| Process | Project Phase | Key Deliverables |
|---|---|---|
| Estimate Costs | Planning | Activity Cost Estimates,Basis of estimates |
| Determine Budget | Planning | Cost performance baseline |
| Control Costs | Monitoring and Controlling | Work performance measurements |
4-The Estimate Costs process takes the following inputs -
Scope baseline
Project schedule
Human resource plan
Risk register
Enterprise environmental factors
Organizational process assets
5-Depreciation is technique used to compute the estimated value of any object after few years. There are three type of depreciation techniques. These are
Straight line depreciation The same amount is deprecated (reduced) from the cost each year.
Double-declining balance - In the first year there is a higher deduction in the value - twice the amount of straight line. Each year after that the deduction is 40% less than the previous year.
Sum of year depreciation - Lets say the life of an object is five years. The total of one to five is fifteen. In first year we deduce 5/15 from the cost, in second year we deduce 4/15, and so on.
6-Analogous Estimating is an estimating technique with the following characteristics -
Estimates are based on past projects (historical information)
It is less accurate when compared to bottom-up estimation
It is a top-down approach
It takes less time when compared to bottom-up estimation
It is a form of an expert judgment
7-In Parametric Modeling Estimation, you use a mathematical model to make an estimate. It is of two types.
Regression Analysis
is a mathematical model based upon historical information.
Learning Curve model is based upon the principal that the cost per unit decreases as more work gets completed.
8-Bottom up estimation is same as WBS estimation. It involves estimating each work item and adding the estimates to get the total project estimate.
Planned Value (PV) refers to what the project should be worth at this point in the schedule. It is also referred as BCWS (Budgeted Cost of Work Scheduled).
Earned Value (EV) is the physical work completed to date and the authorized budget for that. It is also referred as BCWP (Budgeted Cost of Work Performed).
Actual Cost (AC) is the actual amount of money spent so far. It is also referred as ACWP (Actual Cost of Work Performed)
Estimate At Completion (EAC) refers to the estimated total cost of the project at completion.
CPI refers to Cost Performance Index. It is defined as
CPI = EV/AC
If CPI is less than 1, this means that the project is over budget.
BAC refers to Budget at Completion. It is related to EAC.
EAC = BAC/CPI
ETC refers to Estimate to Completion. It is defined as
ETC = EAC - AC
CV refers to Cost Variance. It is defined as
CV = EV - AC
SV refers to Schedule Variance. It is defined as
SV = EV - PV
Negative cost or schedule variance means that project is behind in cost or schedule.
VAC refers to Variance At Completion. It is defined as
VAC = BAC - EAC
For example, in the first month the project will require $10,000. Cost estimating involves defining cost estimates for tasks. Cost budgeting defines cost estimates across time.
The tools and techniques used for Estimate Costs are -
Expert judgment
Analogous estimating
Parametric estimating
Bottom-up estimating
Three-point estimates
Reserve analysis
Cost of quality
Project Management estimating software
Vendor bid analysis
The after project costs are called life cycle costs.
http://www.preparepm.com/notes/cost.html
- Project Management Formulas
http://69.13.149.40/Students/Formulas.htm
Earned Value Management - EVM
Budget At Completion (BAC)
Budget At Completion (BAC) is the total budget allocated to the project.
Budget At Completion (BAC) is generally plotted over time. Say like periods of reporting ( Monthly, Weekly etc. )
BAC is used to compute the Estimate At Completion ( EAC ), explained in next section.
BAC is also used to compute the TCPI and TSPI
BAC is calculated using the following formula
BAC = Baselined Effort-hours * Hourly Rate
Estimate To Complete (ETC)
Estimate To Complete (ETC) is the estimated cost required to complete the remainder of the project.
Estimate To Complete (ETC) is calculated and applied when the past estimating assumptions become invalid and a need for fresh estimates arises.
ETC is used to compute the Estimation at Completion (EAC).
