CCP_SEC4_Progress and Cost Control

PPROGRESS ANDROGRESS AND CCOSTOST
CCONTROLONTROL
Hisham Haridy, PMP, PMI-RMP, PMI-SPCCP_Section 4

1. Earned Value Overview
2. Performance and Productivity Management
CContentontent
P R O G R E S S A N D C O S T C O N T R O L

The following elements are required for establishing an Earned Value System:
1. Organization of Program
The project or program organization may be managed by the Project
Management Office (PMO).
2. Work Breakdown Structure (WBS)
The WBS is an organized, hierarchical decomposition of project scope that
EARNED VALUE OVERVIEWEARNED VALUE OVERVIEW
The WBS is an organized, hierarchical decomposition of project scope that
serves as the backbone for the planning and management of the project.
3. Organizational Breakdown Structure (Project Organization Structure)
Reflects the company’s organization as integrated with a particular PMO to
support a specific project. The following are types of organizational
structures:
a) Functional Organizational
b) Matrix Organization
c) Project Organization

4. Responsibility Assignment Matrix (RAM)
A resource matrix of the organizational breakdown structure with the WBS,
which identifies the resources associated with the control account levels
established for the project, and cross references these levels to the
appropriate WBS elements.
At lower levels of the OBS, the intersection with the WBS defines control
accounts.
5. Work Authorization (WA)
Must be documented by a Work Authorization Directive (WAD).
Typically, a WAD contains a scope of work, start and finish dates, WBS,
responsible person, amount of budget authorized, and signatures of at least
the CAM and the Project Manager. Authorization approval are two types;
a) Outside or customer/client authorization
b) Internal authorization within the organization performing the work.

6. Planning, Scheduling, and Budgeting
Initial planning of a project requires a good definition of the scope of the
project and the steps and resources required to accomplish the work.
From the development of the milestone schedule, the project or program will
develop a critical path based schedule.
7. Performance Measurement Baseline (PMB)
PMB reflects the approved baseline of the project, time phased and loaded to
cost accounts into which the program is managed.
8. Control Accounts (CA)
A management control point, at which budgets (resource plans) and actual
costs are accumulated and compared to earned value for management
control purposes.

9. Risk Management
The review of the schedule, budget, process, and management of the
program, to determine the exposure to risk on the program
10.Work Package (WP)
Set of tasks performed within a control account that it has both schedule and
resources.
11.Planning Package (PP)
A logical aggregation of work, usually future efforts, that can be identified
and budgeted, but which is not yet planned in detail at the work package or
task level

12.Management Reserve (MR) and Contingency
Management Reserve (MR) is an amount added to the budget to allow for
discretionary management purposes, outside the scope of the project.
Contingency is an allowance or reserve added to the cost estimate and
schedule duration for anticipated, but not certain events.
13.Earned Value Definitions
Definitions of Earned Value are based on the development of the program
Budget, Actual Cost, and Performance.
The value is then divided into measurement classifications which determine
the performance index and variances of the program.
14.Variance Reporting
A variance analysis is the evaluation of the differences between the actual
and expected project performance.

15.Change Management
The formal process for the review and approval of new/revised work scope
versus original contract base scope.
16.Performance Review
At least on a monthly basis, generate the following information at the control
account and higher levels as necessary for management control, using actual
cost data (plus accruals) from, or reconcilable with, the accounting system:
Comparison of the amount of planned budget and the amount of budget
earned for work accomplished.
Comparison of the amount of the budget earned vs. the actual (applied
where appropriate) direct costs for the same work for both monthly and
cumulative.

A management methodology for integrating scope, schedule, and
resources/Cost, and for objectively measuring project performance and
progress.
Performance is measured by determining the
budgeted cost of work performed (i.e., earned
value) and comparing it to the actual cost of
work performed (i.e., actual cost).
Progress is measured by comparing the
earned value to the planned value.

