Project Planning and Excution chapter 4.ppt

Progress Tracking and Monitoring
Earned Value Analysis Schedule and Cost
Variance Forecasting Resource Management and
Cost Control
Chapter 4
Project Execution andControl
Dinkisa K. (PhD)
Project Planning....

Cost Control
Table ofContents
1
2
Earned Value Analysis
o Efficiency Indices
3
Schedule and Cost Variance Forecasting
4 Resource Management and Cost Control
o Identify Potential Resources
o Determine Resource Availability
o Decide Timing Issues when Resourcing Projects

Cost Control
• Project tracking and monitoring are one way of controlling and
reporting the project progress.
• Project tracking allow project manager to track the project
progress and its current performance.
• Monitoring is collecting, recording and reporting information
concerning project performance.
• The project progress can be tracked based on the progress-
related quantities such as remaining duration, actual and
remaining units, and cost.

Cost Control
Project Tracking and Monitoring Process
It is possible to choose from many percentages to report progress, such as:
oPhysical percent complete,
oLabor unit percent complete
oMaterial cost percent complete or cost percent of budget.
Avantages
•Project tracking and monitoring will enable the project team and manager to
oMonitor the project to ensure that everything is proceeding according to plan.
oIdentify and eliminate root causes of problems, if it arises.
oProvide recommendations for corrective and preventive actions.

Cost Control
Progress Control Charts Trend Analysis
Control charts/ Trend Analysis
• Tools used to monitor project progress includes histogram, control charts, trend
analysis, etc.
• The project team wants to see how one specific aspect of the work process
may change over time.
• Control charts are graphs that display periodic results along with established
control limits, to determine whether the project performance is improving or
getting worse.
• They help to distinguish between normal variations and unusual variations
produced by special causes that need to be identified and corrected.
• They are used to determine if a process is in control or in need of adjustment (see
Fig. 4.1).

Cost Control
Project Control Charts
• If they collect data for two weeks on a daily basis and show them
on a control chart (Figure 4.1), they could determine trends in
how the process is changing over time.
• Figure 4.1: Project control chart

Cost Control
• Control limits identify the natural variation
(normal variation or unusual variation) that
occurs in the process.
o Example: If the project team has established an upper control limit of
70% and a lower control limit of 20% for the material cost as a
percentage of budget, all the points in this two-week period would be
within the normal variation except the rejection rate of 10% on the
First Day.
• Points outside the control limits generally signal that
something has occurred that requires attention, such as a
problem with equipment, defective materials, or an employee.

Cost Control
E f f c i e n c y Indices
Earned ValueAnalysis (EVA)
• Under progress tracking and monitoring, we have
shown that monitoring of the project progress is crucial.
• One way of measuring overall performance is by using
an aggregate performance measure called earned
value analysis.
• EVA is used to determine exactly how actual cost and
schedule progress are compared with planned progress.

Cost Control
E f f i c i e n c y Indices
Earned ValueAnalysis
• It is a way to measure and evaluate project performance.
• It compares the amount of work planned with what is
actually accomplished to see whether the project is on
track.
• It uses various calculations and ratios to measure and report on
the status and effectiveness of project work.
• Earned value is unique because it calculates cost, schedule, and
scope measurements together to determine various indexes,
performance measures, and variances.

Earned value analysis….
• is an industry standard way to measure a project’s
progress, forecast its completion date and final cost, and
provide schedule and budget variances along the way.
• EVM is a project performance measurement technique
that integrates scope, time, and cost data.
 Given a baseline (original plan plus approved changes),
you can determine how well the project is meeting its
goals.
 The first step in EVAis to determine the following three
key values

Earned value
• Simply, it is a project monitoring and
measurement system that:
1. establishes a clear relationship between
planned accomplishments and actual
accomplishments
2. reinforces and rewards good planning
practices

What’s more Important?
 Knowing where you
are on schedule?
are on budget?
are on work
accomplished?

Earned Value needed because...
 Different measures of progress for different types of tasks
 Need to “roll up” progress of many tasks into an overall
project status
 Need for a uniform unit of measure (dollars or work-hours).
 Provides an “Early Warning” signal for prompt corrective
action.
– Still time to recover
– Timely request for additional funds

Earned Value Management (EVM)
By integrating three measurements, it provides
consistent, numerical indicators with which you
can evaluate and compare projects.
 It compares the PLANNED amount of work with
what has actually been COMPLETED, to
determine if COST , SCHEDULE, and WORK
ACCOMPLISHED are progressing as planned.
Work is “Earned” or credited as it is completed.

