 Project Management Plan

 Project Funding Requirements

 Work Performance Data
 Organizational Process Assets
 The project management plan contains the
following information that is used to control
cost:
 Cost baseline. The cost baseline is
compared with actual results to
determine if a change, corrective action,
or preventive action is necessary.
 Cost management plan. The cost
management plan describes how the
project costs will be managed and
controlled.
 The project funding requirements include
projected expenditures plus anticipated
liabilities.

*This table includes a 5% management reserve for each project phase.

 Work performance data includes
information about project progress, such as
which activities have started, their progress,
and which deliverables have finished.
Information also includes costs that have
been authorized and incurred.
However, there are two problems with this approach: The first is that it’s
subjective and can be abused; and the second is that for short-term activities, it’s
time consuming. One way to reduce the time associated with recording progress
is to set up a fixed formula for short-term activities, short-term being defined as
spanning one to two reporting periods.
You select a ratio that adds up to 100%, such as 50/50, 25/75, or 20/80. When an
activity starts, the first percentage is credited. When the activity is done, the
remainder is credited. Using a 50/50 measure is the most aggressive, and 20/80 is
the most conservative.
Although percentage isn’t a true measure of accomplishment — after all, it’s only
short-term — the overall performance equalizes quickly because of the short-
term nature of the measurement method.
Some measurement methods are 0/100, meaning that no credit is allocated until
the work is complete. However, using this method is appropriate only for small
activities that span just one reporting period.
Measurement Activity Value Measure 1 Measure 2 Total
Method

50/50 2,000 1,000 1,000 2,000

25/75 2,000 500 1,500 2,000

20/80 2,000 400 1,600 2,000

 The organizational process assets that
can influence the Control Costs process
include, but are not limited to:
 Existing formal and informal cost
control-related policies, procedures,
and guidelines;
 Cost control tools; and
 Monitoring and reporting methods to
be used.
EARNED VALUE
MANAGEMENT
OK, So What Is This Stuff?
Earned Value Management
 is an industry standard method used to:
1. Measure a project's progress at any given
point in time
2. Forecast the project’s completion date
and final cost
3. Analyze 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
Earned Value is needed because...

 Provides an “Early Warning” signal for prompt

corrective action.

 Still time to recover

 Timely request for additional

funds

16
What’s More Important?

 Knowing where you

are on schedule?

 Knowing where you

are on budget?

 Knowing where you

are on work
accomplished?

17
 Some New Terms

PV – Planned Value

AC - Actual Cost

EV – Earned Value

18
Earned Value Management
 Planned Value
 PV or BCWS = Hourly Rate × Total
Hours Planned or Scheduled
 Actual Cost
 AC or ACWP = Hourly Rate × Total
Hours Spent
 Earned Value
 EV or BCWP = Baselined Cost × %
Complete Actual
Note: All these three elements can be derived from Work Breakdown Structure by
associating the costs to each of the tasks.
Earned Value Management
% COMPLETED PLANNED
 It is calculated using the following formula:
 % Completed Planned = PV / BAC

% COMPLETED ACTUAL
 % Completed Actual = AC / EAC
Earned Value Management
COST VARIANCE
 CV can be calculated using the
following formula:
 Cost Variance (CV) = Earned
Value (EV) − Actual Cost (AC)
 Cost Variance (CV) = BCWP −
ACWP
Note: Positive CV indicates the project is under-budget; negative
CV indicates the project is over-budget.
Earned Value Management
COST PERFORMANCE INDICATOR
 CPI can be calculated using the
following formula:
 CPI = Earned Value (EV) ⁄ Actual
Cost (AC)
 CPI = BCWP ⁄ ACWP
Note:
 A CPI value above 1 indicates the efficiency of utilizing
the resources allocated to the project is good.
 A CPI value below 1 indicates the efficiency of utilizing
the resources allocated to the project is not good
Earned Value Management
SCHEDULE VARIANCE
 It can be calculated using the following
formula:
 Schedule Variance (SV) = Earned
Value (EV) − Planned Value (PV)
 Schedule Variance (SV) = BCWP −
BCWS

Note:
 A positive SV indicates we are ahead of schedule.
 A negative SV indicates we are behind schedule.
Earned Value Management
SCHEDULE PERFORMANCE INDICATOR
 SPI can be calculated using the following
formula:
 SPI = Earned Value (EV) ⁄ Planned
Value (PV)
 SPI = BCWP ⁄ BCWS

Note:
 An SPI value above 1 indicates the project team is very
efficient in utilizing the time allocated to the project.
 An SPI value below 1 indicates the project team is less
efficient in utilizing the time allocated to the project.
Earned Value Management
BUDGET AT COMPLETION
 is the total budget allocated to the project
 generally plotted over time.
 is used to compute the Estimate at
Completion (EAC)
 It can be calculated using the following
formula:
 BAC = Baselined Effort − hours ×
Hourly Rate
Earned Value Management
ESTIMATE AT COMPLETION
 There are four methods to calculate
EAC:
 BAC / CPI
 AC + (BAC − EV)
 AC + ETC (Estimate To Complete)
 AC + (BAC − EV) ⁄ (CPI*SPI)
Earned Value Management
VARIANCE AT COMPLETION
is the total budget allocated to the project
generally plotted over time.
is used to compute the Estimate at
Completion (EAC)
SPI can be calculated using the following
formula:
 BAC = Baselined Effort − hours ×
Hourly Rate
But How Do I Do All This Stuff?