General Earned Value Management
Forecasting
Forecasting
To-Complete Performance Index

AC
CV
SV
Project
slippage
EAC
Cost
BAC
Target Cost
VAC
ETC
Old Acronym Old Term New Acronym New Term
BCWS Budgeted Cost of Work Scheduled PV Planned value
BCWP Budgeted Cost of Work Performed EV Earned value
ACWP Actual Cost of Work Performed AC Actual value
PV
EV
SV
DataDate
Time
Schedule
slippage

Acronym Terms Interpretation
PV (BCWS) Planned Value The estimated value of the work planned to be done.
EV (BCWP) Earned Value The estimated value of the work actually accomplished.
AC (ACWP) Actual Cost The actual cost incurred for the work accomplished.
Terms
BAC Budget at Completion The BUDGET for the TOTAL project effort.
EAC Estimate at Completion The expected TOTAL project to cost (forecast).
ETC Estimate to Completion Currently, the expected cost to finish the project
(forecast)
VAC Variance at Completion Currently, the expected variance to be at the end of the
project.

Formulas
CV =
EV
(BCWP)
-
AC
(ACWP)
-ve Over budget
+ve Under budget
Cost Variance (CV)
SV =
EV
(BCWP)
-
PV
(BCWS)
-ve Behind Schedule
+ve Ahead schedule
Schedule Variance (SV)
CPI =
EV (BCWP)
=
Earned Value < 1 Over budget
AC (ACWP) Actual >1 Under budget
Cost Performance Index (CPI)
SPI =
EV (BCWP)
=
Earned Value < 1 Behind Schedule
PV (BCWS) Budget >1 Ahead Schedule
Schedule Performance Index (SPI)

Formulas
CSI = CPI X SPI
<1 Over budget and behind
schedule
Cost - Schedule Index (CSI)
CSI = CPI X SPI
>1 Under budget and
ahead of Schedule

Analysis
Under budget
A head of schedule
Over budget
A head of schedule
+
Best
Case
SV
Over budget
Behind schedule
Under budget
Behind schedule
+
-
-
CV
Worst
Case

2. Forecasting
Estimated at Completion (EAC); There are three scenarios
i. Assumes that work from a specific point forward will progress at planned rates
where or not these rates have prevailed to this point.
ii. Assumed that the rate of progress to date will continue to prevail.
EAC = AC + (BAC – EV)
ii. Assumed that the rate of progress to date will continue to prevail.
iii. Uses current project status and tender for forecasting (SPI and CPI)
EAC =
BAC
CPI
EAC = AC + ETC (Estimated to complete)
(BAC – EV)
CPI X SPI

Variance at Completion (VAC);
Estimate to Complete (ETC);
VAC = BAC - EAC
ETC = EAC - AC
ETC = EAC - AC

3. To-complete performance index (TCPI)
In order to stay within budget, what rate must we meet for the
remaining work?
It is the calculated projection of cost performance that must be achieved on the
remaining work to meet a specified management goal, such as the BAC or the
EAC.
Equation for the TCPI based on the BAC:
Equation for the TCPI based on the EAC:
=
(BAC – EV) work remaining
(BAC – AC) Funds remaining
=
(BAC – EV) work remaining
(EAC – AC) Funds remaining

Example
Activities 1 2 3 4 5 6 7
Budget
Cost
A 2,000 2,000 4,000
B 2,000 2,000 2,000 6,000
C 2,000 2,000 2,000 6,000
C 2,000 2,000 2,000 6,000
D 1,500 1,500 3,000
E 500 500 1,000
Cost/month 2,000 2,000 2,000 4,000 5,500 4000 500 20,000
cumulative 2,000 4,000 6,000 10,000 15,500 19,500 20,000

Activities 1 2 3 4 5 6 7
% of
Completion
A 2,000 2,000 100%
B 2,000 2,000 2,000 16.5%
C 2,000 2,000 2,000 25%
C 2,000 2,000 2,000 25%
D 1,500 1,500 0
E 500 500 0
Cost/month 2,000 2,000 2,000 4,000 5,500 4000 500 20,000
Cumulative 2,000 4,000 6,000 10,000 15,500 19,500 20,000
Cutoff date

