Project Cost Management
Cost Control
Cost control is concerned with ;
a) Influencing the factors that create changes to
the cost baseline to ensure that changes are
agreed upon,
b) Determining that the cost baseline has
changed,
c) Managing the actual changes when and as
they occur.
Cost control includes:
Monitoring cost performance to detect and
understand variances from plan.
Ensuring that all appropriate changes are
recorded accurately in the cost baseline.
Preventing incorrect, inappropriate, or
unauthorized changes from being included in
the cost baseline.
Informing appropriate stakeholders of
authorized changes.
Cost controlling processes
Tools & Techniques
Earned value analysis
Earned value analysis in its various forms is the most
commonly used method of performance measurement.
integrates scope, cost (or resource), and schedule
measures to help the project management team assess
project performance.
Earned value (EV) involves calculating three key values for
each activity:
The Planned Value (PV), which is also called the budgeted
cost of work scheduled (BCWS), is that portion of the
approved cost estimate planned to be spent on the activity
during a given period.
The Actual Cost (AC), previously called the actual cost of
work performed (ACWP), is the total of costs incurred
in accomplishing work on the activity during a given
period.
The EV, previously called the budgeted cost of work
performed (BCWP), is the value of the work actually
completed.
Variance thresholds can be established that define the level
at which reports must be sent to various levels of
management within an organization.
Cost Variance = BCWP - ACWP
Schedule Variance = BCWP - BCWS
Variance: Any deviation from plan
The cost performance index (CPI = EV/AC) is the most
commonly used cost-efficiency indicator.
The cumulative CPI (the sum of all individual EV budgets
divided by the sum of all individual ACs) is widely used to
forecast project costs at completion.
Expressions in Earned Value Analysis
Performance measures Schedule
SV>0& SPI>1.0 SV=0&SPI=1.0 SV<0 &SPI<1.0
CV>0 & CPI>1 Ahead of schedule On schedule Behind schedule
Under budget
Cost Under budget Under budget
CV=0 & CPI=1.0 Ahead of schedule On schedule Behind schedule
On budget On budget On budget
CV<0 & CPI<1.0 Ahead of schedule On schedule Behind schedule
Over budget Over budget Over budget
The Comparison between planned and earned values
provides work accomplishment or project
performance in terms of cost and time variances
Schedule Cost Performance R
Performance Index Index A
T
I
O
BCWS BCWP ACWP
V
A
R
I
Schedule Cost
A
Variance Variance
N
C
E
COST CONTROL(EVA)
COST CONTROL(EVA)
Name Formula Interpretation
Cost Variance (CV) EV – AC NEGATIVE is over budget,
POSITIVE is under budget
Schedule Variance (SV) EV – PV NEGATIVE is behind schedule,
POSITIVE is ahead of schedule
Cost Performance Index EV / AC I am [only] getting _____ cents out of every
(CPI) $1.
Schedule Performance EV / PV I am [only] progressing at ___% of the rate
Index (SPI) originally planned.
Estimate At Completion As of now how much do we expect the total
(EAC) project to cost $_____.
Note: There are many AC + ETC • Actual plus a new estimate for remaining
ways to calculate EAC. work. Used when original estimate was
fundamentally flawed.
AC + BAC – EV • Actual to date plus remaining budget. Used
when current variances are not atypical.
AC + (BAC – EV) / CPI • Actual to date plus remaining budget
modified by performance. When current
variances are typical
Estimate To Complete EAC – AC How much more will the project cost?
(ETC)
Variance At Completion BAC – EAC How much over budget will we be at the end
(VAC) of the project?
Project cost control: the EVA
Status date Planned comp. Actual
date comp.date
EAC
Over budget VAC
cash flow
BAC ACWP=AV ETC
BCWS=PV
CV SV=EV-PV
Forecast time CV=EV-AV
overrun
BCWP=EV CPI=EV/AV
SPI=EV/PV
SV Time
COST CONTROL(EVA)
Time period 1 2 3 4 Total
Work Scheduled ($) 25 25 25 25 100
[Planned Value (PV)]
Accomplished Value ($) 20 20 20 20 80
[Earned Value (EV)]
Actual Cost ($) 22 20 25 25 92
[Actual Cost (AC)]
Schedule Variance (SV) -5 -5 -5 -5 -20 i.e 20%
[SV = EV – PV]
Cost Variance (CV) -2 0 -5 -5 -12 i.e 12%
[CV = EV – AC]
Project management question EVM performance measures
How are we doing cost wise? Cost analysis & forecasting
o Are we under or over our o Cost variance (CV)
budget?
o How efficiently are we using our o Cost performance index (CPI)
resource?
o How efficiently must we use our o To complete performance index
remaining resource? (TCPI)
o What is the project likely to cost? o Estimate at completion (EAC)
o Will we be under or over budget? o Variance at completion (VAC)
o What will the remaining work o Estimate to complete (ETC)
cost?
How are we doing time wise? Schedule analysis & forecasting
o Are we ahead or behind o Schedule variance (SV)
schedule?
o How efficiently are we using o Schedule performance
time? index(SPI)
o When are we likely to finish o Time estimate at completion
work? (EACt)
Benefits of EVMS
1. It is a single management control system that provides reliable
data.
2. It integrates work, schedule and cost using a work breakdown
structure (WBS).
3. The associated database of completed projects is useful for
comparative analysis.
4. The cumulative cost performance index (CPI) provides an early
warning signal.
5. The schedule performance index (SPI) provides an early
warning signal.
6. The CPI is a predictor for the final cost of the project.
7. It uses an index-based method to forecast the final cost of the
project.
8. The periodic (e.g. weekly or monthly) CPI is a benchmark.
EVM Calculation
Thank you
