Project Cost Management

Question 1

How is Schedule Performance Index (SPI) calculated and what does it mean?

Answer 1

Formula:  SPI = EV/PV
   EV = Earned Value
   PV = Planned Value
Meaning:
Measures project progress against the rate originally planned
    1    Project is on schedule
  1    Project is ahead of schedule

Question 2

How is Cost Performance Index (CPI) calculated and what does it mean?

Answer 2

Formula:  CPI = EV/AC
   EV = Earned Value
   AC = Actual Cost
Meaning:
$ worth of work for every $ spent
    1    On budget
  1    Ahead of budget

Question 3

How is Schedule Variance (SV) calculated and what does it mean?

Answer 3

Formula: SV = EV - PV
EV = Earned Value
PV = Planned Value

Negative = Behind schedule
Zero = On schedule
Positive = Ahead of schedule

Question 4

How is Planned Value (PV) determined?

Answer 4

Authorized budget of the work to be accomplished for an activity.
Total planned value for the project is also known as Budget at Completion (BAC)

Question 5

How is Earned Value (EV) determined?

Answer 5

Value of the work that has been actually completed.

Question 6

How is Actual Cost (AC) determined?

Answer 6

Actual cost incurred for the work completed.

Question 7

What is Budget at Completion (BAC)?

Answer 7

Total budget for the project

Question 8

How is Cost Variance (CV) calculated and what does it mean?

Answer 8

Formula:  EV - AC
EV = Earned Value
AC = Actual Cost
If negative, project is over budget
If positive, project is under budget

Question 9

How is Variance at Completion (VAC) calculated and what does it mean?

Answer 9

Formula: BAC - EAC
BAC = Budget at Completion
EAC = Estimate at Completion
As of today, how much over or under budget is the project expected to be

Question 10

How is Estimate to Complete (ETC) determined and what does it mean?

Answer 10

How much more will the project cost
Formula: EAC - AC
OR
Re-estimate remaining work from the bottom up

Question 11

What is Estimate at Completion (EAC) used for?

Answer 11

To determine how much the total project is expected to cost, as of today

Question 12

What are the four formulas for EAC and when are they used?

Answer 12

1. BAC/CPI
   Use if no variances from BAC have occurred or project will continue at the same rate of spending (based on cumulative CPI or trends in current CPI)
2. AC + Bottom-up ETC
   Use when original estimate was inaccurate and project needs to be re-baselined
3. AC + (BAC - EV)
   Use when one-time variances have occurred that will not occur again or are thought to be atypical for the future
4. AC + (BAC - EV)/(CPI x SPI)
   Use when current variances are thought to be typical for the future and when schedule constraints will influence the remaining work, for example when cumulative CPI is less than one and a firm completion date must be met.

Question 13

What is To-Complete Performance Index (TCPI)?

Answer 13

Answers the question, in order to stay within budget, what rate must be met for the remaining work
Formula: (BAC - EV) / (BAC - AC)

Question 14

What is a Rough Order of Magnitude (ROM) estimate?

Answer 14

Used during project initiation, typical range is -25% to + 75% but can vary depending on how much is known about the project

Question 15

What is a Budget estimate?

Answer 15

Used during project planning, typical range is -10% to + 25%

Question 16

What is a Definitive estimate?

Answer 16

Refined estimate as the project progresses, typical range is +/-10% or -5% to +10%