Figure 9.4 BCWS Versus ACWP

Figure 9.5 Comparison of BCWS, ACWP and Budgeted Cost of Work Performed (BCWP)

BCWS (Budgeted)

Figure 9.5 Comparison of BCWS, ACWP and Budgeted Cost of Work Performed (BCWP)

Cost Variance (CV) = BCWP - ACWP = $6,000 - $8,000 = ($2,000)

The negative $2,000 CV is an important metric because it tells us that we have spent $8,000 in order to achieve $6,000 worth of work. Earned value indicators, such as cost variance, can be either positive or negative. As you can see from above, a negative variance indicates that the project is over budget and/or behind schedule. Unless appropriate action is taken to get the project on track, you might have to increase the budget or reduce the project's scope. Conversely, a positive variance indicates that the project is ahead of schedule andVor under budget.

Often these cost overruns do not correct themselves and actually get worse as the project proceeds (Fleming and Koppelman 1996), In fact, if things continue as they are in our example, we can determine how much the project will really end up costing. You planned on spending $40,000, but given how things are going, is this still realistic? To answer this question, we compute a cost performance index (CPI) as follows:

Cost Performance Index (CPI) = BCWP + ACWP

A CPI of .75 tells us that for every dollar we spent, only $0.75 was really completed, In addition, we can also see the impact on the project's schedule by taking a look at the schedule variance, which shows the difference, in terms of cost, between the current progress and our originally scheduled progress.

Schedule Variance (SV) = BCWP - BCWS — $6,000 - $10,000 = ($4,000)

Using this information, we can create a schedule efficiency metric, A schedule performance index (SPI) can be computed as follows:

Schedule Performance Index (SPI) = BCWP - BCWS

The SPI provides a ratio of the work performed to the work scheduled. Therefore, for every $1.00 of work that was expected to be completed, only $0.60 was accomplished. These earned value metrics, such as the cost performance index (CPI) and the schedule performance index (SPI), can be greater than 1 or less than 1. A CPI or SPI ratio greater than I indicates that the project is ahead of schedule and/or under budget. On the other hand, a CPr or SPI that is less than 1 indicates that the project is behind schedule and/or over budget.

We can determine the minimum cost for this project by dividing the total budget by the CPI.

Minimum Funds Needed = Original Total Budget - CPI

If nothing changes (i.e., the project's performance does not get any better or any worse), it appears that the project will end up costing over $13,000 more than

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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