Cost Controlling and Forecasting of Project

1. Cost Controlling in Project Management
1. Planned Value (PV) is the authorized budget assigned for the completion of an activity or component of WBS.
2. Earned Value (EV) measured the completed work of project in percentage with Project Budget
EV = % of Completed Work * BAC
3. Actual Cost (AC) is the amount of money that you have spent so far.
4. Schedule variance (SV) indicates whether a project schedule is ahead or behind and is typically used within Earned Value.
Schedule variance (SV) = Earned Value(EV) - Planned Value (PV)
SV = EV – PV
5. Schedule Performance Index (SPI) concludes that: The completed work is equal to the planned work
Schedule variance (SV) = Earned Value(EV) / Planned Value (PV)
SPI= EV / PV
 SPI is greater than one; the project is ahead of schedule.
 SPI is less than one. The project is behind schedule.
 SPI is equal to one; the project is on schedule.
6. Cost Performance Index (CPI) is a measure of the financial effectiveness and efficiency of a project.
Cost Performance Index (CPI) = Earned Value(EV) / Actual Cost(AC)
CPI = EV / AC
 CPI is greater than one. The project is under budget.
 CPI is less than one. The project is over budget.
 CPI is equal to one. Project is proceeding as per the Estimated Cost.
7. Budget At Completion (BAC) refers to the sum of all budget values that have been previously established for the work to be performed
on a project, or on components within a project such as a schedule activity or work breakdown structure component.
8. Estimate At Completion (EAC) is The expected total cost of completing all work of project it is shows sum of the Actual Cost (AC)
spent so far.
 If future performance will be the same as past performance.
Estimate At Completion (EAC) = Budget At Completion (BAC) / Cost Performance Index (CPI)
EAC = BAC / CPI
 If we have deviated from our budget estimate, but from now on we can complete the remaining work as planned.
Estimate At Completion (EAC) = Actual Cost(AC) + [Budget At Completion (BAC) – Earned Value (EV)]

2. EAC = AC + (BAC – EV)
 If we are over budget, behind schedule, and the client is insisting us complete the project on time.
Estimate At Completion (EAC) = Actual Cost(AC) + [Budget At Completion (BAC) – Earned Value (EV) /
[Cost performance index (CPI) * Schedule performance index (SPI)]
EAC = AC + [(BAC – EV) / (CPI * SPI)]
 If we find out that your cost estimate was imperfect and we must calculate the new cost estimate for the remaining
project work.
Estimate At Completion (EAC) = Actual Cost(AC) + Bottom-up Estimate to Complete
EAC = AC + Bottom-up Estimate to Complete
9. Estimation to Completion (ETC) gives the approximate cost required to complete the remaining work of project.
There are two methods.
1. Bottom-up Cost Estimation
2. ETC = Estimation to Completion (ETC) – Actual Cost (AC)
10. Variance at Completion (VAC) gives the difference of the Budget at Completion (BAC) to the Estimate At Completion (EAC).
Variance at Completion (VAC) = Budget at Completion (BAC) - Estimate At Completion (EAC)
VAC = BAC – EAC
11. TO-COMPLETE PERFORMANCE INDEX (TCPI) gives the future cost performance that we may need to complete the project within
the approved budget.
 If we Maintain efficiency for Budget
TCPI = (BAC – EV) / (BAC – AC)
 If Maintain efficiency for Earned Value
TCPI = (BAC – EV) / (EAC – AC)

