Index (CPI). A measure of the cost
efficiency of budgeted resources expressed as the ratio of
earned value to actual cost.*
Schedule Performance Index (SPI). A measure of
schedule efficiency expressed as the ratio of earned value
to planned value.*
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Performance Measurement
Cost Performance
Cost Variance
Cost Performance Index
Earned Value Actual Cost
Positive = Under planned cost

Neutral = On planned cost
Negative = Over planned cost
Greater than 1.0 = Under planned cost

Exactly 1.0 = On planned cost
Less than 1.0 = Over planned cost
Schedule Performance
Schedule Variance
Schedule Performance Index
Earned Value Planned Value
Positive = Ahead of Schedule

Neutral = On schedule
Negative = Behind Schedule
Greater than 1.0 = Ahead of schedule

Exactly 1.0 = On schedule
Less than 1.0 = Behind schedule
Cost Performance
Cost Variance
Cost Performance Index
25000 32000 = (7000)
25000 / 32000 = 0.781
Schedule Performance
Schedule Variance
Schedule Performance Index
25000 30000 = (5000)
25000 / 30000 = 0.833
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Control Costs : T&T

2. Forecasting
An estimate or prediction of conditions and events in the
projects future based on information and knowledge available
at the time of the forecast.
The information is based on the projects past performance
and expected future performance, and includes information
that could impact the project in the future, such as estimate at
completion and estimate to complete.
Definitions
Estimate at Completion (EAC). The expected total cost of
completing all work expressed as the sum of the actual
cost to date and the estimate to complete.*
Estimate to Complete (ETC). The expected cost to finish
all the remaining project work.*
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Estimate At Completion
EAC
EAC
AC + (BAC EV)
CPI is expected to be the same for the

remainder of the project
Future work will be accomplished at the

planned rate
EAC
EAC
AC +
( )
( )
CPI and SPI influence the remaining work
AC + Bottom up ETC
Initial plan is no longer valid
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Estimate At Completion
EAC
EAC
= 51216
.
32000 + (40000 25000) = 47000
CPI is expected to be the same for the remainder of the

project
Future work will be accomplished at the planned rate
EAC
EAC
32000 +
( )
(. .)
32000 + Bottom up ETC
= 55055
CPI and SPI influence the remaining work
Initial plan is no longer valid
Estimate To Complete
ETC
ETC
EAC AC
Assumes work is proceeding on plan.
Re-Estimate
Re-estimate the remaining work from the
bottom up.
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Estimate To Complete
ETC
ETC
51216 32000 = 19216

CPI is expected to be the same for the remainder of the project.
Assumes work is proceeding on plan.
Re-Estimate
Re-estimate the remaining work from the
bottom up.
Control Costs : T&T

3. To-complete Performance Index (TCPI)
A measure of the cost performance 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.*
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To Complete Performance Index

TCPI
TCPI
(BAC EV)/(BAC AC)
The efficiency that must be maintained in

order to complete on plan.
(BAC EV)/(EAC AC)

order to complete the current EAC.

TCPI
TCPI
(BAC EV)/(BAC AC)
(BAC EV)/(EAC AC)
(40000-25000) / (40000-32000)
(40000-25000) / (51216-32000)
1.875
0.781

order to complete on plan.

order to complete the current EAC.
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Control Costs : T&T

4. Performance Reviews
Performance reviews compare cost performance over time,
schedule activities or work packages overrunning and
underrunning the budget, and estimated funds needed to
complete work in progress.*
Variance At Completion
VAC
BAC EAC
40000 51216 = (11216)
The estimated difference in cost at the completion of the project.
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Definition
Variance at Completion (VAC). A projection of the
amount of budget deficit or surplus, expressed as the
difference between the budget at completion and the
estimate at completion.*
Control Costs : Outputs

1. Work Performance Information
The calculated CV, SV, CPI, SPI, TCPI, and VAC values for WBS components, in particular
the work packages and control accounts, are documented and communicated to
stakeholders.*
2. Cost Forecasts
3.
4.
5.
6.
Either a calculated EAC value or a bottom-up EAC value is documented and

communicated to stakeholders.*
Change Requests
Project Management Plan Updates
Project Documents Updates
Organizational Process Assets Updates
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8/23/2015
END OF CHAPTER 7
PROJECT COST MANAGEMENT
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8/23/2015

Project Cost Management

7.4 COST CONTROL

7.4 Control Costs

7.4 Control Costs

Control Costs: Inputs

Project Management Plan

Control Costs : T&T

Earned Value Management

Control Costs : T&T

Earned Value = % completed x Budget

Start/Finish (Fixed Formula)

This method is applicable to tasks that lack readily definable

This method is applicable

In this method, the supervisor

Weighted or Equivalent Units

Equivalent Units - Example

Earned Value Calculation

Calculate BAC, PV, AC and EV

Status at the end of week 3

Cost Performance Index

Earned Value Actual Cost

Positive = Under planned cost

Greater than 1.0 = Under planned cost

Schedule Performance Index

Earned Value Planned Value

Positive = Ahead of Schedule

Greater than 1.0 = Ahead of schedule

Cost Performance Index

25000 32000 = (7000)

25000 / 32000 = 0.781

Schedule Performance Index

25000 30000 = (5000)

25000 / 30000 = 0.833

Control Costs : T&T

CPI is expected to be the same for the

Future work will be accomplished at the

CPI and SPI influence the remaining work

32000 + (40000 25000) = 47000

CPI is expected to be the same for the remainder of the

Future work will be accomplished at the planned rate

32000 + Bottom up ETC

CPI and SPI influence the remaining work

Initial plan is no longer valid

Assumes work is proceeding on plan.

51216 32000 = 19216

Assumes work is proceeding on plan.

Control Costs : T&T

To Complete Performance Index

To Complete Performance Index

The efficiency that must be maintained in

(BAC EV)/(EAC AC)

To Complete Performance Index

(BAC EV)/(EAC AC)

The efficiency that must be maintained in

The efficiency that must be maintained in

Control Costs : T&T

Control Costs : Outputs

Either a calculated EAC value or a bottom-up EAC value is documented and

PROJECT COST MANAGEMENT

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