Project Assignment II

Cost control
Cost control is the practice of identifying and reducing business expenses to increase profits, and it starts
with the budgeting process. A business owner compares the company's actual financial results with the
budgeted expectations, and if actual costs are higher than planned, management has the information it needs
to take action.
Cost control may be broadly defined as the process of controlling the expenditure in a project at all stages
from its inception through its development. Cost control means controlling changes to project budget. Cost
control is equally important to all the firms regardless of size.
Cost control is mainly concerned with:
 Influencing the factors which create changes to the cost baseline to ensure that changes are
beneficial.
 Determining that the cost baseline has changed and
 Managing the actual changes as and when they occur.

Earned Value Analysis(EVA)
Earned Value Analysis (EVA) is an industry standard method of measuring a project's progress at any given
point in time, forecasting its completion date and final cost, and analyzing variances in the schedule and
budget as the project proceeds. It compares the planned amount of work with what has actually been
completed, to determine if the cost, schedule, and work accomplished are progressing in accordance with the
plan. As work is completed, it is considered "earned".

EVA is a snapshot in time, which can be used as a management tool as an early warning system to detect
deficient or endangered progress. It ensures a clear definition of work prior to beginning that work. It
provides an objective measure of accomplishments, and an early and accurate picture of the contract status.
It can be as simple as tracking an elemental cost estimate breakdown as a design progresses from concept
through to 100% construction documents, or it can be calculated and tracked using a series of mathematical
formulae (see below). In either case, it provides a basis for course correction. It answers two key questions:
1. At the end of the project, is it likely that the cost will be less than, equal to or greater than the
original estimate?
2. Will the project likely be completed on time?

Calculating Earned Value

Earned Value Management measures progress against a baseline. It involves calculating three key values for
each activity in the WBS:
1. The Planned Value (PV), (formerly known as the budgeted cost of work scheduled or BCWS)—that
portion of the approved cost estimate planned to be spent on the given activity during a given period.
2. The Actual Cost (AC), (formerly known as the actual cost of work performed or ACWP)—the total
of the costs incurred in accomplishing work on the activity in a given period. This Actual Cost must
correspond to whatever was budgeted for the Planned Value and the Earned Value (e.g. all labor,
material, equipment, and indirect costs).
3. The Earned Value (EV), (formerly known as the budget cost of work performed or BCWP)—the
value of the work actually completed.
These three values are combined to determine at that point in time whether or not work is being
accomplished as planned. The most commonly used measures are the cost variance:
Cost Variance (CV) = EV - AC
and the schedule variance:
Schedule Variance (SV) = EV - PV
These two values can be converted to efficiency indicators to reflect the cost and schedule performance of
the project. The most commonly used cost-efficiency indicator is the cost performance index (CPI). It is
calculated thus:
CPI = EV / AC
The sum of all individual EV budgets divided by the sum of all individual AC's is known as the cumulative
CPI, and is generally used to forecast the cost to complete a project.
The schedule performance index (SPI), calculated thus:
SPI = EV / PV
is often used with the CPI to forecast overall project completion estimates.
A negative schedule variance (SV) calculated at a given point in time means the project is behind schedule,
while a negative cost variance (CV) means the project is over budget.
Example of EVA:
The estimated duration of activities from A to J and their budget cost is given below. Progress field report
was prepared at the end of 2,5, 7,10,13 and 19 weeks. Perform Earned Value Analysis (EVA) and describe
the situation.

