Software Project Management (KOE-068)

UNIT-4 (Lecture-4)
Cost Monitoring and Earned Value Analysis
Expenditure monitoring is a vital component of project control because it provides an indication
of the effort that has gone into a project. A project might be on time but only because more
money has been spent on activities than originally budgeted. A cumulative expenditure chart
such as that shown in Figure provides a simple method of comparing actual and planned
expenditure. Figure illustrates a project that is running late or one that is on time but has shown
substantial costs savings. The current status of the project activities has to be taken into account
before attempting to interpret the meaning of recorded expenditure.
Cost charts become useful if we add projected future costs calculated by adding the estimated
costs of uncompleted work to the costs already incurred. Where a computer based planning tool
is used, revision of cost schedules is generally provided automatically once actual expenditure
has been recorded.

Cost Monitoring depends upon various parameters:

Project Management
Project Planning
Project Execution
Project Control
Project Completion
Project Cost Control
Project Budget
Cost Tracking
Time Management
Project Change Control
Collecting Project Cost Control Data

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 Software Project Management (KOE-068)

Earned Value Analysis

Earned Value Management (EVM) is a project management technique that objectively tracks
physical accomplishment of work.
More elaborately:
EVM is used to track the progress and status of a project and forecasts the likely future
performance of the project.
EVM integrates the scope, schedule, and cost of a project.
EVM answers a lot of questions to the stakeholders in a project related to its
performance.
EVM can be used to show the past and the current performance of a project and predict
the future performance of the project by the use of statistical techniques.
Good planning coupled with effective use of EVM will reduce a lot of issues arising out
of schedule and cost overruns.
EVM consists of the following three basic elements:

Planned Value
Actual Cost
Earned Value
All the three elements are captured on a regular basis as of a reporting date.

Planned Value

Planned value (PV) is also referred to as Budgeted Cost of Work Scheduled (BCWS). PV or
BCWS is the total cost of the work scheduled/planned as of a reporting date.
PV or BCWS = Hourly Rate × Total Hours Planned or Scheduled

Actual Cost

Actual cost (AC) is also referred to as Actual Cost of Work Performed (ACWP). AC or ACWP
is the total cost taken to complete the work as of a reporting date.
AC or ACWP = Hourly Rate × Total Hours Spent

Earned Value

Earned value (EV) is also referred to as Budgeted Cost of Work Performed (BCWP). EV or
BCWP is the total cost of the work completed/performed as of a reporting date.
EV or BCWP = Baselined Cost × % Complete Actual

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 Software Project Management (KOE-068)

All these three elements can be derived from Work Breakdown Structure by associating the costs
to each of the tasks.

% Completed Planned

The percentage of work which was planned to be completed by the Reporting Date. It is
calculated using the following formula:
% Completed Planned = PV / BAC

% Completed Actual

The percentage of work which was actually completed by the Reporting Date. It is calculated
using the following formula:
% Completed Actual = AC / EAC

Cost variance
Cost Variance (CV) is a very important factor to measure project performance. CV indicates how
much over - or under-budget the project is.
Cost Variance (CV) = Earned Value (EV) − Actual Cost (AC)

Cost Performance Indicator

Cost Performance Indicator (CPI) is an index showing the efficiency of the utilization of the
resources on the project.
CPI = Earned Value (EV) ⁄ Actual Cost (AC)

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