The ratio of earned value to actual cost is used to calculate the cost performance index (CPI), which measures a project's cost effectiveness. A downward trend suggests declining performance that will result in cost overruns. The project manager must address the overruns and boost efficiency to deal with these problems. The best course of action is not to reset the cost baseline.
The project manager in this instance is unsure of their authority to decide on the minor scope change that the customer has requested. The best course of action in these circumstances is to adhere to the formal change control process to ensure that the change request is properly evaluated and approved.
The CPI divides earned value (EV) by planned value to determine how well a project is performing in relation to its budget (PV). A CPI of 0.89 indicates 11 cents more than anticipated work, possibly as a result of rising costs or scheduling delays. If the CPI is below 1.0, project managers can spot potential issues before they become serious and take corrective action.
With an SPI of 0.75, the project is behind schedule and moving more slowly than anticipated. Cost effectiveness is indicated by a CPI of 1.25. As stressing that a situation is "under control" does not reflect reality, the project manager must be open and give stakeholders accurate updates.
The difference between a project's earned value (EV) and actual cost (AC) is measured by the project management metric known as cost variance (CV). CV is calculated as CV = EV - ACG. A favorable outcome means the project came in $50 under budget.
The project manager finalizes the project's budget based on the cost estimates during the "Determine Budget" process, and this budget serves as the cost baseline for monitoring and managing cost performance during the project's monitoring phase.
EV = Actual% * BAC, or 0.55 times $210,000, or $115,500.
PV = Plan% * BAC, or 0.70 times $210,000, or $147,000.
AC = $162,000 (given) (given)
$115,500/$147,000 = 0.785 or 0.79 for SPI = EV/PV.
$115,500/$162,000 = 0.71 when CPI = EV/AC.
The Schedule Variance (SV) will be equal to zero at the conclusion of a project. In project management, schedule variance is a metric used to assess how well a project is progressing in terms of its schedule at a given time.
The Cost Management Plan is typically where the rounding of activity estimates data, the unit of measure for resources, and the variance threshold for deviation from the baseline plan are documented. The Cost Management Plan, which is a part of the Project Management Plan, describes how the costs of the project will be predicted, budgeted for, tracked, and managed over the course of the project.
As it supports numerous projects within the organization and is not directly connected to any one project activity, the cost of running a project management office is an example of an indirect cost.
An essential component of project cost management is setting the project budget, which the project manager guides the team through. They estimate the costs of individual tasks and combine them to produce the overall budget, which takes into account labor, supplies, machinery, and resources. To make sure the budget is reasonable and in line with the project's goals, factors like scope, schedule, resource availability, and risk assessments are taken into account. In order to keep the project financially on track, the project budget is used as a point of reference for tracking and controlling costs, comparing actual spending, and managing deviations.
The Schedule Variance (SV), which represents a project that is $10,000 behind schedule after the first three months, is calculated using the formula SV = EV - PV.
Indirect costs, which are usually incurred at higher levels like management, administrative support, or shared resources, are necessary expenditures for the operation and completion of a large project. Depending on the level of detail needed for cost estimation and budgeting, indirect costs are allocated.
While the Schedule Performance Index (SPI) gauges the project's schedule efficiency, the Cost Performance Index (CPI) gauges the project's cost efficiency.
540 - 650 = -110 for CV = EV - AC (negative cost variance)
540 - 630 = -90 for SV = EV - PV (negative schedule variance)
Projects that have negative cost variance are overbudget.
Project is behind schedule if the schedule variance is negative.
Project is ahead of schedule if SPI > 1.0.
CPI 1.0: The project's budget was exceeded.
