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    EVM

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    of 14
    Cost Management seven integrated change control. It may also be necessary to reassess the management reserves that were set aside to address unknown risks. Maybe too litle or too much was set aside for management reserves in the cost management plan, Reserve analysis allows you to evaluate and incorporate those lessons learned into your projec through the Control Costs process. Analysis of the management reserves may also indicate that too many unknown risk events are occurring, suggesting that the risk management ‘efforts in planning were inadequate and need tobe recalculated. Management reserves if you recall, are separate from the cost baseline so changes to them will change the cost budget. fan unknown risk ‘event occurs, management reserves will pay forthe workaround: a change request will be required t0 ‘move those management reserve funds into the cost baseline and to add any additional funds required to complete the reestimated project work within the new parameters of the project. Reserve analysis is used to evaluate those estimated cost impacts tothe entire project to keep project work moving forward. Eamed Value Measurement’ PAGE217 Okay ets pause fora moment You already know earned value is on the exam. Are you worried about it Dont be, We are going to malt easier Firs, think about this: How valuable would itbe to KNOW how your projects really going? Could you sloop better at night? Would you be able to spend your time in more productive ways than worrying? ‘These are the benefits of earned value. IFyou currenty rely on hope, guesses, ora general percent complete estimate to assess how your projects fring, you probably know from experience that these methods do not tell you much, nor are they very accurate, And they may regulary result inthe need to work overtime atthe end ofthe project because ofthe lack of contol along the way. Keep the benefits of earned value in mind as you read this section, and go through i slowly iit seems confusing. Make sure ‘you ‘get it” the first time you read it Earned value is used in performance reviews to measure project performance against the scope, schedule, and cost baselines. Please note thatthe earned value technique uses a combination of these three baselines, known as the performance measurement baseline. The measurements resulting from. an earned value analysis ofthe project indicate whether there ae any potential deviations from the scope, schedule, and cost baselines (the performance measurement baseline). Many project managers ‘manage their project’ performance by comparing planned to actual results. With this method, however, you could easily be on time but overspend according to your plan. Using earned value measurement is better because it integrates cost, time, and the work done (or scope) and ean be used to forecast future performance and project completion dates and costs Using the work performance information gethered through earned value analysis, a project manager can create reports, including cost forecasts, and other communications related to the project’ progrest (see the Communications Management chapter for more on earned-value-related reports). Earned ‘value measurements may also result in change requests fo the project. 266 (© 2013 AVC Pubiatons, nc © 952.846 4404 »inftrmcaojec com + wnsrcpojc com seven Cost Management ‘Here ate the earned value terms you need to know. ¢ w ) Terms to Know ) Pv Planned Value ‘As of today, what is the estimated value ofthe work planned tobedone? BV Earned Value ‘As of today, what is the estimated value ofthe work actual accomplished? AC ‘Actual Cost (total cost) | As of today, what is the actual cost incurred for the work accomplished? BAC | Budgetat Completion | How much did we BUDGET for the TOTAL project effort? (the budget) EAC | Estimate at Completion | What do we currently expect the TOTAL project to cost (a forecast) ETC | Estimate to Complete _ | From this point on, how much MORE do we expect it to cost to finish the project (a forecast)? VAC | Variance at Completion | As of today, how much over or under budget do we expect to beat the end of the project? iD stands for “cumulative” “The exam focuses not just on calculations, but also on knowing what the numbers mean. <8) Formulas and Interpretations to Memorize ‘Therefore, you should know all the following formulas, (NOTE: The ©in the following table Cost Variance (CY) rv_ac | NEGATIVEis over budges; POSITIVE is under budget Schedule Variance (SV) Ev_py __ | NEGATIVEis behind schedule, POSITIVE is ahead of schedule. Cost Performance Index Weare getting’ worth of work out of (crn? EV every $1 spent. Funds are or are not being used ‘AG