Activities
Perform
Work
Budget
Cost
EV
(BCWP)
Actual
Cost
A 100% 4,000 4,000 4,500
B 16.5% 6,000 1,000 1,500
C 25% 6,000 1,500 1,000
D 0 % 3,000 0 0
D 0 % 3,000 0 0
E 0% 1,000 0 0
20,000 6,500 7,000
PV EV AC
6,000 6,500 7,000

Analysis
CV = 6,500 - 7,000 = - 500 Over budget
Cost Variance (CV)
SV = 6,500 - 6,000 = 500 Ahead of Schedule
Schedule Variance (SV)
Cost Performance Index (CPI)
SPI =
6,500
= 1.08 Ahead of Schedule
6,000
CPI =
6,500
= 0.93 Over budget
7,000
Schedule Performance Index (SPI)

Analysis
Under budget
A head of schedule
Over budget
+
SV
Over budget
A head of schedule
Over budget
Behind schedule
+
-
-
CV
Under budget
Behind schedule

2. Forecasting
Estimated at Completion (EAC);
EAC = 7,000 + (20,000 – 6,500) = 20,500
EAC =
20,000
= 21,505
0.93
EAC = 7,000 + 13,441 = 20,441
Variance at Completion (VAC);
Estimate to Complete (ETC);
VAC = 20,000 - 21,505 = - 1,505
ETC = 21,505 - 7,000 = 14,505

Equation for the TCPI based on the BAC:
Equation for the TCPI based on the EAC:
TCPI =
(13,500) work remaining
= 1.04
(13,000) Funds remaining
TCPI =
(13,500) work remaining
= 0.93
Baseline plan
1.00
+
- TCPI
(EAC)
TCPI
(BAC)
Status
Date

Objective: Optimize or maximize the company's performance and beat the
competition.
Tools (Programs): Productivity improvement, total quality management, re-
engineering, time-based competition, horizontal management, downsizing, and
right-sizing, they reorganize, trim staffs, invest in training, automate, and
computerize.
The goal: Spend less to make more money or spend less to provide the same or
PERFORMANCE & PRODUCTIVITY MANAGEMENTPERFORMANCE & PRODUCTIVITY MANAGEMENT
The goal: Spend less to make more money or spend less to provide the same or
better service.
For production type activities, reducing
worker and equipment hours per unit of
output—i.e., improving productivity.
For support and professional activities,
improving efficiency.
For all activities, reducing waste of time,
materials, and equipment.
Altogether, it means improving the
outcome of the total organization.

Success Index (SI) / Performance Index: Numerical evaluation of total
organizational performance
For a profit-oriented business
Success index =
Net profit
Total cost
Success index =
Net profit
For a service organization (such as a government)
Success index =
Essential costs + Cost of waste
Success index =
Value of services rendered
Costs of providing services
Success index =
Value of services rendered
Essential costs + Cost of waste

Essential costs
Personnel, material, equipment, tax, and other costs that would be incurred if
the organization were efficiently organized and running perfectly.
Types of waste cost
Inefficiencies inherent in the design and operation of the work place
Inefficiencies inherent in the design and operation of the work place
Individual inefficiencies
Non-contributing (wasted) time by individuals
Waste of materials, supplies, and services (misuse, overuse, loss)
Waste of equipment (abuse, misuse, loss)
Functions that no longer add value to the output of the organization

Performance Issues
Inefficiencies Losses
Organizational: Shortage of material or equipment and lack of procedures
Individual: Failure to plan, refusing to use labor-saving equipment (such as
a word processor), and poor filing.
Waste Through Interruptions
Phone calls and visitors
Try to avoid interruption using e-mails and visitor screening
Other time wasters
a. Events that are accepted parts of life; Elimination potential is not significant
b. Events in office that create time loss; Significant potential for elimination and
reduction by better planning.
c. Events in construction site; Controllable time wasters.
Certain actions or policies

Waste Through Rework
Excessive levels of supervision
Double handling of materials before use
Receiving data in hard copy and reentering it into another computer
Computer Illiteracy (Computer averse)
Scope Revision During Detailed Engineering
Excessive reviews/approvals
Excessive reviews/approvals
Failure to provide management guidance
Reinventing the Wheel and failing to develop lessons learned.
Out-of-Date or incorrect soecifications results in rework.