Durations Total
Activity Predecessor
(weeks) Cost
A 2 600
B A 3 1200
C B 3 1200
D B 2 400
E D 3 600
F D 4 1600
G E 5 2000
H G 4 1400
I E 3 600
J I 2 250

Field report at end of 2 weeks Field report at end of 5 weeks Field report at end of 7 weeks
Actual % Incurred Actual % Incurred Actual % Incurred
Activity Activity Activity
Complete Cost Complete Cost Complete Cost
A 100 600 A 100 600 A 100 600
B 0 0 B 100 1400 B 100 1400
C 0 0 C 33.33 500
D 50 200
E 0 0

Field report at end of 10 weeks Field report at end of 13 weeks Field report at end of 18 weeks
Actual % Incurred Actual % Incurred Actual % Incurred
Activity Activity Activity
Complete Cost Complete Cost Complete Cost
A 100 600 A 100 600 A 100 600
B 100 1400 B 100 1400 B 100 1400
C 100 1300 C 100 1300 C 100 1300
D 100 350 D 100 350 D 100 350
E 80 400 E 100 400 E 100 400
F 50 600 F 100 1300 F 100 1300
G 0 0 G 65 1460 G 100 2240
H 0 0 H 90 1100
I 100 650 I 100 650
J 0 0 J 100 250
Solution:
The Bar diagram of estimated duration of activities from A to J is shown below.

Chart Title
Time (Weeks)
0 2 4 6 8 10 12 14 16 18 20

4
Activity

10

Actual cost of worked performed (ACWP), Budget cost of Worked Performed (BCWP) and Budget Cost of
Worked Schedule (BCWS) at the end of 2,5,7,10,13, and 19 weeks are calculated as below.
Activit BCW Activit BCW Activit
ACWP BCWP ACWP BCWS ACWP BCWP BCWS
y S y P y
At the end of 2 weeks At the end of 5 weeks At the end of 7 weeks
A 600 600 600 A 600 600 600 A 600 600 600
Total 600 600 600 B 1400 1200 1200 B 1400 1200 1200
Total 2000 1800 1800 C 500 400 800
D 200 200 400
Total 2700 2400 3000

Activit BCW Activit BCW Activit

ACWP BCWP ACWP BCWS ACWP BCWP BCWS
y S y P y
At the end of 10 weeks At the end of 13 weeks At the end of 18 weeks
A 600 600 600 A 600 600 600 A 600 600 600
B 1400 1200 1200 B 1400 1200 1200 B 1400 1200 1200
C 1300 1200 1200 C 1300 1200 1200 C 1300 1200 1200
D 350 400 400 D 350 400 400 D 350 400 400
E 400 480 600 E 400 600 600 E 400 600 600
F 600 800 1200 F 1300 1600 1600 F 1300 1600 1600
Total 4650 4680 5200 G 1460 1300 1200 G 2240 2000 2000
H 0 0 0 H 1100 1260 840
I 650 600 600 I 650 600 600
Total 7510 7500 7400 J 250 250 200
Total 9640 9710 9290
Now, Cumulative ACWP, BCWP and BCWS are given below.

Cum. Cum. Cum. Cum.

CPI CV SPI SV
Weeks ACWP BCWS BCWP
0 0 0 0 - - - -
2 600 600 600 1 0 1 0
5 2000 1800 1800 0.9 -200 1 0
7 2700 3000 2400 0.889 -300 0.8 -600
10 4650 5200 4680 1.006 30 0.9 -520
13 7510 7400 7500 0.999 -10 1.014 100
18 9640 9290 9710 1.007 70 1.045 420

The plot of Cumulative Weeks vs Cumulative Amount for ACWP, BCWP, BCWS are given below.

Earned Value Analysis

12000

10000

8000
Cumulative Amount

6000

4000

2000

0
0 2 4 6 8 10 12 14 16 18 20
Cumulative Weeks
ACWP BCWS BCWP

Case 1: CV=0 & SV=0

At the end of 2 weeks, the work is on the budget and on schedule.
Case 2: CV=-200 & SV=0
At the end of 5 weeks, the work is over budget and on schedule.
Cas3 3: CV=-300 & SV=-600
At the end of 7 weeks, the work is over budget and under schedule.
Case 4: CV=30 & SV=-520
At the end of 10 weeks, the work is under budget and under schedule.
Case 5: CV=-10 & SV=100
At the end of 13 weeks, the work is over budget and ahead of schedule.
Case 6: CV=70 & SV=420
At the end of 18 weeks, the work is under budget and ahead of schedule.