3. Scenario
Suppose we have 4 equal sites where we need to install equipment of Base Station for Telecom and budget
8000$ per side, schedule for completion is 1 side per day. Finish 4 days & cost 32000$.
Total Sites = 4 Same Equal Work
Budget per Site = 8000 USD
Scheduled Plan = Compilation of 1 side per day.
Total Days in Scope baseline = 4
Total Budget = 32000 USD
Total Days Actual
Cost
Per Day
Incurred cost
(Yes/No)
Work Performance on
Site
Remaining
work in %age
Completed Work in
%age
After Day 1 Site 1 8000 USD No 100 % Work
Completed on Site 1
75% 25%
After Day 2 Site 2 8500 USD Yes Work Started But 85%
completed
65 % 35%
After Day 3 Site 3 6500 USD No Site 2 Work Completed
But Site 3 completed
90%
35% 65%
Day 4 Site 4
Below are Cost Controlling Calculations
Earned Value (EV) = %age of Remaining Work * Budget At Completion (BAC)
Earned Value (EV) = 65 % * 32000 = 20,800 USD
Planned value (PV) = 8000 + 8000 + 8000 + 8000 = 32,000 USD

4. Actual Cost (AC) = 8000 + 8500 + 6500 = 23,000 USD
Find Cost Variance (CV), Schedule Variance (CV), Schedule performance index (SPI) and Cost performance index (CPI)?
Cost Variance (CV) = Earned Value (EV) - Actual Cost (AC)
CV = 23000 -20800 =22, 00 USD
Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)
SV = 23000 – 32000 = 10000 USD
Schedule performance index (SPI) = Earned Value (EV) / Planned Value (PV)
SPI = 23000 / 32000 = 0.72 ( < 1 So, Less Work Than Plan because it is less than 1)
Cost performance index (CPI) = Earned Value (EV) - Actual Cost (AC)
CPI = 23000 / 20800 = 1.10 (CPI >1 So, Cost Under Run)
Estimation Value At Complete (EAC) = Budget At Completion (BAC) / Cost performance index (CPI)
EAC = 32000 / 1.10 = 2,909 USD
Estimation to Completion (ETC) = Estimation at Completion (EAC) - Actual cost (AC)
ETC = 2909 – 23000 = -20,091 USD
Variance At Completion (VAC) = Budget At Completion (BAC) - Estimation Value At Complete (EAC)
VAC = 32000 – 2909 = 29,091 USD
TO-COMPLETE PERFORMANCE INDEX (TCPI)
 If we Maintain efficiency for Budget
TCPI = (BAC – EV) / (BAC – AC) = (32000-20800) / (32000-23000) =1.24 (>1 So, Easier to Complete)
 If Maintain efficiency for Earned Value =
TCPI = (BAC – EV) / (EAC – AC) = ( 32000-20800) / (2909-23000)=0.055 (< 1 Hard To Complete Because less work than pan)

5. Planned value (PV)
Earned value (EV)
Actual cost (AC)
PV = EV – AC
Earned Value (EV) EV = % of Completed Work * BAC
Schedule variance (SV) SV = EV – PV Value CPI SPI TPI
Schedule performance index (SPI) SPI = EV / PV < 1 Cost Over
run
Less Work
than Plan
Hard to
Complete
Cost performance index (CPI) CPI = EV / AC >1 Cost Under
run
More Work
than Plan
Easier to
Complete
Estimation At Completion (EAC) EAC = BAC /CPI = 1 Equal to
Cost
As per Plan Same to
Complete
Estimation to Completion (ETC) ETC = EAC – AC
Variance At Completion (VAC) VAC = BAC – EAC
Forecasting for Earned Value
if CPI are same for remaining project EAC = BAC / CPI
if in future the work completed @
planned rate
EAC = AC + BAC – EV
if the initial plan is no longer valued EAC = AC + Bottom-up ETC
if both SPI and CPI effect the
remaining Work
EAC = AC + [ (BAC – EV) / (CPI x
SPI) ]
TO-COMPLETE PERFORMANCE INDEX (Measure the cost performance that
must be Achieved)
Maintain efficiency for Budget TCPI = (BAC – EV)/(BAC – AC)
Maintain efficiency for Earned Value TCPI = (BAC – EV)/(EAC – AC)
After Completion of Project Cost Variance
Variance At Completion (VAC)
Budget At Completion (BAC)
Earned Value At Completion (EAC)
VAC = BAC – EAC