With an Earned Value Management System

28
Earned Value Management
Example 1:
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
Earned Value Management
FORECASTING
 What is Forecasting?
 Process of predicting
a future event
 Underlying basis
of all business
??
decisions
 Production
 Inventory
 Personnel
 Facilities
 The Realities!
 Forecasts are seldom perfect
 Most techniques assume an underlying
stability in the system
 Product family and aggregated forecasts
are more accurate than individual
product forecasts
Example: Mercedes E-class vs. M-class Sales

Month E-class M-class

Sales Sales
Jan 23,345 -
Feb 22,034 -
Mar 21,453 -
Apr 24,897 -
May 23,561 -
Jun 22,684 -
Jul ? ?
 How should we pick our
forecasting model?
 Data availability
 Time horizon for the forecast
 Required accuracy
 Required Resources
Types of Forecasting Methods

Qualitative methods Quantitative methods

Rely on subjective Rely on data and

opinions from one or analytical techniques.
more experts.
 Qualitative Methods
 Jury of executive opinion
 Delphi method
 Sales force composite
 Consumer Market Survey
Quantitative Approaches
 Naive approach
 Moving averages
time-series
 Exponential models
smoothing
 Trend projection
associative
 Linear model
regression
 Time Series

Trend Cyclical

Seasonal Random
 Time series: simple moving average

In the simple moving average models the forecast

value is
At + At-1 + … + At-
Ft+1 = n
n

t is the current period.

Ft+1 is the forecast for next period
n is the forecasting horizon (how far back we look),
A is the actual sales figure from each period.
 Example: forecasting sales at Kroger

Kroger sells (among other stuff) bottled spring water

Month Bottles
Jan 1,325
Feb 1,353 What will
the sales
Mar 1,305 be for
Apr 1,275 July?
May 1,210
Jun 1,195
Jul ?
What if we use a 3-month simple moving average?

AJun + AMay + AApr

FJul = = 1,227
3

What if we use a 5-month simple moving average?

AJun + AMay + AApr + AMar + AFeb

FJul = = 1,268
5
 1400
1350
5-month
1300
MA forecast
1250
1200
3-month
1150
MA forecast
1100
1050
1000
0 1 2 3 4 5 6 7 8

What do we observe?

5-month average smoothes data more;

3-month average more responsive
 Time series: weighted moving average
We may want to give more importance to some of the
data…

Ft+1 = wt At + wt-1 At-1 + … + wt-n At-n

wt + wt-1 + … + wt-n = 1

t is the current period.

Ft+1 is the forecast for next period
n is the forecasting horizon (how far back we look),
A is the actual sales figure from each period.
w is the importance (weight) we give to each period
 Why do we need the WMA models?

Demand for Mercedes E-class Actual demand (past sales)

Prediction when using 6-month SMA
Prediction when using 6-months WMA

For a 6-month
SMA, attributing
equal weights to
all past data we
miss the
Time
Jan Feb Mar Apr May Jun Jul Aug downward trend
Example: Kroger sales of bottled water

Month Bottles
Jan 1,325
What will
Feb 1,353 be the
sales for
Mar 1,305 July?
Apr 1,275
May 1,210
Jun 1,195
Jul ?
 6-month simple moving average…

AJun + AMay + AApr + AMar + AFeb + AJan

FJul = = 1,277
6
 What if we use a weighted moving average?

Make the weights for the last three months more than
the first three months…

WMA WMA WMA

6-month
40% / 30% / 20% /
SMA
60% 70% 80%
July
1,277 1,267 1,257 1,247
Forecast
To-Complete Performance Index
To-Complete Performance Index
This is a relatively new term which was
coined by the PMI to assist project managers
in calculating the future cost performance of
the project
TCPI is the calculated cost performance
index that is achieved on the remaining work
to meet the specified management goal, such
as the BAC or the EAC.” PMBOK 5th ED
If it becomes obvious that the BAC is no
longer viable, the project manager should
consider the forecasted EAC.
To-Complete Performance Index
 expressed as the ratio of the cost to finish
the outstanding work to the remaining
budget.

