Introducing Project Cost Management - Measuring Project Performance

15 important questions on Introducing Project Cost Management - Measuring Project Performance

What is the basic feature of Earned Value Management?

It is a system of mathematical formulas that compare work performed against work planned and measures the actual costs of the work performed.

What three formulas are important for EVM?

  • Planned Value - the work scheduled and the budget allocated for to accomplish that work (aka performance measurement baseline)
  • Earned Value - the work completed to date and the authorized budget for that work (EV= % complete * BAC)
  • Actual Cost - the actual amount of monies the project has required to date

How do we know whether there will be  a budget variance at the end of the project?

We need to measure the difference between the Budget At Completion (BAC) and the actual cost (AC) to determine whether there is any variance (the actuals being different from what is planned or expected)
  • Higher grades + faster learning
  • Never study anything twice
  • 100% sure, 100% understanding
Discover Study Smart

How do we calculate cost variance (CV)?

CV = EV - AC (the difference between earned value and the actual costs)

How do we calculate schedule variance (SV)?

The schedule variance is the difference between where the project was planned to be at a certain point in time (EV) and where the project actually is (PV).  SV = EV - PV

What is the CPI and how do we calculate the CPI?

  • It shows the amount of work the project is completing per dolar spent on the project. CPI = EV / AC
  • It shows how the project costs are performing.

What is the EAC? And how do we calculate the EAC?

It is a hypothesis of what the total cost of the project will be, the estimate at completion. During the project some variances between estimates and actual costs will occur. The EAC is based on experiences in the project so far.

(EAC = BAC/ CPI = BAC / (EV/AC) = BAC * AC / EV = BAC * AC / BAC * % Compl = AC / % Compl. )

What is a different way of calculating the EAC, beyond the CPI?

  • By looking at the actual costs, the budget at completion and the earned value
  • EAC = AC + BAC - EV , where BAC - EV is the expected costs for the remainder of the project

When the project has large swings on the cost and schedule variances, what would be the best way to calculate the EAC?

  • By the windy formula EAC = AC + (BAC - EV) / (CPI x SPI)
  • Incorporating both the SPI and CPI to calculate the EAC

What value do we use for accounting for flawed estimates?

A news estimate needs to be provided for the completion of the project work. This will be the ETC.

What do we mean with sunk costs?

These are the costs that have already been made on a project. These costs should never be included in an evaluation whether the project should continue or not.

What value do we use for ETC when accounting for anomalies?

  • When events happen for which we don't expect them to happen again, the ETC should be calculated by ETC = BAC - EV

What value do we use for ETC when accounting for typical variances?

  • When existing variances in the project are expected to be typical of the remaining variances in the project
  • ETC in these instances needs to be calculated by:
  • ETC = (BAV - EV) / CPI

What do we mean with the TCPI? what is the formula?

  • The To Complete Performance Index
  • It forecasts the likelihood of a project to achieve it's goals based on what's happening in the project right now
  • If you want to check whether your project can meet the budget at completion: TCPI = (BAC - EV) / (BAC - AC)
  • If you want to check whether your project can meet the newly created estimate at completion: TCPI = (BAC - EV) / (EAC -AC)
  • Any result greater than 1 means that you have to more efficient than you planned to achieve the BAC or EAC.
  • <1 is good
  • > 1 is worriesome

What are the 5 EVM formula rules?

  1. Always start with the EVM
  2. Variance means subtraction
  3. Index means division
  4. Less than 1 is bad in an index (apart from the TCPI)
  5. Negative is bad in a variance

The question on the page originate from the summary of the following study material:

  • A unique study and practice tool
  • Never study anything twice again
  • Get the grades you hope for
  • 100% sure, 100% understanding
Remember faster, study better. Scientifically proven.
Trustpilot Logo