ficiently. Greater than one is good: ess than cone is bad. ‘Schedule Performance wv ‘We are (only) progressing at __percent of Index (SPD) ut the rate originally planned. Greater than one is good; le than one ie bad. (© 2013 AMC Puiations, ne © 852.848.4484 « ifoemeprcjec.can # wantsmepojet.com 267 Cost Management sevew Estimate at Completion (eAc) NOTE: There are any ways to calculate EAC, depending ‘on the assumptions made, Notice how the purpose of the formulas really is to create forecasts based ‘on past performs on the project. Exam AC 4+ Bottom-up ETC ‘As of now how much do we expect the total project to cost? $__. (See the formulas to the lef. below) ‘This formula calculates actual costs to date plus a new estimate forthe remaining work: tis used when the original estimate was fundamentally awed. “This formnula ie weed ifno variances from the BAC have occurred or you will continue at the same rate of spending (as calculated in your questions may require you BAC to determine which EAC or cumulative CPI or based on the trends that formula is appropriate you have led tothe current CPD. will ned to pay attention to tho information provided “This formula calculates actual costs to date inthequestiontodecide | ac «gac—gyy | Pls remaining budget. Itis used when current which enauladn usec ¢ | variances are thought to be atypical of the futute. Its essentially AC plus the remaining value of work to perform, ‘Tis formula calculates actual to date plus the remaining budget modified by performance. Itis used when current variances are thought ce LOAC=EV) | tobe typical ofthe fture and when projet opie p15 | schedule constraints will influence the completion of the remaining effort. So for example, it might be used when the cumulative CCPlisless than one and a firm completion date must be met “To-Complete Performance ‘This formula divides the work remaining Index (TCPD) tobe done by the money remaining to do (BAC-EV) _ | it Itanswers the question “In order to stay TPAC TAG _| Within budge, what ate must we meet forthe a ) | remaining work?” Greater than one is bad less than 1s good. Eximate to Complete (ETC)| __EAC—AC | How much more will he project cost? NOTE: You can determine ovctimate | Reestimate the remaining work from the ETC by either using the bottom up, first formula listed at right or estimating the work remaining, Variance at Gompletion 7 How much over or under budget will we be at (vac) BAC-FAC | the end ofthe project? 268 (©2013 AMC Pulao, le» 962.948.4404 «inlogtmeproject.com # wankirapojectcom seven Cost Management ‘The CPL in the previous table is a cumulative CPI because its using costs to date, It could be written as CPI = EVE/ACE with the standing for cumulative. This cumulative formula isthe same as that in the previous table, but it more clearly states thatthe data used is cumulative. CPI can also be calculated for costs incurred during @ specific period of time (week, month, or quarter) rather than overall the time to date © EV comes first in each ofthese formulas. Remembering this one fact alone should help you get about half the earned value questions right. (Arent you glad you purchased this book) Ifit sa variance, the formula is EV minus something. Ifit isan index, the formula is EV divided by something, If the formula relates to cost. use AC. Ifthe formula relates to schedule, use PV. For variances interpretation: negative i bad and positive is good. Thus a -200 cost variance means that you spent more than planned (over budget). A ~200 schedule variance means that you are ‘behind schedule. This aso applies to VAC. + For indices interpretation: greater than one is goods less than one is bad. (Remember, this only applies to CPI and SPI; the opposite is true of TCPI!) % Make sure you understand and MEMORIZE the following about CV, SV, CPI, and SPE: ‘One type of earned value question people often answer incorrectly requires that you differentiate between EAC and ETC and the other terms. Figure 7.2 may help you understand this difference. Notice that planned value (PV what the value was expected to beat this point in the project according to the plan) and actual cost (AC; what the cost has actually been on the project prior to this point) look: ‘backward atthe project. Budget at completion (BAC), estimate to complete (EC), and estimate at ‘completion (EAC) look forward. BAG states the project’ planned budget: it indicates what the end cost ‘of the project would be if everything went according to plan, ETC and EAC forecast future performance based on what has actually occurred on the project, taking into account any variances from the plan the project has already experienced, ETC isan estimate of how much more the remaining part of the project will cost to complete, EAC incicates what the total project cost is