TAPUniversity's Blog

August 27, 2009

To-Complete Performance Index

Filed under: project management — lhilkemann @ 4:21 am
Tags: , , ,

The To-Complete Performance Index (TCPI) estimates the cost performance necessary in order for the project to meet the original project’s budget goal (Budget At Completion (BAC)) or the new estimate of how much the project will cost (Estimate At Completion (EAC)). This is accomplished by calculating how much work is remaining on the project divided by how much money is remaining for the project. Work remaining is calculated as the BAC minus the Earned Value (EV). Remaining money is calculated as either the BAC or EAC minus the Actual Cost (AC).  If using BAC, the formula for TCPI = (BAC – EV ) / (BAC – AC). If using EAC rather than BAC, TCPI = (BAC – EV ) / (EAC – AC).

For example, Carl and his siblings are working on restoring a car. The BAC is $500, but they clearly are going to spend more, so they calculated an EAC of $2050 using the bottom-up method to replace the BAC. So far they have spent $450, which is the AC. Of all the work that the car needs done, they believe that they have 80% of it completed at this point. Since the work is 80% complete, and 80% of the BAC is $400, the EV, the value of the work completed, is $400.

EAC has been calculated to replace BAC, so the TCPI formula using EAC will be used, which is TCPI = (BAC – EV ) / (EAC – AC). Placing our values into the formula, TCPI = ($500 – $400) / ($2050 – $450) = $100 / $1600 = .0625. So the project’s cumulative Cost Performance Index (CPI) must not fall below .0625, or it must immediately improve in order to meet the cost goal. CPI is calculated by EV/ AC = $400/$450 = 0.89.

Also see the earlier postings of: Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), Earned Value Management – CPI and SPI (posted August 20, 2009), Estimate at Completion – Bottom-Up Method (posted August 21, 2009).

August 25, 2009

Estimate at Completion – Present CPI Method

Filed under: project management — lhilkemann @ 6:44 am
Tags: , , , ,

The Budget at Completion (BAC) is how much the project is supposed to cost when finished. However, during the project it may become clear that the project will not end up costing what it is supposed to cost. The Estimate at Completion (EAC) replaces the BAC for the amount that the project is now believed to cost when it is completed. Calculating EACs are part of the tool and technique of forecasting outlined in the fourth edition PMBOK®’s Control Costs process.

One of the methods to calculate EAC is the present CPI method. This method assumes that the rate the project has been progressing up to this point is the rate that the project will continue to progress until it is completed. The formula is EAC = BAC / cumulative CPI. So the original budget for the project is divided by the Cost Performance Index (CPI), which indicates how many dollars (or other currency) worth of work is happening for every dollar being spent.

For example, Carl and his siblings are working on restoring a car. The BAC is $500, but now they suspect that this project will cost more than $500. So far they have spent $450. Of all the work that the car needs done, they believe that they have 80% of it completed at this point. We know AC and BAC, but we need to quickly calculate the EV so that we can use it to calculate CPI. The work is 80% complete, and 80% of the BAC (which is $500) is $400, so the EV, the value of the work completed, is $400. CPI is calculated by EV/ AC = $400/$450 = 0.89. Now we have all that we need to calculate EAC.  EAC = BAC/cumulative CPI = $500/0.89 = $562.

Also see the earlier postings of: Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), Earned Value Management – Planned Value – Step 3 (posted March 11, 2009), Earned Value Management – CV and SV (posted August 19, 2009), Earned Value Management – CPI and SPI (posted August 20, 2009), Estimate at Completion – Bottom-Up Method (posted August 21, 2009), and Estimate at Completion – Budgeted Rate Method (posted August 24, 2009).

August 20, 2009

Earned Value Management – CPI and SPI (posted August 20, 2009)

Filed under: project management — lhilkemann @ 4:33 am
Tags: , , , ,

Cost Performance Index (CPI) and Schedule Performance Index (SPI) are indicators of how closely accomplished work is on budget and on schedule. CPI shows how many dollars (or other type of currency) worth of work is being accomplished for every dollar spent. SPI shows how the work is progressing compared to the original schedule.

