Project and Portfolio

Management (PPM)
Sudhir M Chadha
(Course of 20 lectures)

06/10/2015

sudhir chadha

Questions
How should ongoing costs be monitored to try
to keep the project within budget?
Are tasks starting and finishing as planned? If
not, what will be the impact on the projects
finish date?
Are resources spending more or less time than
planned to complete tasks?
Are higher-than-anticipated task costs driving
up the overall cost of the project?
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sudhir chadha

Issues in Tracking Progress

Project progress can be tracked at many levels of detail:
Record project work as scheduled;
Record each tasks percentage of completion, usually at increments such as 25,
50, 75, or 100%;
Record the actual start, actual finish, actual work, and actual and remaining
duration for each task or assignment;
Track assignment-level work by time period, i.e., record actual work values per
day or week.

Cost variance is not enough, e.g., if the actual cost is below budget at any
date, is it because the project is under budget (good) or behind schedule
(bad)?
Schedule variance is difficult to measure. For example, if there are many
concurrent tasks, some ahead and others behind schedule, how do we
measure variance? If a project is ahead of schedule could it be that the
easier tasks (out of many similar tasks) have been done first? Or many
non-critical tasks are ahead of schedule while critical ones are delayed?

06/10/2015

sudhir chadha

Measuring Project Variance

Project

Work
Performed

Actual
Cost

Budgeted
Cost

Cost Variance

06/10/2015

Work
Scheduled

Budgeted
Cost

Convert to
Money units

Schedule Variance

sudhir chadha

Calculating Cost Variance Using EV (I)

Tracking cost with EV introduces the following terms:
Planned cost: Same as the previous current (or scheduled) cost.
Budgeted cost of work performed (BCWP): The planned (or budgeted)
cost of the tasks that are (fully or partially) complete. Also called
Earned value (EV) by the PMI.
Actual cost of work performed (ACWP): The actual cost of tasks that
have been completed. PMI calls this Actual cost (AC).
Cost variance: The cost variance is the difference between actual and
planned costs for completed work. CV = BCWP ACWP.
Cost variance percent (CV%): The cost variance divided by the planned
cost for percent complete. CV% = CV/BCWP. A positive CV% is a cost
under-run and good; a negative CV% is a cost over-run, therefore bad.
Cost performance index (CPI): EV (BCWP) divided by AC (ACWP). (CPI >
1.0 = under budget; CPI < 1.0 = over budget).

06/10/2015

sudhir chadha

Calculating Cost Variance Using EV (II)

Some additional terms are
Budget at completion (BAC): The budget at the end of the
project. This represents the final approved baseline budget for
the project.
Estimate at completion (EAC): This is a re-estimate of the total
project budget. The original budget multiplied by the AC
divided by the EV (or budget/CPI).
Estimate to complete (ETC): The budget amount needed to
finish the project based on the current CPI. ETC = EAC AC.
Variance at completion (VAC): The difference between the
estimated and budgeted cost at the end of the project. VAC =
EAC BAC.

06/10/2015

sudhir chadha

Calculating Schedule Variance Using EV

Additional terms:
Budgeted cost of the work scheduled (BCWS): The planned (budgeted)
cost of the work that should have been done to date. This is called
Planned value (PV) by the PMI.
Schedule variance (SV): The schedule variance is the difference
between the cost values of the work that was scheduled for
completion (BCWS) and the work actually completed (BCWP). SV =
BCWP BCWS = EV PV.
Schedule variance percent (SV%): The schedule variance divided by the
planned cost to date. A positive SV% is good because more work has
been performed than scheduled; a negative SV% is bad since it means
that less work has been performed than the plan called for. SV% =
SV/BCWS.
Schedule performance index (SPI): BCWP (or EV) divided by BCWS (or
PV). (SPI > 1.0 means work is ahead of schedule, and SPI < 1.0 shows
work is behind schedule).

06/10/2015

sudhir chadha

Cost and Schedule Performance Chart

Under budget
Variance %

B
0% Cost and
schedule
variance

10
A
5

Variance %
Behind schedule

-10

-5

5
-5

10 Ahead of schedule

C
-10
Over budget
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sudhir chadha

Measuring Performance with EV

SV (%) = (BCWP BCWS)/BCWS = -0.68, i.e., A&D is
approximately 68% behind schedule.
Schedule performance index = BCWP/BCWS = 0.32
CV% = (BCWP ACWP)/BCWP = -0.09, i.e., A&D is
approximately 9% over budget.
Cost performance index = BCWP/ACWP = 0.92
New estimate at completion = original estimate
(844980) x ACWP/BCWP = 918456. A&Ds EAC =
918456 if the current level of performance persists.

06/10/2015

sudhir chadha

Earned Value Curves

Project is under budget and behind schedule.

Current date

PV

Cost

Schedule variance
EV

Cost variance
AC

Time
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sudhir chadha

10

Escalation Thresholds (I)

Under budget

10
Senior
Management
threshold

5
Variance %
Behind schedule

-10

-5

CVCV
CVCV

-5

15
5

10

Immediate
Management
threshold

Ahead of
schedule

Variance % -10
Over budget
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Escalation Thresholds (II)

Problems and changes beneath the immediate
management threshold are left to the team to
resolve.
Any problem that can potentially cause a -10%
cost or schedule variance, or changes that result
in extremely positive variances, will be
immediately escalated to senior management.
Both mid-level and senior management will
monitor the project on a routine basis while it is
below their escalation thresholds, but they are
unlikely to actively intervene.
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Tips
The work breakdown structure is critical. Each task must be a discrete task
that meets the following criteria:
It must have defined start and finish dates;
The task must produce a tangible outcome with completion criteria that can
be objectively assessed;
Costs must be assigned to the task.

WBS should rarely represent an ongoing level-of-effort activity.

Keep the lowest level tasks small.
Trends are more useful than snapshots, e.g., CPI over several weeks
contains real information rather than a single CPI data point for a week.
Watch for both the schedule variance and the critical path.
Changing the cost and schedule baselines represent a new cost-schedulequality equilibrium; hence must be approved by all stakeholders.

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sudhir chadha

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