forecasted tobe. Original plan Pv BAC Odsioat ; spending | Phan Actual as Spending Plan Forecast ETC mic Plan gure 7.2: Understanding Burned Value Comcepes by Cooking Buvkord and Forward um Project Are you still worried about earned value? Not for long, Read the following pages and do the exercises: you might end up appreciating earned value questions over some of the more ambiguous and confusing ‘questions on this exam. (© 2013 AMC Publications Inc © 952.046.4484 » Ifocrmepojct.com « wnwsmeproectom 269 Cost Management sev ew 270 Earned Value in Action ‘Earned value isan effective tool for measuring performance and determining the need to request changes. The following is a sample team meeting conversation on this subject: Ken, the project manager, calls a team meeting and says, “We are stx months into this million dollar project, and my latest analysis shows a CPT of 1.2 and an SPI of 0.89, Thie means that we are getting 1.2 dollars for every dollar we put into the project, but only progressing at 88 percent ofthe rate originally planned. Let’ look for options to correct this problem” “We could remove me from the project team and replace me with someone less expensive. I must be the most expensive team member” Ashley says. “Not only would it sadden me to lose you, but your suggestion would improve costs, not schedule. ‘You are the company’ best network specialist. Someone else would not be as proficient as you in completing the work” “We could remove the purchase ofthe new computers from the project" says Chris. “Or, we could just tell the customer the project will be two weeks late” “Canceling the new computers would save us money, not time. We need to focus on times” Ken says. “Nor can we just change the project schedule baseline arbitrarily. That would be unethical” “Since we are doing well on cost, why dont we bring in another programmer from the IT department to work on this project? We can get the next two activities completed faster” Rose suggests “That sounds like the most effective choice in this situation, Let’ see if we can find someone who ‘will improve performance, a the lowest cost, Thanks for your help," Ken says “The best way to learn the earned value analysis technique is to use it. The following exercises are designed to give you a chance to practice both calculations AND interpretation. Earned value questions. ‘on the exam have generally required fewer calculations for each question than these exercises. Exercise “The cost performance hides (CPD and | +3 the schedule performance index (SPI) can be charted each month to show the project trends. Based on the diagram, what would you be more concerned about-—cost or schedule—if you were {aking over this project From another te add ah project manager? Ge ae Oe Ge (© 2013 AMC Publeations, Inc © 952.846.4484 « voormoprojct.com « mwarmeprojc com seven Cost Management Answer Since these calculations were made in the past, the data in the chart is historical data. The last, most current measurement was inthe fourth quarter, which shows both SPI and CP! being above one (good). As ofthe fourth quarter, the SPI is lower Therefore, the answer is schedule, An easy way to answer performance index questions that ask whether cost or schedule should concern you mostis to pick the option with the lowest index. Exercise The Fence #1 You have a project to build a new fence. The fence is four sided as shown at lft ‘ach sae iu take une day ty bute $1,000 lies been bungee ye se The sides are planned to be completed one after the other. Today isthe end of day 3. Using the following project status chart, calculate PY, EY, ec. in the spaces provided. ‘Then check your answers. Interpretation is also important on the exam, Can you interpret what each answer means? Do the calculations to three decimal places on the exercises. On the real exam, round the results of your calculations to two decimal places when you are ready to check {your answers against the choices provided. sidel |s Complete, spent $1,000 Side2 Complete, spent $1,200 Sides 50% done, spent $600 Side 4 PS..-----E | Not yet started Key $= Actual Start, F= Actual Finish, PS = Planned Start, and PF = Planned Finish 1[Pv 2|EV apace BAC, CPI sv ‘SPL (©2013 PC Pans «952.846 4484» temepoetcam « wrmcpeac.com ani Cost Management seven 9] EAC 10 ETC ii | vac Answer ‘The Fence #1 1)PvV $1,000 plus $1,000 $3,000 | We should have done $3,000 plus $1,000 worth of work. 2) EV | Complete, complete, |§2500 | Wehave actually completed and half done, or $2,500 worth of work. $1,000 plus $1,000 pls $500 3] AC | $1,000 plus ,200 | $2,800 | Wehave actually spent $2,800 plus $600 Z]BAC [$1,000 plus $1,000 [$4000 | Ove project dg 84.000, plus $1000 plas $1,000 5|CV__ [$2,500 minus $2,800 | $300 _| Weare over budget by $300. 