The Solution
1. Plan! Plan! Plan!
2. Establish written policies and procedures.
3. Involve users (e.g., operators) and constructors in design decisions.
4. Control changes
5. Give priority emphasis to safety and quality
6. Control disturbances and interruptions
7. Take advantage of modern technology
8. Employ partnering and team building
8. Employ partnering and team building
9. Communicate
10. Involve employees in planning
11. Use employee group problem-solving techniques
12. Make your work place a good place to work
13. Recognize employee achievements
14. Promote first-level quality control
15. Train managers, supervisors, and workers
16. Be selective in hiring

Productivity Issue
Production is dependent upon some combination of machines and personnel
so both must be examined when seeking productivity improvements.
1. Variability—sociological (area) factors
2. Variability—location factors
3. Variability—project and contract characteristics
4. Variability—human factors
5. Variability—field organization and management factors
6. Accounting for variability in estimates
a. Range estimating
b. Checklists and worksheets
Promoting productivity
By increasing the awareness of the factors affect that can the productivity.

Productivity Analysis
Determining percent complete that six methods for measuring and analyzing
productivity
1. Units Completed
This method is suitable when the total scope of an activity consists of a
number of equal or nearly equal parts.
number of equal or nearly equal parts.
In construction it is useful in activities such as earthwork, concrete work, and
wire pulling.
2. Incremental Milestone
This method is appropriate for activities of significant duration that are
composed of easily recognized.
This method is ideal for control of engineering drawings and can be used in
procurement.

3. Start/Finish Percentages
Applicable to tasks that lack definable intermediate milestones or those for
which the effort/time required is very difficult to estimate.
20~50% at start to compensate for the period between start and finish
when no credit is being given, 100% at completion that it’s reasonable for
short duration and lower value tasks.
Scheduling is detailed with multiple, short-term tasks, planning and testing.
Scheduling is detailed with multiple, short-term tasks, planning and testing.
4. Ratio
Applicable to tasks such as project management, constructability studies,
project controls – overheads summarized with production.
Applicable for long period and continuous tasks which are estimated and
budgeted on allocation of dollars and work hours rather than on basis of
production.
Percent Complete = (Actual work hours to date) / (Forecast at completion).

5. Supervisor Opinion
Supervisor makes a judgment of percent complete.
It’s a subjective approach and should be used only for minor tasks
6. Weighted or Equivalent Units
Applicable for a long period task that is composed of two or more
overlapping subtasks, and each with a different unit of work measurement.

Productivity measurement of individual work tasks
Productivity analysis at a summary level
1. Credit work hours (CWH) = (budgeted unit rate*) x (units completed to date)
*budgeted unit rate = budgeted hours per unit of work
Productivity =
Number of units completed
Work hours consumed
3. For a combination of work packages or for a total project
Productivity Index =
CWH to date
Actual WH to date
Productivity Index =
CWH to date
Actual WH to date

Use of productivity data

Incentives
Why incentives
1. Increase productivity and reduce waste
2. Improve employee morale and promote teamwork
3. Identify more cost-effective work procedures
4. Improve quality
5. Reduce absenteeism
5. Reduce absenteeism
The stimuli
1. Possibility of winning that personal satisfaction in achieving a goal,
financial gain, career enhancement, pride of being in winning team, a
chance to do something different.
2. Fear of losing that potential loss of job, potential loss of promotion, .. etc.
Rewards within the winning scenario
1. Intrinsic value such as cash rewards
2. Extrinsic value such as medals, badges (esteem value).

Productivity Index Evaluation Worksheet
Purpose: to facilitate a comparison of the productivity potential of a proposed
project with respect to a completed project
A productivity index of 1.0 is average
A productivity index less than 1.0 is less than average (unfavorable)
A productivity index greater than 1.0 is better than average (favorable)
Use of worksheet

Productivity Index Evaluation Worksheet 1/2

Productivity Index Evaluation Worksheet 2/2

1. Project Planning
2. Scheduling
PLANNING AND SCHEDULINGPLANNING AND SCHEDULING

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CCP_SEC4_Progress and Cost Control

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