Estimate At Completion (EAC)
Estimate At Completion (EAC) is the estimated cost of the project at the end of the project.
There are three methods to calcualte EAC
Variances are Typical - This method is used when the variances at the current stage are typical and are not expected to occure in the future.
Past Estimating Assumptions are not valid - This method is used when the past estimating assumptions are not valid and fresh estimates are applied to the project.
Variances will be present in the future - This method is used when the assumption is that the current variances will be continue to be present in the future.
The formula for calculation of the three methods are as given below:
AC + ( BAC -EV )
AC + ETC ( Estimate to complete )
AC + ( BAC- EV ) / CPI
http://www.tutorialspoint.com/earn_value_management/evm_formula.htm
- How to Calculate Earned Value Analysis
Earned value analysis (EVA) is a project evaluation tool.
It evaluates how much work should have been done, how much money has been spent and the value of work done.
EVA gives an assessment of the project -- its efficiency and problem areas, if any.
You must compute three performance metrics --
cost performance index (CPI),
schedule performance index (SPI)
cost schedule index (CSI)
--to perform a valid analysis.
the budget at completion (BAC), which is basically the budget for your project. For instance, if you have budgeted $500,000 to finish project "A" your BAC is $500,000
the budgeted cost of work scheduled (BCWS). Suppose you planned to complete project A in five months, accomplishing 20 percent of the project every month. BCWS is the percent of planned completion, converted to decimal form and then multiplied by BAC.
Using our example, BCWS = 0.2 * $500,000 = $100,000.
your actual cost of work performed (ACWP), or cost of work completed. For instance, if you've spent $150,000 in the first month and have accomplished 10 percent of the project, your ACWP is $150,000.
budgeted cost of work performed (BCWP). BCWP is the percent of actual work performed converted to decimal form and then multiplied by BAC.
Using our example, BCWP = 0.1 * $500,000 = $50,000.
cost performance index (CPI). CPI is BCWP divided by ACWP.
In our example, CPI = $50,000 / $150,000 = 0.33.
This means that for every dollar spent, the project is generating only 33 cents worth of work. You are over your budget. Ideally, $1 spent should generate $1 of work. This should prompt an investigation of the project
schedule performance index (SPI). SPI is BCWP divided by BCWS.
Using our example, SPI = $50,000 / $100,000 = 0.50.
This indicates that the project team is completing only 30 minutes of work for what is supposedly one hour of work. You are behind schedule.
your cost schedule index (CSI). CSI is CPI multiplied by SPI.
Using our example, CSI = 0.33 x 0.50 = 0.16.
This implies that our sample project is behind schedule and over budget. The farther CSI is from 1.0, the less likely the project will be able to financially recover. It will be the responsibility of the project sponsor and project manager to seriously consider abandoning the project to limit financial losses.
http://www.ehow.com/how_8446348_calculate-earned-value-analysis.html
- Calculate Cost Performance Index (CPI) and Schedule Performance Index (SPI)
Cost Performance Index (CPI index): Represents the amount of work is being completed on a project for every unit of cost spent. CPI is computed by EV / AC. A value of above 1 means that the project is doing well against the budget.
Schedule Performance Index (SPI index): Represents how close actual work is being completed compared to the schedule. SPI is computed by EV / PV. A value of above one means that the project is doing well against the schedule.
Earned Value Analysis Example 1
Suppose you have a budgeted cost of a project at $900,000. The project is to be completed in 9 months. After a month, you have completed 10 % of the project at a total expense of $100,000. The planned completion should have been 15 %.
Now, let’s see how healthy the project by computing the CPI index and SPI index.
