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1,000

1,200

Advantages and disadvantages exist for each formula. Formula I assumes that the burn rate (i.e., ACWP/BCWP) will be the same for the remainder of the project. This is the easiest formula to use. The burn rate is updated each reporting period.

Formula II assumes that all work packages not yet opened will be completed at the planned cost. However, it is possible for planned cost to be revised based upon history from completed work packages.

Formula III assumes that all remaining work is independent of the burn rate incurred thus far. This may be unrealistic unless all remaining work can be reestimated if necessary.

Other techniques are available for determining final completion costs.6 The value of the technique selected is based upon the dollar value of the project, the risk, the quality of the cost accounting system, and the accuracy of the estimates. The estimating techniques here use only labor costs. Material costs can be added into each equation to obtain total cost.

Thirteen cases for comparing planned versus actual performance are shown in Table 15-6. Each case is described below using the relationships:

• Cost variance = actual earned value - actuals

• Schedule/performance variances = actual earned value - planned earned value

Case 1: This is the ideal planning situation where everything goes according to schedule. Case 2: Costs are behind schedule, and the program appears to be underrunning. Work is being accomplished at less than 100 percent, since actuals exceed AEV (or BCWP). This indicates that a cost overrun can be anticipated. This situation

6. W. Q. Fleming and J. M. Koppelman, "Forecasting the Final Cost and Schedule Results," PM Network, January 1996, pp. 13-18.

grows even worse when we see that we are also 50 percent behind schedule. This is one of the worst possible cases. Case 3: In this case there is good news and bad news. The good news is that we are performing the work efficiently (efficiency exceeds 100 percent). The bad news is that we are behind schedule. Case 4: The work is not being accomplished according to schedule (i.e., is behind schedule), but the costs are being maintained for what has been accomplished. Case 5: The costs are on target with the schedule, but the work is 25 percent behind schedule because the work is being performed at 75 percent efficiency. Case 6: Because we are operating at 125 percent efficiency, work is ahead of schedule by 25 percent but within scheduled costs. We are performing at a more favorable position on the learning curve. Case 7: We are operating at 100 percent efficiency and work is being accomplished ahead of schedule. Costs are being maintained according to budget. Case 8: Work is being accomplished properly, and costs are being underrun. Case 9: Work is being accomplished properly, but costs are being overrun. Case 10: Costs are being overrun while underaccomplishing the plan. Work is being accomplished inefficiently. This situation is very bad. Case 11: Performance is ahead of schedule, and the costs are lower than planned. This situation results in a big Christmas bonus. Case 12: Work is being done efficiently, and a possible cost overrun can occur. However, performance is ahead of schedule. The overall result may be either an overrun in cost or an underrun in schedule. Case 13: Although costs are greater than those budgeted, performance is ahead of schedule, and work is being accomplished very efficiently. This is also a good situation.

In each of these cases, the concept of earned value was used to predict trends in cost and variance analysis. This method has its pros and cons.

Each of the critical variances (or earned values) identified usually requires a formal analysis to determine the cause of the variance, the corrective action to be taken, and the effect on the estimate to completion. These analyses are performed by the organization that was assigned the budget (BCWS) at the level of accumulation directed by program management.

Organization-Level Each critical variance identified on the organizational MCCS reports

Analysis may require the completion of MCCS variance analysis procedures by the supervisor of the cost center involved. Analyzing both the work breakdown and organizational structure, the supervisor systematically concentrates his efforts on cost and schedule problems appearing within his organization.

Analysis begins at the lowest organizational level by the supervisor involved. Critical variances are noted at the cost account on the MCCS report. If a schedule variance is involved and the subtask consists of a number of work packages, the supervisor may refer to a separate report that breaks down each cost account into the various work packages that are ahead or behind schedule. The supervisor can then analyze the variance on the basis of the work package involved and determine with the aid of supporting organizations the cause of the variance, the corrective action that can be taken, or the possible effect on associated or future planned effort.

Cost variances involving labor are analyzed by the supervisor on the basis of the performance of his organization in accomplishing the work assigned, within the budgeted man-hours and planned labor rate. The cause of any variance to this performance is determined, and corrective action is then implemented.

Cost variances on nonlabor efforts are analyzed by the supervisor with the aid of the program team member and other supporting organizations.

All material variance analyses are normally initiated by cost accounting as a service to the using organization. These variance analyses are completed, including cause and corrective action, to the extent that can be explained by cost accounting. They are then sent to the using organization, which reviews the analyses and completes those resulting from schedule performance or usage. If a variance is recognized as a change in the material acquisition price, this information is supplied by cost accounting to the responsible organization and a change to the estimate-to-complete is initiated by the using organization.

The supervisor should forward copies of each completed MCCS variance analysis/EAC change form to his higher-level manager and the program team member.

Program Team Analysis The program team member may receive a team critical variance report that lists variances in his organization at the lowest level of the work breakdown structure at the division cost center level by cost element. Upon request of the program manager, analyses of variances contributing to the variances on the team critical variance report are summarized by the responsible program team member and reviewed with the program manager.

The preparation of status reports, whether they be for internal management or for the customer, should, at a minimum, answer two fundamental questions:

• Where are we today (with respect to time and cost)?

• Where will we end up (with respect to time and cost)?

The information necessary to answer these questions can be obtained from the following formulas:

• Cost variances (in dollars/hours and percent complete)

• Schedule variances (in dollars/hours and percent complete)

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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