Taylor Bowen

Module 5, Critical Thinking

Option #1: Earned Value Analysis for Project Management Institute Exams

Given a project with the following characteristics, answer the following questions:

 You are the project manager of a project to upgrade the generators at cell phone towers.
 Your project is scheduled to last for 12 months.
 It is the beginning of month 4.
 Your crews are to upgrade 8 cell phone towers per month for 12 months.
 Each generator is planned to cost $40,000 which includes equipment, labor, and fueling costs.
 You have upgraded 30 cell phone towers and your CPI is 0.96.

1. How is the project performing?

a. Over budget and ahead of schedule

b. Under budget and ahead of schedule
c. Over budget and behind schedule
d. Under budget and behind schedule

What is your reasoning? The CPI for the project, which is calculated by dividing Earned Value by the
Actual Cost is 0.96. Anything under 1.0 means the project is over the planned cost. This means the
project is currently over budget. Because the project teams are expected to upgrade 8 towers per
month, this would mean that would mean their PV = 24 towers by the beginning of month 4, and
their EV = 30 towers, the SPI (calculated by dividing EV by PV) comes out to be 1.25. Similar to the
CPI logic, anything greater than 1.0 means the project is ahead of schedule. Therefore, this project is
over budget but ahead of schedule.

EV = 30 towers SPI = 1.25

PV = 24 towers CPI = 0.96

2. Right now, what is the actual cost of the project?

a. $1,800,000
b. $975,000
c. $1,250,000
d. $2,225,000

What is your reasoning? The actual cost of a project is calculated using the cost of all work
completed to a point in time, using the cost incurred for the work performed. For this project, 30
towers at $40,000 per tower would come out to be ($40,000 x 30) = $1,200,000. This number is then
divided by the CPI, which is the representation of the current cost performance. $1,200,000 divided
by 0.96 comes out to $1,250,000.

3. Assuming that the cost variance is constant, how much more money will it take to complete the
project?

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a. $2,500,000
b. $2,750,000
c. $2,800,000
d. $3,000,000

What is your reasoning? The project plan includes 8 cell phone towers per month, for 12 months,
meaning 96 towers are to be installed for the year. So far, 30 towers have been installed, leaving 66
towers remaining. 66 towers at $40,000 each comes out to $2,640,000. This means that the actual
cost to complete the remaining 66 towers will be $2,640,000 divided by the CPI (0.96) equaling
$2,750,000.

4. What is the project’s estimated cost at completion if the variance experienced to this point stopped?

a. $2,800,000
b. $2,875,000
c. $3,890,000
d. $3,750,000

What is your reasoning? The earned cost for the remaining 66 towers, as calculated in the previous
problem, is $2,640,000. If the variance stopped at this point in the project, we would take the cost
up to this point - $1,250,000 - plus the cost for the remaining 66 towers - $2,640,000 – to calculate
the cost at completion. This is equal to $3,890,000.

5. Using the project’s budget at completion, what is the project’s TCPI?

a. .5
b. 1
c. 1.5
d. 1.02

What is your reasoning? A project’s TCPI is the efficiency that must be maintained in order to
complete a project on budget at completion. The cost of this project was estimated at $40,000 per
cell phone tower and 96 towers total in the 12-month period. This comes out to $3,840,000 total. To
date, 30 towers have been updated for a total of $1,250,000. Total estimated budget ($3,840,000)
minus the budget to date ($1,250,000) equals $2,590,000. At 66 towers for $40,000, we have
$2,640,000 budgeted for the remainder of the project, so the TCPI comes out to be $2,640,000 /
$2,590,000 which equals 1.02.

6. When you give an update to senior management today, what percentage of the project will you
report complete?

a. 37%
b. 31%
c. 40%
d. 28%

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 Taylor Bowen

What is your reasoning? With 8 towers a month for 12 months, the goal of the project is to
complete 96 cell phone tower installations within the year. So far we have only completed 30, and 30
divided by 96 = 31.3%.

7. You are managing a training project with an initial budget estimate of $5,000. During interim cost
and schedule performance analysis, you figured out that:

 You should have spent $750 till now based on your initial plans and 6 days of schedule activities.
 You spent $1,000 till now and completed 8 days of schedule activities which should have cost
$1,160 based on your initial plans.
 You re-estimated the budget required for the remaining work to be done as $4,500.

What are the CPI and SPI of the project?

a. CPI=0.9 and SPI=1.2

b. CPI=0.75 and SPI=0.9
c. CPI=1.16 and SPI=1.55
d. CPI=1.55 and SPI=0.75

What is your reasoning? CPI is calculated by taking the earned value (EV) and dividing it by the
actual cost (AC). In this training project this would come out to CPI = the $1,160 estimate in the
initial budget plans, divided by the $1,000 that was actually spend. So $1,160 / $1,000 = 1.16 CPI.
The SPI is then calculated by taking the earned value (EV) and dividing the planned value (PV), which
in this project would be the EV of $1,160 divided by the planned cost of $750. $1,160 / $750 =
1.5466. The SPI therefore comes out to 1.55.

8. What can be inferred about the current status of the project represented by the following graph?

a. under budget and ahead of schedule

b. over budget and ahead of schedule
c. under budget and behind schedule
d. over budget and behind schedule

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What is your reasoning? In the graph, the actual cost is higher than both planned value and earned
value, with earned value coming out to be the lowest. If the actual cost of a project is greater than
both planned and earned value, then the project is over budget. If earned value is less than planned
value, the project is also behind schedule.

9. A project has an original project budget of $1,150 and both the Cost Performance Index (CPI) and
Schedule Performance Index (SPI) are equal to 1. Assuming the project will continue to spend money
at the same rate, what is the estimate at completion (EAC) of the project?

a. $1,000
b. $1,250
c. $1,150
d. $1,033

What is your reasoning? If CPI and SPI are both at 1.0, this means the project is exactly on budget
and schedule. Both the budget at completion and the estimate at completion will then come out to
be the same at $1,150.

10. A project has an Earned Value (EV) = $5, Actual Cost (AC) = $7 and both Cost Performance Index (CPI)
and Schedule Performance Index (SPI) equal 0.90. The original project budget is $10. Assuming the
remaining work will be impacted by the current cost performance and current schedule
performance, what is the estimate at completion (EAC) of the project?

a. $12.96
b. $13.17
c. $14.75
d. $15

What is your reasoning? If both the CPI and SPIT influence the remaining work on a project, then
the estimate at completion (EAC) is calculated by this formula: EAC = AC + [BAC-EV) / (CPI x SPI)]. If
we plug in the given information for this formula, we get:
EAC = $7 + [($10 - $5) / (0.90 x 0.90)]
EAC = $7 + [$5 / 0.81]
EAC = $7 + 6.17
EAC = 13.17

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