Earned Value Analysis - Example 2
Suppose you are managing a software development project. The project is expected to be completed in 8 months at a cost of $10000 per month. After 2 months, you realize that the project is 30 % completed at a cost of $40,000. You need to determine whether the project is on-time and on-budget after 2 months.
http://www.brighthubpm.com/monitoring-projects/57944-calculating-cost-performance-index-and-schedule-performance-index/
- Example:
Two projects have their cost performance index calculated. Both projects are 10 percent over budget at the time of the calculation. Project One has a budget of $1,000,000, and Project Two has a budget of $10,000. These budget figures are the amounts that should have been spent as of today’s date. We will assume that the project is on schedule at this point in time. What is the cost performance index for each?
Project One is over budget by 10 percent of its budget or $100,000.
Project Two is also over budget by 10 percent of its budget or $1,000.
CPI = BCWP / ACWP
The BCWP is $1,000,000 for Project One.
The ACWP is $1,100,000 for Project One ($1,000,000 + $100,000).
The BCWP is $10,000 for Project Two.
The ACWP is $11,000 for Project Two ($10,000 + $1,000).
CV = BCWP – ACWP
The cost variance for Project One is $1,000,000 ? $1,100,000 or ? $100,000. The cost variance for Project Two is $10,000 ? $11,000 or $1,000 The CPI for Project One is $1,000,000 / $1,100,000 or 0.909. The CPI for Project Two is $10,000 / $11,000 or 0.909.
Notice that the size of the project does not make any difference in the calculation of the index. Projects that are each behind 10 percent have the same value for their cost performance index. This makes assessing the health or sickness of projects of different sizes much easier.
http://pmtips.net/earned-reporting-cost-performance-index/
- CPI
The cost performance index is a ratio that measures the financial effectiveness of a project by dividing the budgeted cost of work performed by the actual cost of work performed. If the result is more than 1, as in 1.25, then the project is under budget, which is the best result. A CPI of 1 means the project is on budget, which is also a good result. A CPI of less than 1 means the project is over budget. This represents a risk in that the project may run out of money before it is completed.
CPI Example
For example, assume a project has a budgeted cost of $10,000 but actually cost only $8,000. Dividing $10,000 by $8,000 produces a CPI of 1.25, which means the project is 25 percent under budget.
SPI
The CPI is only one aspect of determining the progress of a project. The other is the schedule performance index, or SPI. This is also a ratio that divides the budgeted cost of work performed by the budgeted cost of work scheduled.
SPI Example
For example, assume a project has two people working full time, and that each person costs the company $1,250 a week. A project is one week behind at the time of the calculation. One week times two people at $1,250 a week equals $2,500, which represents the amount by which the schedule is behind. If the budgeted cost of worked scheduled at that time is $6,000, you subtract the $2,500 from that cost to come up with the budgeted cost of work performed at $3,500. Dividing $3,500 by $6,000 produces an SPI of 0.53. As with the CPI, SPI values under 1 are not good because they mean the project is behind schedule. A value of 1 means the project is on schedule, and a value more than 1 means the project is ahead of schedule.
EVA
Earned value analysis, or EVA, looks at the relationship between the CPI and SPI, including such factors as the schedule and cost variances, to judge how a project is doing. It often involves graphing CPI and SPI over the life of a project. In a nutshell, the closer these numbers are to 1, the more likely it is that a project will be completed on time and on budget. While keeping one or both values over 1 is a worthwhile goal, it may indicate original assumptions were unrealistically rosy. The worst situation is to have one or both numbers under 1 over an extended period of time. The lower those numbers are under 1 and the longer the time, the less likely it is that the project can recover from such the deficit. It may also mean that not enough money and time were originally scheduled.
http://smallbusiness.chron.com/project-management-cpi-numbers-mean-35541.html
- EXAMPLE
project total budget is 80000 $
CPI is 0.95
project has spent 25000$
how much money do you need to spend more??
BAC=80000
CPI=0.95
EAC(estimation at completion)
EAC = BAC/CPI=80000/0.95=84210
ETC refers to Estimate to Completion.
AC=25000
EAC=84210
ETC = EAC - AC=84210-25000=59210
you need 59210 $ more to complete project
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