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Tools and Techniques of Capital Expenditure Control
Tools and Techniques of Capital Expenditure Control
Tools and Techniques of Capital Expenditure Control
Sheetal Wagh
A capital expenditure is the use of funds or assumption of a liability in order to
obtain physical assets that are to be used for productive purposes for at least
one year.
Since they are charged to expense in the period incurred, they are also known as
period costs.
(1) To make an estimate of capital expenditure and to see that the total cash outlay is
within the financial resources of the enterprise.
(2) To ensure timely cash inflows for the projects so that non-availability of cash may
not be a problem in the implementation of the project.
(5) To fix priorities among various projects and ensure their follow up.
(6) To compare periodically actual expenditures with the budgeted so as to avoid any
excess expenditure.
(8) To ensure that sufficient amount of capital expenditure is incurred to keep pace with
the rapid technological developments.
1) Performance Index
• It is the ratio of total original authorized duration versus total final project duration.
• SPI = EV/PV
Conditions:
a) If SPI > 1, this means that more work has been completed than the planned work.
b) If SPI < 1, this means that less work has been completed than the planned work.
c) If SPI = 1, this means that work completed is equal to the planned work.
(b) Cost Performance Index (CPI):
• It is measure of the value of work completed compared to the actual cost spent
on the project.
• CPI = EV/AC
Conditions:
• These measures are identified at a very early stage in the System Engineering
Process during the Conceptual Design and their progress is continually
monitored throughout the Acquisition Phase.
Scope
Time
Costs
• Early EVM research showed that the areas of planning and control are significantly
impacted by its use; and similarly, using the methodology improves both scope definition as
well as the analysis of overall project performance.
• EVM implementations for large or complex projects include many more features, such as
indicators and forecasts of cost performance (over budget or under budget) and schedule
performance (behind schedule or ahead of schedule). However, the most basic requirement
of an EVM system is that it quantifies progress using PV and EV.