Cost Control
Efficiency Indices
Three key values(Earned Value Components)
1
1. Planned Value (PV): is the planned cost of work scheduled to be done
in each time period. PMBOK Guide, “Planned Value (PV) is the
authorized budget assigned to work to be accomplished for an activity or
WBS component.”
 How much work should be done?
 It is also called the Budgeted Cost of Work Scheduled (BCWS)
 Total Planned Value for the project is known as Budget at
Completion (BAC).
Planned Value = (Planned % Complete) X (BAC)
Example: You have a project to be completed in 12 months. The budget of the project is
100,000 USD. Six months have passed, and the schedule says that 50% of the work
should be completed. What is the project’s Planned Value (PV)?

Cost Control
Efficiency Indices
Three key values
1
3
Given:
Project duration: 12 months
Project cost (BAC): 100,000 USD
Percent complete: 50% (as per the schedule)
Solution: Planned Value is the value of the work that should have been completed
so far (as per the schedule). In this case, we should have completed 50% of the
total work.
Planned Value = 50% of the value of the total work
= 50% of BAC
= 50% of 100,000
= (50/100) X 100,000
= 50,000 USD
Therefore, the project’s Planned Value (PV) is 50,000 USD.

Cost Control
Efficiency Indices
Three key values
2
2. Actual Cost (AC): is the total cost incurred to complete the work that was
actually performed in a given time period. PMBOK Guide, “Actual Cost (AC)
is the total cost actually incurred in accomplishing work performed for an
activity or WBS component.”
 How much did the “is done” work cost?
 It is also called the Actual Cost of Work Performed (ACWP).
Actual Cost is the amount of money that you have spent so far.
Example: You have a project to be completed in 12 months. The budget of the project
is 100,000 USD. Six months have passed, and 60,000 USD has been spent, but on
closer review, you find that only 40% of the work has been completed so far. What is
the project’s Actual Cost (AC)?
Solution: You have spent 60,000 USD on the project so far. Hence, The
project’s Actual Cost is 60,000 USD.

Cost Control
Efficiency Indices
Three key values
3. Earned Value (EV): is the planned cost of work actually
performed in a given time period.
PMBOK Guide, “Earned Value (EV) is the value of work performed
expressed in terms of the approved budget assigned to that work for
an activity or WBS component.”
How much work is done?
It is also called the Budgeted Cost of Work Performed (BCWP).
Earned Value = % of completed work X BAC (Budget at
Completion).
Example: You have a project to be completed in 12 months. The
budget of the project is 100,000 USD. Six months have passed, and
60,000 USD has been spent. On closer review, you find that only
40% of the work has been completed so far.
What is the project’s Earned Value (EV)?

Cost Control
Efficiency Indices
Three key values
3
Given: In the above question, you can clearly see that only
40% of the work is actually completed, and the definition of
Earned Value states that it is the value of the project that has
been earned.
Solution:
Earned Value = 40% of the value of total work
= 40% of BAC
= 40% of 100,000
= 0.4 X 100,000
= 40,000 USD
Therefore, the project’s Earned Value (EV) is 40,000 USD.

Earned Value: Example
Cost
(Person-Hours)
Time (Date)
Planned Value: what your
plan called for sending on the
tasks planned to be
completed by this date.
Today
Earned Value: value (cost) of
what you have accomplished
to date, per the base plan.
Actual Cost: what you
have actually spent to this
point in time.

Earned Value: Example
Cost
(Person-Hours)
Time (Date)
Today
Behind
Schedule
Over
Budget

Cost Control
E fficiency Indices
Terms in Value Analysis
Figure 4.2: Earned value chart
Variable measure in the vertical axis is monetary value (say in Birr) and time
is measured along the horizontal axis (in months).

Earned Value Management
 How can you use this information?
– Careful analysis of variance and trends
– Resetting schedule or budget, when appropriate
 Variance Analysis Questions
– What is the problem causing the variance?
– What is the impact on time, cost and performance?
– What is the impact on other efforts, if any?
– What corrective action is planned or under way?
– What are the expected results of the corrective
action?

Earned Value Management
• Extraordinary variance or alarming trends may be
cause for reset or cancellation of a project, but
where do you draw the line?
• How much variance to allow depends on a
number of factors:
– Life-cycle phase
– Length of life-cycle phase
– Length of project
– Type of estimate
– Accuracy of estimate

Requirements of Earned Value
 Proper WBS Design
 Baseline Budget Control Accounts
 Baseline Schedule
 Work measurement by Control Account
– work-hours, dollars, units, etc.
 Good Project Management Practices

Shortcomings of Earned Value
 Quantifying/measuring work progress can be
difficult.
 Time required for data measurement, input, and
manipulation can be considerable.

