PMP BLOG

# Cost Control Process

#### How to Calculate Planned Value

1. First thing you need to do is to calculate BAC i.e Budget at completion of the project.
2. Planned % complete at the given interval to time. If the schedule says that your team should have done 300 hours of work so far, and they will work a total of 1,000 hours on the project, then your planned % complete is 30%.

Then PV =BAC *Planned % Complete.

Example:

1. You’re managing a project to install 200 windows in a new skyscraper and need to figure out your budget. Each week of the project costs the same: your team members are paid a total of \$4,000 every week, and you need \$1,000 worth of parts each week to do the work. If the project is scheduled to last 16 weeks, what’s

The BAC for the project?

BAC =\$4000(Labor cost every week) +\$1000(parts cost)* 16 =\$80000

1. What will the planned % complete be four weeks into the project?

Planned % complete = (4%16)* 100=25 %

1. What should the PV be four weeks into the project?

PV = BAC x Planned % Complete

I.e. PV= 80000*25%=20000

#### How to calculate earned value

First write down your BAC

BAC—Budget at completion

Remember, this is the total budget that you have for your project.

Then Multiply your BAC with

Actual % complete

Say the schedule says that your team should have done 300 hours of work so far, out of a total of 1,000. But you talk to your team and find out they actually completed 35% of the work. That means the actual % complete is 35%.

EV—Earned value will be:

This figure tells you how much your project actually earned. Every hour that each team member works adds value to the project. You can figure it out by taking the percentage of the hours that the team has actually worked and multiplying it by the BAC. If the total cost of the project is \$200,000, then the   earned value is \$200,000 × 35% = \$70,000.

EV=BAC * Actual % complete

If you want to know that you are ahead of schedule or behind your schedule. So if you are ahead of schedule than you have earned more than planned. Ev will be greater than PV .

Schedule Performance Index (SPI) = EV/PV

If your SPI is less than one then you are behind the schedule. It mean your EV is less the PV

Schedule variance (SV)

It’s easy to see how variance works. The bigger the difference between what you planned and what You actually earned, the bigger the variance. So, if you want to know how much ahead or behind schedule you are, just subtract PV from EV.

SV=EV-PV

If you want to know you are over budget or under budget then you need to calculate

Cost Performance Index (CPI)= Ev/AC(Actual cost).

Cost Varience (CV)= EV-AC.

CPI is greater than or equal to 1 and CV is positive. When this happens, your actual costs are less than earned value, which means the project is delivering more value than it costs.

CPI is less than 1 and CV is negative. When your actual costs are more than earned value that means that your sponsor is not getting his money’s worth of value from the project.

To-complete performance index (TCPI)

This tells you how well your project will need to perform to stay on budget.

TCPI =(BAC-EV)/(BAC-AC) Estimate at completion (EAC) = BAC/CPI

Estimate to complete (ETC) = EAC-AC

Variance at completion (VAC)=BAC-EAC