 

The formula for CPI = EV / AC and the formula for SPI = EV / PV. Both of these formulas begin with Earned Value (EV), which is the value of the work already accomplished. The actual amount of money spent is represented by Actual Cost (AC). Planned Value (PV) is how much we estimate the value to be of the work that we’re planning to do. Another way of thinking about PV is the amount of money we’ve budgeted for the work scheduled at that point in time. If CPI is less than 1.0, the project is over budget; if CPI is more than 1.0, the project is under budget. If SPI is less than 1.0, the project is behind schedule; if SPI is more than 1.0, the project is ahead of schedule.

 

Here is an example: Carl’s car re-design project has a total budget of $4 million to be spent evenly throughout the one year scheduled to complete the project. The project is now one-fourth completed. So far they have actually spent $2 million, and they have only worked two full months on the project.

What is the AC? It’s 2 million dollars, because that is how much they have actually spent.

What is the EV? It’s 1 million dollars, because 1/4 of the work is done, and 1/4 of the $4 million budget is $1 million.

What is the PV? It’s 2/3 million dollars. There is $4 million to spend evenly over 12 months, so every month they were budgeted to spend 1/3 of one million dollars. They have worked 2 months, so they had planned to spend 2/3 million dollars at this point.

What is the CPI? It’s .50. CPI = EV / AC = $1 million / $2 million = .50 The CPI is less than 1.0, meaning that the project is over budget at this point. They are only getting fifty cents worth of work out of every dollar they are spending.

What is the SPI? It’s 1.50. SPI = EV / PV = $1 million / $2/3 million = 1.50.  The SPI is over 1.0, meaning that the project is ahead of schedule by 150% of the planned rate.

Also see the earlier postings of Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), Earned Value Management – Planned Value – Step 3 (posted March 11, 2009), and Earned Value Management – CV and SV (posted August 19, 2009).

August 19, 2009

Earned Value Management – CV and SV (posted August 19, 2009)

Filed under: project management — lhilkemann @ 6:20 am
Tags: , , , ,

Cost Variance (CV) and Schedule Variance (SV) are indicators of how closely accomplished work is on budget and on schedule. The formula for CV = EV – AC and the formula for SV = EV – PV. Both of these formulas begin with Earned Value (EV), which is the value of the work already accomplished. The actual amount of money spent is represented by Actual Cost (AC). Planned Value (PV) is how much we estimate the value to be of the work that we’re planning to do. Another way of thinking about PV is the amount of money we’ve budgeted for the work scheduled at that point in time. If CV is negative, the project is over budget; if CV is positive, the project is under budget. If SV is negative, the project is behind schedule; is SV is positive, the project is ahead of schedule.

Here is an example: Carl’s car re-design project has a total budget of $4 million to be spent evenly throughout the one year scheduled to complete the project. The project is now one-fourth completed. So far they have actually spent $2 million, and they have only worked two full months on the project.

What is the AC? It’s 2 million dollars, because that is how much they have actually spent.

What is the EV? It’s 1 million dollars, because 1/4 of the work is done, and 1/4 of the $4 million budget is $1 million.

What is the PV? It’s 2/3 million dollars. There is $4 million to spend evenly over 12 months, so every month they were budgeted to spend 1/3 of one million dollars. They have worked 2 months, so they had planned to spend 2/3 million dollars at this point.

What is the CV? -$1 million. CV = EV – AC = $1 million – $2 million = -$1 million. The CV is negative, meaning that they are $1 million over budget at this point.

What is the SV? 1/3 million dollars. SV = EV – PV = $1 million – $2/3 million = $1/3 million. The SV is positive, meaning that the project is ahead of schedule.

Also see the earlier postings of Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), and Earned Value Management – Planned Value – Step 3 (posted March 11, 2009).

June 29, 2009

Variance Analysis

Filed under: project management — lhilkemann @ 6:37 am
Tags: , ,

If projects went exactly as planned, this tool would be unnecessary. Variance Analysis is the comparison of planned results and actual results. The planned results may be found in the Project Management Plan and compared to work performance information. The project manager should be certain that the data itself is trustworthy, and then examine how much variance exists between planned and actual results. Then, the potential impact and causes of any variance should be analyzed, along with determining what action may be needed. Variance Analysis is listed in the fourth edition PMBOK® as a tool of Control Schedule, Control Costs, Control Scope, Report Performance, and as part of the Monitor and Control Risks process. When Earned Value Management is utilized, the formulas of SV and SPI can indicate schedule variance and the formulas of CV and CPI can indicate cost variance. The results of a Variance Analysis may be found in a project’s Performance Reports.