Cost Control
Efficiency Indices
Terms in Value Analysis (Derived Metrics)
• Schedule Variance (SV): is a schedule performance measurement that
used to assess the magnitude of variation to the original schedule baseline. How
much is the project schedule ahead or behind?
• SV is determined by subtracting the earned value from the planned value. A
positive result means the project is ahead of schedule; a negative result means the
project is behind schedule.
• SV = EV ---PV (SV; Behind is negative).
• Cost Variance (CV): is the amount of budget deficit or surplus at a
given point in time, is determined by subtracting the earned value from the
actual cost. How much is the project over or under budget?
• A positive result means the project is under budget; a negative result means the
project is over budget.
• CV = EV --=AC (CV; Overrun is negative).

Derived Metrics
SPI: Schedule Performance Index
SPI=BCWP/BCWS
SPI<1 means project is behind schedule
CPI: Cost Performance Index CPI= BCWP/ACWP
CPI<1 means project is over budget
CSI: Cost Schedule Index (CSI=CPI x SPI)
The further CSI is from 1.0, the less likely project
recovery becomes.

Doing The Math
 SV = BCWP(EV) - BCWS
 Negative means Behind Schedule
 SPI = BCWP(EV) / BCWS
 Less than 1.00 means Behind Schedule
 CV = BCWP(EV) - ACWP
 Negative means Over Budget
 CPI = BCWP(EV) / ACWP
 Less than 1.00 means Over Budget
 Estimate at completion (EAC) = BAC / CPI

Cost Control
Terms in Value Analysis
• Time variance (TV): is the difference in the time scheduled for
the work that has been performed (ST) and the actual time used
to perform it (AT).
TV = ST-AT (TV; Delay is negative)
• The two variances help us understand in birr terms how poorly or
well we are performing on cost and schedule.
• However, some people prefer to use efficiency measures, called
indices, to understand in percentage terms how well or poorly the
project is performing.
• The two most used indices are:
o Schedule Performance Index (SPI)
o Cost Performance Index (CPI).

Cost Control
Efficiency Indices
Efficiency Indices
•Schedule Performance Index. is a measure of schedule efficiency expressed
as a ratio of earned value to the planned value.
SPI = EV
PV
o It is a measure of schedule efficiency.
o How efficient is the project so far with its schedule
• SPI < 1 means the project has accomplished less work than planned and is behind
schedule; SPI > 1 means the project is ahead of schedule (more work is completed
than the plan).
• Cost Performance Index:- is a measure of cost efficiency of budgeted
resources expressed a ratio of the earned value to the actual cost.
CPI = EV/AC
•This ratio is a measure of cost efficiency (how efficiently birr is being spent).
How efficient is the project so far with its budget?
CPI < 1 means the work is costing more than planned;
CPI > 1 means the work is costing less than planned.

Cost Control
E f ficiency Indices
Example 1
The ABC Project was scheduled to cost ETB 1,500 and was
originally scheduled to be completed today. As of today,
however, the project has spent ETB 1,350 and it is estimated
that only two-thirds of the work has been completed.
1
1
2
4
3
5
Calculate and interpret the Schedule and Cost Variances.
Find and interpret the Schedule and Cost Performance Indices.
Calculate and Estimate to Complete First method and Second method
provided that Budget at Completion is Birr 6500.
Compute and interpret Estimate at Completion.
Find and interpret To-complete Performance Index.

Cost Control
Solution: SVand CV
Given
2
3
PV = 1500 EV = ∗1500 = 1000 AC = 1350 BAC = 6500
1. Calculate and interpret the Schedule and Cost Variances.
SV = EV- =PV = 1000 -=1500 = -500
(project is significantly behind schedule).
CV = EV -=AV =1000-1350= -350
(project is over budgeted).

Cost Control
Efficiency Indices
Solution: SPI andCPI
2. Find and interpret the Schedule and Cost Performance Indices.
EV 1 0 0 0
PV 1 5 0 0
SPI = = = 0.67
Interpretation: Since the value is significantly less than1, it
indicates that the project has accomplished less than planned
(only 67 percent) and is significantly behind schedule (less
efficient than planned).
EV 1000
AV 1 3 5 0
CPI = = = 0.74
Interpretation: Since the value is less than 1, it indicates that
the project is costing more than planned. Each ETB 1 spent on
the project has produced only ETB 0.74 worth of value. We
know our project is over budget because we have only received
ETB 0.74 worth of results for every birr we have spent.

