EVM and Project Performance Flashcards
Earned Value Management (EVM)
Earned Value Management (EVM) is a methodology that combines scope, schedule, and resource measurements to assess project performance and progress.
What does a Cost Performance Index (CPI) of more than 1.0 indicate?
A CPI of more than 1 means the project is under budget.
CPI = EV/AC
Earned Value over Actual Cost
NOT necessarily that the project is ahead of schedule.
The CPI is calculated as the earned value divided by the actual cost. While EVM considers schedule, a CPI of greater than one simply indicates that you have spent less than you forecasted to this point.
What is CPI?
The Cost Performance Index (CPI)
Measures efficiency.
CPI = EV/AC
Earned Value over Actual Cost.
An earned value management (EVM) measure that indicates how efficiently the work is being performed with regard to the budgeted cost of the work.
Ratio. <1 is bad, >1 is good.
[PMBOK7 p100] (Domain: Process, Task 5)
Variance at Completion (VAC)
Variance at Completion (VAC) is a formula that measures a project’s actual cost, compared with the budgeted amount. It is the difference from the budget at completion (BAC) and the estimate at completion (E.A.C.). The formula is VAC = BAC minus E.A.C.
Schedule Performance Index (SPI)
Schedule Performance Index (SPI = EV/PV) Earned Value over Planned Value is a measure of schedule efficiency, expressed as the ratio of earned value over planned value. Less than 1 = behind schedule. Greater than 1 = ahead of schedule.
Schedule Variance (SV)
Schedule Variance (SV) is a measure of schedule performance is expressed as the difference between the earned value and the planned value.
SV = EV minus PV
Earned Value minus Planned Value
Cost Variance (CV)
Cost Variance (CV) is a measure of cost performance is expressed as the difference between the earned value and the actual cost.
CV = EV-AC
Earned Value minus Actual Cost.
Schedule Baseline
Schedule Baseline is the approved version of a schedule model that can be changed using formal change control procedures and is used as the basis of comparison to actual results. It is one of the main project documents that should be created before the project starts.
Budget at Completion (BAC)
Budget at Completion (BAC) is the total PLANNED cost of the project: includes Activity Cost Estimates (from WBS) + Contingencies
Estimate to Completion (ETC)
Estimate to Completion (ETC) is the additional budget required to meet the project objectives at a given point in time.
The estimate to complete (ETC) is an earned value measure that forecasts the expected cost to finish all the remaining project work. [PMBOK7 p104] (Domain: Process, Task 5)
A manual estimate of the cost of the remaining work is generally considered the best means of generating an accurate forecast of an ETC.
Management Reserve
Management Reserve is an amount of the project budget held outside of the performance measurement baseline (PMB) for management control purposes, that is reserved for unforeseen work that is within the scope of the project. Usually 5 – 10% of the project budget. This should not be confused with contingency reserve.
performance measurement baseline (PMB)
performance measurement baseline (PMB) is the Planned Value curve in totality: and the reference for performance checking
Estimate at Completion (E.A.C.)
Estimate at Completion (E.A.C.) is the estimated total project cost at a given point in time.
E.A.C. = AC + re-estimate of remaining work from the given point in time.
It is an earned value management measure which forecasts the expected total cost of completing all work.
Variance at Completion (VAC)
Variance at Completion (VAC = BAC - E.A.C.) measures a project’s actual cost, compared with the budgeted amount. The difference from the budget at completion (BAC) and the estimate at completion (E.A.C.).
If the current CPI is 0.79 and the current SPI is 0.98. Your next phase plan should focus first on which element of the project?
Focus on Cost
NOT Schedule.
A Schedule Performance Index (SPI = EV/PV) of less than one indicates that less work has completed than planned, and a Cost Performance Index (CPI = EV/AC) of less than one indicates a cost overrun for the work completed. In this scenario, the cost overrun is more severe than the schedule delay. Therefore, you should focus on reducing the cost of the project. [PMBOK7 p100-105] (Domain: Process, Task 5)
Your construction project has incurred significant delays and cost overruns due to a number of project issues. The senior leadership is not happy with the situation and has asked to you provide a realistic cost estimate to complete the project. What is the best way to make an accurate forecast of ETC on your project?
Manual forecasting of cost of the remaining work.
NOT BAC minus EV
Manual forecasting of costs of remaining work is the most common forecasting approach. It is generally considered the best means of generating an accurate forecast of ETC. [PMBOK7 p100-105] (Domain: Process, Task 5)
If an Agile project’s SPI is greater than the project’s CPI, and the CPI is greater than 1.0, what can you infer about the project’s schedule performance?
The project is ahead of schedule.
NOT The project is behind schedule.
