Cost monitoring

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Hxpenditure monitoring is an important component of project control. Not only in itself, but also because it provides an indication of the effort that has gone into (or at least been charged to) a project. A project might be on time but only because more money has been spent on activities than originally budgeted. A cumulative expenditure chart such as that shown in Figure 9.9 provides a simple method of comparing actual and planned expenditure. By itself it is not particularly meaningful - Figure 9.9 could, for example, illustrate a project that is running late or one that is on time hut has shown substantial costs savings! We need to take account of the current status of the project activities before attempting to interpret the meaning of recorded expenditure.

Project costs may be monitored by a company's accounting system. By themselves, they provide little information about project status.

Tracking And Monitoring Expenditures

Figure 9.9 Tracking cumulative expenditure.

Time (weeks)

Figure 9.9 Tracking cumulative expenditure.

Cost charts become much more useful if we add projected future costs calculated by adding the estimated costs of uncompleted work to the costs already incurred. Where a computer-based planning tool is used, revision of cost schedules is generally provided automatically once actual expenditure has been recorded. Figure 9.10 illustrates the additional information available once the revised cost schedule is included - in this case it is apparent that the project is behind schedule and over budget.

9.6 Earned Value

Earned Value Analysis, also known as Budgeted Cost of Work Performed, is recommended by a number of agencies including the US and Australian departments of defence. It is also recommended in BS 6079.

Earned Value Analysis has gained in popularity in recent years and may be seen as a refinement of the cost monitoring discussed in the previous section. Earned Value Analysis is based on assigning a 'value' to each task or work package (as identified in the WBS) based on the original expenditure forecasts. The assigned value is the original budgeted cost for the item and is known as the baseline budget or budgeted cost of work scheduled (RC WS). A task that has not started is assigned the value zero and when it has been completed, it. and hence the project, is credited with the value of the task. The total value credited to a project at any point is known as the earned value or budgeted cost of work performed (BCWP) and this can be represented as a value or as a percentage of the BCWS.

Original total cost

Time (weeks)

Revised total cost

Revised estimate ^

Original total cost

Project costs augmented by project monitoring can be used to generate forecasts of future costs.

Figure 9.10 The cumulative expenditure chart can also show revised estimâtes of cost and completion date.

Where tasks have been started but are not yet complete, some consistent method of assigning an earned value must be applied. Common methods in software projects are:

• the 0/100 technique Where a task is assigned a value of zero until such time that it is completed w hen it is given a value of I00*£ of the budgeted value;

• the 50/50 technique Where a task is assigned a value of 50% of its value as soon as it is started and then given a value of I00# once it is complete;

• the milestone technique Where a task is given a value based on the achievement of milestones that have been assigned values as part of the original budget plan.

Of these, we prefer the 0/100 technique. The 50/50 technique can give a false sense of security by over-valuing the reporting of activity starts. The milestone technique might be appropriate for activities w ith a long duration estimate but. in such cases, it is better to break that activity into a number of smaller ones.

The baseline budget

The first stage in setting up an earned value analysis is to create the baseline budget. The baseline budget is based on the project plan and shows the forecast grow th in earned value through time. Earned value may be measured in monetary values but, in the case of staff-intensive projects such as software development, it is common to measure earned value in person-hours or workdays. Amanda's baseline budget, based on the schedule shown in Figure 8.7, is shown in Table 9.2 and diagrammatically in Figure9.11. Notice that she has based her baseline budget on workdays and is using the 0/100 technique for crediting earned value to the project.

Table 9.2 Amanda's bast-line budget calculation

Task

Budgeted workdays

Scheduled completion

Cumulative workdays

cumulative earned value

Specify overall system

34

34

34

14.35

Specify module B

15

49 i

\ 64

27.00

Specify module D

15

49 J

Specify module A

20

54

84

35.44

Check specifications

2

56

86

36.28

Design module D

4

60

90

37.97

Design module A

7

63

97

40.93

Design module B

6

66

103

43.46

Check module C spec

1

70

104

43.88

Specify module C

25

74

129

54.43

Design module C

4

79

133

56.12

Code & test module D

25

85

158

66.67

Code & test module A

30

93

188

79.32

Code & lest module B

28

94 i

| 231

97.47

Code & test module C

15

94 J

System integration

6

100

237

100.00

Amanda's project is not expected to be credited with any earned value until day 34, when the activity specify overall system is to be completed. This activity was forecast to consume 34 person-days and it will therefore be credited with 34 person-days earned value when it has been completed. The other steps in the baseline budget chart coincide with the scheduled completion dates of other activities.

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