An Example:
 Make 1,000 cups over 50 days
 Steady rate of 20 cups per day
 Budgeted cost per cup is $0.50
 Total project budget is $500
 At end of day 10:
 150 cups have been made
 Total actual cost is $90 (ACWP)

Cont’d
 BCWS = $100
 10 days x 20 cups per day x .50/cup budget
 BCWP = $75 (Earned Value)
 150 cups x .50/cup budget
 SV = BCWP - BCWS = -$25
 SPI = BCWP / BCWS = 0.75
 CV = BCWP - ACWP = $75 - $90 = -$15
 CPI = BCWP / ACWP = 0.833

Cont’d
 EAC = BAC / CPI = $500 / 0.833 = $600
 VAC = BAC - EAC = $500 - $600 = $100
(unfavorable)
 Schedule at Completion =
50 / SPI =
50 / 0.75 =
66.67 days

Rules of Thumb for Earned Value Numbers
 Negative numbers for cost and schedule variance
indicate problems in those areas.
 The project is costing more than planned or
taking longer than planned
 CPI and SPI less than 100% indicate problems

Another Example Project
• Plans to spend $100K in each of first 4 weeks
(baseline budget, per documented plan)
• Actuals, at end of week 4 show: $325K spent
– BCWS = $400K ($100K x 4)
– ACWP = $325K
• What conclusions can you draw?
• Under budget?
• Is project on schedule?

Another Example Project
• Suppose BCWP is $300K
– How is this determined?
• What conclusions now?
– SV = BCWP – BCWS
– SV = $300k - $400K = -$100K
• Behind schedule, but what does the $100K in variance really
mean?
– CV = BCWP – ACWP = $300K - $325K
• Over budget by $25K

Cost Control
Schedule and Cost VarianceForecasting
• Looking at above example, so far, we have performed fairly
poorly.
• These variances and indices are not merely enough to talk about
the full progress of the project, as they only tell about the status of
the project at a given point in time.
• Now it is time to forecast how we will perform for the remainder
of the project.
• The simplest way to estimate future performance is to predict that
past performance will continue.
• There are projects, however, that may have unusual circumstances
in the early stages that are not likely to be repeated later.

Cost Control
Schedule and Cost Variance Forecasting
• In those instances, the project manager and sponsor need to use
judgment to determine if the original estimates for the
remaining work are better predictors.
• In each case, an estimate is made for the remaining work and
added to the actual cost of work completed to provide the
overall estimate.
• We will use the most used methods to forecast how we will
perform for the remainder of the project.
• These include:
o Estimate-to-Complete (ETC)
o Estimate-at-Completion (EAC)
o To-complete Performance Index (TCPI)

A Few More Acronyms
 BAC - Budget At Completion
– = Total Original Budgeted Cost
– Same as BCWS at completion
 EAC - Estimate At Completion
– = Cumulative Actuals + Estimate to Complete
 VAC - Variance At Completion
– = Forecast of final cost variance

Cost Control
Budget at Completion and Estimate to Complete
• Budget at Completion (BAC)
• It is the estimated total cost of the project when completed.
• It is calculated by totaling the cost of all activities outlined on the
WBS.
 How much was the total project supposed to cost?
• Estimate to Complete (ETC).
• This is the expected additional cost needed to complete all the
remaining project work.
 How much more do we expect to spend to finish the
project?
There are two methods of calculating ETC:
 ETC First Method
 ETC Second Method

Cost Control
Estimate to Complete
ETC =
• ETC First Method
• It is calculated by subtracting the earned value from the BAC, then
dividing the result by the CPI.
BAC−EV
CPI
(ETC − First Method)
• It shows the expected additional cost needed to finish the
project based on project performance to date.
• It is based on the assumption that our future performance will
have the same efficiency as our past performance.
• ETC Second Method
• It is calculated by subtracting the earned value from BAC.
ETC = BAC − EV (ETC − Second Method )
• This method is based on the assumption that the original plan is a
better predictor than the work to date (maybe because of unusual
circumstances that are unlikely to continue).

Cost Control
Example: ETC
C P I 0 .7 4
• ETC First Method
E T C = B A C − E V
= 6 5 0 0 − 1 0 0 0
= 7432.4
CPI 0.74
 Interpretation: Unless we improve upon our efficiency, we
can expect to pay more for the remaining project work than
we originally expected to pay for the entire project!
• ETC Second Method
ETC = BAC − EV = 6500 − 1000 = 5500
 Interpretation: Original plan is good estimate of future
because we are expected to pay less for the remaining project
work than we originally expected to pay for the entire project!