March 11, 2009

Earned Value Management – Planned Value – Step 3

Filed under: project management — lhilkemann @ 1:47 am
Tags: , , , , , ,

In earlier postings, the concepts of Earned Value (EV) and Actual Cost (AC) have been discussed. Earned Value is how much value is in the work already accomplished, and Actual Cost is how much money the work already accomplished has actually cost. The third term to understand is Planned Value (PV). PV is how much we estimate the value to be of the work that we’re planning to do. Another way of thinking about PV is the amount of money we’ve budgeted for the work scheduled at that point in time. The chart below illustrates the EV, PV, and AC for a ten-week project that is currently on week 5. PV should be estimated for the whole project at the beginning of the project. Note that the PV on the chart extends for all ten weeks, whereas we do not know what the EV or AC will be for that week until we get to that week, so those lines stop at week 5. At week 5, PV is $5000. So we budgeted to spend a total of $5000 by week 5. The AC for week 5 is $5,500, so we’ve spent $500 more than we had planned. The EV for week 5 is $5,200, meaning that the value of the work performed so far is worth more than we had planned it to be at this point in time. This all means that we’re a little over budget, but we’re also a little ahead of schedule.

Planned Value

Planned Value

March 2, 2009

Earned Value Management AC and BAC – Step 2

Filed under: project management — lhilkemann @ 2:50 pm
Tags: , , , , , , ,

An earlier posting described the concept of Earned Value—the idea that accomplished work has value, even if the work is incomplete. There are a number of formulas and acronyms to know when applying Earned Value Management (EVM). A couple more will be introduced here. Actual Cost (AC) and Budget at Completion (BAC) are two basic concepts to understand. AC is how much money you’ve actually spent at this point in time (not planned to spend, meant to spend, wanted to spent, but really and truly actually have spent). BAC is how much money has been budgeted for the entire project. So if Benjamin is part-way through managing a project that has been allotted ten thousand dollars, and as of today he’s spent seven thousand on the project, the BAC is ten thousand dollars and the AC is seven thousand dollars. The term AC is used in formulas to calculate whether a project is on-budget, how much value is being obtained for the cost, and how much more the project will cost. The term BAC is used in formulas to calculate how much the total project will cost, how much more the project will cost, and the difference in how much the project was supposed to cost compared to what it actually will cost.

February 26, 2009

Earned Value Management – Step 1

Filed under: project management — lhilkemann @ 1:54 pm
Tags: , , , , ,

There is much to understand and a number of formulas to know in order to apply Earned Value Management (EVM). It’s often the most difficult concept for project managers to learn when they are studying for their PMP exam if they have not applied it in their work. The very first step is gaining a conceptual understanding of what this thing is that we called Earned Value. Earned Value is the idea that even though we have not completed the work, there is value to the amount of work we have accomplished. How do we define value? It’s usually by money, such as in dollars, but it could be by hours of labor also. Here is the basic earned value formula: BAC * (work completed / total work). BAC stands for Budget at Completion, which it the total budget for the project. This is multiplied by the percentage of work completed.

Now for the examples—if Patty’s budget for her party is $1000, and the work is half done, what is her earned value? It’s $500, because half the work is done and half the budget is $500.

If Carl’s car re-design project has a budget of $4 million dollars, and he is one-fourth done, what is his earned value? It’s $1 million, because 25% of the work is done, and 25% of the budget is $1 million.

In this example, you aren’t told the percentage of work completed—that must be calculated. Shelly has $20, and wants to use it to find 10 seashell souvenirs to buy. So far, she’s bought 2 seashells. What is her earned value? It’s $4. BAC * (work completed / total work) = $20 * (2 seashells/10 seashells) = $4. The project work is to buy 10 seashells, so far she’s bought 2, so the work is 20% complete. 20% of $20 is $4.

Blog at WordPress.com.