6| CPI |$2,500divided by [0.893 | Weare only getting about 89 $2,800 cents out of every dollar we put int the projet. 7 [SV | $2500 minus $3,000 | $500 _ | We are behind schedule [SPI | $2,500 divided by 0.833 | Weare only progressing at about $3,000 83 percent ofthe ate planned. 9]EAG [$4000 diidedby | $4a79 | We curren estimate that the 30.093 total project wll coo 4,49. 10} ETC | $4,479 minus $2,800 | $1,679 _| We need to spend $1,679 to finish the project 11] VAC | $4,000 minus $4,479 | -$479 ‘We currently expect to be $479. over budget when the project i completed. NOTE: If your answers differ check your rounding, Again, i is best to calculate to three decimal places and then round to two decimal places when you are ready to compare your results against the choices provided on the exam. Did you select the correct EAC formula? Ifnot, did you miss information in the question ‘thar could have guided you to the correct formula? In this exanupe, side 2 cost $1,200. ‘Side is 50 percent complete and has cost $600. This suggests a trend that cates side 4 is likelyto cost $1,200 when complete. When there is@ trend and no other information to indicat the trend will not continue, its most appropriate to use the BAC/CPI formula 272 (© 2013 AMC Pubcstons, ne «052.848.4484 «intranet om » wnmcerec com seven Cost Management Exercise the Fence #2 ‘You have a project to build a new fence. The fence is four sided as shown at left, Each side isto take one day to build, and $1,000 has been budgeted per side. The sides were planned to be completed one after the other, but circumstanees changed on the project, and! work on the sides was able to proceed in parallel, ASSUME THEREFORE THAT THE SIDES HAVE A FINISH-TO-FINISH. RELATIONSHIP INSTEAD OF A FINISH-TO-START RELATIONSHIB, so more than one side can be worked on atthe same time. Today isthe end of day 3. Using the following project status chart, calculate PY, EY, etc, in the spaces provided. ‘Then check your answers. Complete, spent $1,000 Complete, spent $900 50% done, spent $600 BE [75% done, spent $600 Side Key $= Actual Start, F = Actual Finish, PS = Planned Start, and PF = Planned Finish aac 4] BAC [cpr 9] BAC tof Eve 1] VAC (© 2013 AMG Pubcon, nc © 952.646.4484 «infomezoject.com « wiynamopeoect.om 273 Cost Management sev ew 274 Answer The Fence #2 1 [Pv [81,000 pius $1,000 | $3,000 | We should have done $3,000 plus $1,000 worth of work 2 [BV | Complete, complete, | $3,250 | Wehave actually completed half done, and 75% $8,250 worth of work. done, or $1,000 plus $1,000 plus $500 plus $730 3 [AC [$1,000 plus $900 plus | $3,100 | We have actully spent $3,100. $3600 plus $600 [BAC [$1,000 plus$1,000 [$4,000 | Our project budget is $4,000. plus $1,000 plus $1,000 5 [CV | $3,250 minus$3,100_|$150_ | Weare under budget by $150, 6 [CPI [$3250 divided by [1.048 | Weare getting about $1.05 out $3,100 ‘of every dollar we put into the project. SV__ [$3,250 minus $3,000 [$250 | We are ahead of schedule ‘SPL [$3,250 divided by | 1.083 | Weare progressing at about 108 $3,000 percent of the rate planned. 9 [BAC [$4,000 divided by [$3,817 _ | We currently estimate thatthe $1,048 total project will cost $3,817. 10] BTC | $3,817 minus$3,100 [$717 | Weneed to spend $717 to finish the project. 11] VAC | $4,000 minus $3,817 [$183 | We currently expect to be $183 ‘under budget when the project is completed. ‘caamiple, you are looking for the value ofthe work thet haa aetelly besn done. The finch to-finish relationship allowed the team to work on more than one side atthe same time In this case, work is being done on both sides 3 and 4 a the same time, Since the value of each side is $1,000, we look at how much of each side is complete and apply that percent tothe value. Here sides 1 and 2 are completed; thus, each receives a value of $1,000. (It doesnt matter what it actually cost—just the value.) Side 3is 50 percent done and receives a value of $500 (50 percent of $1,000). Side 4is 75 percent done and receives a value of $750 (75 percent of $1,000). "the earned value to date ie $3,250, ‘Understanding the meaning ofthe results of each calculation isas important as knowing how to calculate them, Expect questions on the exam that say things like, “The CPI is 0.9, and the SP1 is 0.92, What should you do?” You will need to interpret this and other data in the question and then determine which choice would address the issue(s) described. n this example, there are both cost and schedule problems. (© 2013 RIC Publeations, no 052.846.4484 © omcprojct.com « wawmopojectcom seven Cost Management You may also get questions on the exam that require you to perform multiple calculations (i.e, you need to perform one calculation to come up with a result that can be used as an input far second

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