Cost Control
Estimate at Completion
•It is the expected total cost of completing all work expressed as the sum of actual cost
to date and the estimate to complete.
EAC = AC + ETC
•In our example, if we believe our efficiency to date is a good predictor of the future,
EAC is :
EAC = AC + ETC1st = 1350 + 7432.4 = 8782.4
•But, if we believe what happened so far will not be repeated and our original plan is
good for the remaining work, EAC is: EAC = AC + ETC2nd = 1350 + 5500 = 6850
•Interpretation: Because our cost efficiency is only 74% (see CPI), which is less
than our plan , unless we become more efficient, we can expect to pay extra 35 percent of
our original estimate! Even if we match our original plan for the rest of the project, we
will still be way over budget in the end.

Cost Control
To-Complete Performance Index (TCPI)
• It is a measure of the cost performance that is required to be achieved
to finish the outstanding work to the remaining budget.
• It is the ratio of the remaining work to the remaining budget:
TCPI = (BAC−EV )
(BAC−AC)
• In our example is calculated as
TCPI = (BAC−EV )
= (6 5 0 0 −1 0 0 0 )
= 1.068
(BAC−AC ) (6500−1350)
•That means so far, our cost efficiency as measured by our
CPI is 74% and we need to suddenly raise it to 106.80%
for the remainder of the project to complete on budget!

Cost Control
Identify Potential Resources
Deter mine Resource Availability
Decide Timing Issues when Resourcing Projects
Resource Management and Cost Control
• Project human resource management is often overlooked in projects.
• It involves identifying the people needed to do the job, required skills,
defining their roles and responsibilities, reporting relationships, and then
managing them as the project is executed.
• Roles and responsibilities for project participants can be documented in role
descriptions, usually including title, assigned duties, and limits of authority
as shown in Table 4.1.
Figure 4.1: Project control chart

Cost Control
Resource Management and Cost Control
•Resource management can also be looked at in other ways, depending on the
nature of the business and on management attitudes.
oIn those industries with a high proportion of casual labour, or which subcontract large
elements of their work, detailed in-house resource scheduling can usually be confined to
the relatively few permanent headquarters staff.
•A staffing management is a component of the human resource management
oIt describes when and how project team members will be acquired and how long they
will be needed.
oIt addresses how to identify potential internal and/or external human resources for the
project, determine the availability of each and decide how to handle timing issues
regarding building up, developing, rewarding, and releasing the project team.

Cost Control
Decide Timing Issues when Resourcin
g Projects
• Identifying people who might work on a project differs
significantly from one organization to another.
• In a small organization, one particular person may often be the logical
choice for certain types of work on a project.
• In larger organizations and in situations where outside resources may
be hired, identifying potential people becomes a bigger issue.
• Whatever the situation, a project manager needs to understand
who is potentially available to work on his/her project.

Cost Control
• A project manager uses the following information when
identifying people who could potentially work on the project.
o Work functions (job titles and range of responsibilities)
o Professional discipline (degrees and professional certifications)
o Skill level (experience and performance ratings)
o Physical location (willingness to relocate and travel)
• Given the above information, a project manager can compare
the available people to the estimated resource needs to identify
both gaps in specific skills that are needed and gaps in the
number of people available versus those needed.
• If it is clear that more and/or different people are needed, then
the project manager needs to look elsewhere.

Cost Control
Decide Timing Issues when Resourcing Project
s
Determine ResourceAvailability
• Once the potential resources have been identified, it is necessary to
discover if the identified people are available and committed.
• In terms of resource availability, full- and part-time resources as well
as internal and external resources may be available.
• If the new project is of higher priority than an existing project,
resources that were already committed may be freed up.
• Regarding ability to commit at a very detailed level, some people have
individual calendars with specific vacation or other unavailable times.

Cost Control
• Projects, because of their temporary nature and unique outputs,
have timing issues unlike those of ongoing operations.
• Early in the project, one timing issue is when to bring people on
board.
 Bringing them on before they are needed can be costly. However, if the project
manager takes a chance with an important resource and that person is not
available, the schedule will probably be delayed.
• The general solution is to assign key players as quickly as possible.
• This helps establish good project planning, effective project culture, and
early project progress.

Cost Control
•Of course, a project manager may need to negotiate not just for who will be
assigned to his project, but when they will be assigned.
•As members are brought on board, timing issues involve getting the team
functioning effectively and keeping them motivated and on schedule.
•Near the end of a project, timing issues include rewarding,
recognizing, and releasing project team members.
•The staffing management deals with these three issues:
ohow the project planners identify potential people for the project,
ohow they determine which people are available and secure their services, and
ohow to deal with timing issues of building up and then releasing the workforce.

Project Planning and Excution chapter 4.ppt

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Project Planning and Excution chapter 4.ppt