In this case, if the CPI (CPI = EV/AC) is greater than 1.0, then the SPI (SPI = EV/PV) will also be greater than 1.0 (since it is greater than the CPI). This implies that the project is ahead of schedule. [Agile Practice Guide, 1st edition, Page 69] (Domain: Process, Task 6)
Explain Earned Value (EV)
Earned Value (EV) is a measure of work performed expressed in terms of the budget authorized for that work. It is an essential data point for evaluating project progress and performance.
(Formula: EV = Percent Complete (actual) × Task Budget).
Eg. if the actual percent complete is 25% and the task budget is
$10,000, EV = 25% x $10,000 = $2,500.
Explain Planned Value (PV)
Planned Value (PV) is the budget assigned to scheduled work.
(Formula: PV = Percent Complete (planned) × Task Budget)
Eg. if it’s Feb. 12 today, and the task is supposed to last from Feb. 10 to Feb. 20, it should be 20% complete. If the task budget is $10,000, PV =
20% × $10,000 = $2,000.
Explain Schedule Variance (SV)
Schedule Variance (SV) is a measure of schedule performance expressed as the difference between the earned value and the planned value.
Formula: SV = EV minus PV)
Positive = Ahead of schedule
Zero = On schedule
Negative = Behind schedule
To Complete Performance Index (TCPI)
To Complete Performance Index (TCPI) is the estimate of the future cost performance that may be needed to complete the project within the approved or a revised project budget. It is the future projected cost efficiency needed to complete the project within the original or a revised project budget.
TCPI = (Remaining work) over (Remaining Funds)
The equation for the TCPI based on the BAC:
(BAC minus EV) over (BAC minus AC).
TCPI based on an E.A.C.:
(BAC minus EV) over (E.A.C. minus AC).
The TCPI is the future cost performance needed to complete the project given the starting budget or a revised budget.
Explain Variance Analysis, as used in EVM
Variance Analysis, as used in EVM, is the explanation (cause, impact, and corrective actions) for:
cost variance (CV = EV minus AC)
schedule variance (SV = EV minus PV)
and variance at completion (VAC = BAC minus E.A.C.).
Earned Value Analysis (EVA)
EVA involves comparing the performance measurement baseline, which includes planned schedule and cost performance, to the actual schedule and cost performance.
Explain Actual Cost
(AC)
Actual Cost (AC) is the realized cost incurred for the work performed on an activity during a specific time period.
(AC = Actual Cost of the Task)
Eg: if the realized cost incurred is $3,500, AC = $3,500.
Explain Budget at completion
(BAC)
Budget at completion
(BAC)
Represents the total budgeted cost of the project when it is expected to be completed.
Explain Cost Variance (CV)
Cost Variance (CV) is the amount of budget deficit or surplus at a given point in time.
(Formula: CV = EV minus AC)
Earned Value minus Actual Cost.
Positive = Under budget
Neutral = On budget
Negative = Over budget
If an Agile project’s SPI is greater than the project’s CPI, and the CPI is less than 1.0, what can you infer about the project’s schedule performance?
This cannot be determined with the given data.
NOT Agile projects do not have Earned Value measurements.
NOR The project is ahead of schedule.
NOR The project is behind schedule.
The given conclusions about schedule cannot be determined with the given data. For example CPI can be 0.5 and the SPI can be 0.6 implying the project is behind schedule. Similarly the CPI can be 0.9 and SPI can be 1.1 implying the project is ahead of schedule. [Agile Practice Guide, 1st edition, Page 69] (Domain: Process, Task 6)
A contractor is currently constructing a new building for your organization on a cost-plus-incentive contract. You just received the project status report from the contractor’s project manager. According to the report, the project’s CPI is 1.5. You are shocked because you believe the project costs are out of control. Upon investigation, you learn the $1 million advance payment (20 percent of the estimated project cost) given to the contractor at the start of the project was included in the project’s earned value. Further, the cost of the inventory at the project site was excluded from the total actual costs. According to the contract, your company reimburses only the costs for the completed deliverables and not for the supplies in the project’s inventory. In this scenario, the reported project’s CPI is incorrect because:
Earned value is overstated.
NOT Earned value is overstated, and actual cost is understated.
In this scenario the earned value has been overstated while the reported actual cost is ok. Earned value should be the sum of PVs of all completed activities. The initial 20% advance should not be part of this. Further, since the buyer is not liable for the inventory cost and only reimburses the costs associated with completed deliverables, the cost of the inventory does not become part of the actual cost until that inventory is consumed during the construction process. The inventory is an asset for the contractor until it is consumed on the project and at that time it becomes a cost for the project. [PMBOK7 p100-105] (Domain: Process, Task 5)
