"The process of monitoring the status of the project to update project costs and managing changes to he cost baseline."
The definition shown above in italics is 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
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
Change Control System for Cost
Project cost control requires:
Earned Value Analysis (or Earned Value Management (EVM) is an important way to control costs
Questions from the Sponsor:
Planned Value = the estimated cost of what we planned to do at report point
Total PV = BAC = PMB (Performance Measurement Baseline)
Earned Value = the estimated cost of the work that was done at report point = PV x progress
Actual Costs = Realised costs incurred for the work performed
If we were to look at the EV at point of measurement in the image below, this shows we are behind schedule.
SV = EV - PV
CV = EV - AC
Schedule performance index
SPI = EV / PV
Cost performance index
CPI = EV / AC
Cost variance - The difference between earned value and actual costs incurred.
Example: Calculating schedule variance for a University Campus Build project.
Nothing, there is no earned value line and we cannot determine the project status
Our Project has:
EAC = as of today, how much do we expect the project to cost?
ETC = how much more do we estimate the project to cost from today?
VAC = the difference between original total costs and new forecast total costs
Estimate At Completion
What do we currently forecast the total project to cost
4 formulae for different situations:
1. If we are 80% efficient and we don't know what the problem is, then we use this formula i.e. will carry on at 80% efficiency:
EAC = BAC / cumulative CPI = BAC/CPI
The word cumulative is used to denote the value at this point in time i.e. cumulative up to now.
2. If we are 80% efficient and we know what the problem is then we return to the budgeted rate and use this formula
EAC = AC + (BAC – EV)
3. If past assumptions are faulty then the PM or project team have no confidence in the original estimate for remaining work
EAC = AC + new bottom up estimate
4. This is used in special cases; considers both SPI and CPI.
There is an assumption that the project is over budget (negative cost performance) and the schedule has a completion deadline
ETC - Estimate to Complete is
Based on actual costs of work performed to date, need to calculate cost of work remaining
If things have not been going to plan (behind schedule and over budget) will/should the actual costs be used?
This formula covers all of the 4 EAC situations:
VAC - Variance at Completion is:
How different will the outturn budget be from the original forecast
What level of efficiency is required to be obtained, from the resources, for the remainder of the project
The performance level we should use from this point to get the project back to BAC (or EAC):
VAC = BAC – AC
EV = BAC
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