 TCPI = (cost to finish the outstanding work)

(Remaining Funds)

 Within the budget

 TCPI = (BAC – EV) / (BAC – AC)

 Over budget
 TCPI = (BAC – EV) / (EAC – AC)
 To-Complete Performance Index
 CPI is the past cost performance of the project; on the
other hand, TCPI is the future cost performance of the
project.

 If the To Complete Performance Index is less than

one, you are in a comfortable position.

 If the To Complete Performance Index is greater than

one, you have to perform with a better cost
performance than the past cost performance.

 If the To Complete Performance Index is equal to one,

you can continue with the same cost performance.
 Example
1. You are working on a project to be completed in 24
months and the BAC of the project is 200,000 USD.
Twelve months have passed and 110,000 USD has been
spent, and 60% of the work has been completed so far.
Given in the question:
Budget at Completion (BAC) = 200,000 USD
Actual Cost (AC) = 110,000 USD
Planned Value (PV) = 50% of 200,000 = 100,000 USD
Earned Value (EV) = 60% of 200,000 = 120,000 USD
Cost Performance Index (CPI) = EV / AC
= 120,000 / 110,000
= 1.1
Since the cost performance index is 1.1, which is greater than one,
you are within the budget. Therefore, in this case you will use the
TCPI formula based on the BAC.
TCPI = (BAC – EV) / (BAC – AC)
= (200,000 – 120,000) / (200,000 – 110,000)
= 80,000 / 90,000
= 0.89

This means that you can continue with a Cost

Performance Index of 0.89 to complete the
project.
 Example
2. You have a project to be completed in 12 months and
the budget of the project is 100,000 USD. Six months
have passed and 60,000 USD has been spent, but on
closer examination you find that only 40% of the work
has been completed so far.
Given in the question:
Budget at Completion (BAC) = 100,000 USD
Actual Cost (AC) = 60,000 USD
Planned Value (PV) = 50% of 100,000 = 50,000 USD
Earned Value (EV) = 40% of 100,000 = 40,000 USD
Cost Performance Index (CPI) = EV / AC
= 40,000 /60,000
= 0.67

Since the cost performance index is 0.67, which is less than one, you
are over budget. Therefore, in this case you will use the TCPI formula
based on the EAC.
Estimate at Completion (EAC) = BAC / CPI
= 100,000 / 0.67
= 149,253.73 USD

Now, TCPI = (BAC – EV) / (EAC – AC)

= (100,000 – 40,000) / (149,253.73 – 60,000)
=60,000 / 89,253.73
=0.67

This means that you can continue with a Cost

Performance Index of 0.67 to complete the project.
Performance Review
 Performance reviews compare cost
performance over time, schedule activities or
work packages overrunning and underrunning
the budget, and estimated funds needed to
complete work in progress.

Variance analysis
Trend analysis.
Earned value performance.
 To-Complete Performance Index
 Variance analysis, as used in EVM, is the
explanation (cause, impact, and corrective
actions) for cost (CV = EV – AC),
schedule (SV = EV – PV), and
variance at completion (VAC = BAC – EAC)

 Cost and schedule variances are the most

frequently analyzed measurements.
 Trend Analysis
 Trend analysis examines project performance
over time to determine if performance is
improving or deteriorating.

 Earned Value Performance

 Earned value performance compares the
performance measurement baseline to actual
schedule and cost performance.
Project Management Software

 is often used to monitor the three EVM

dimensions (PV, EV, and AC), to display
graphical trends, and to forecast a
range of possible final project results.
Types of Project Management Software:
 Desktop
- the software is installed on each user’s
desktop or laptop. This software has the most
responsive and graphic interface.

 Client Server
- the software is installed on a company’s
server and allows multiple users to be logged into
the application at once. This software type allows
for centralized data storage to make collaboration
easier.
Types of Project Management Software:
 Web-based
- uses software that is accessed through the
internet, allowing access from any computer and any
location. The software is updated and maintained by
the provider, which is often less expensive the outright
purchasing software. Web-based software allows
easier collaboration and central data storage.

 Integrated
- combines project management functions with
other aspects of a company’s business, such as
invoicing. Integrated software applications are either
installed on the company’s server or are accessed
through the internet.
Example:
 mpower is a project cost control and
performance management system for
engineering, construction, maintenance and
operations environments. mpower's powerful
cost control software and management features
allow it to work seamlessly alongside other
project management software products like
Primavera.
 EcoSys Projects is a web-based project cost
management solution which combines the
usability of Excel-like spreadsheets, with the
power and control of an enterprise database
application. It provides visibility into project
costs, efficiency in cost management, and
greater accuracy and accountability. EcoSys
Projects is designed to provide robust cost
management capabilities that span the planning
cycle, from estimating, to budgeting and
forecasting, through all stages of project
execution.
Reserve Analysis
 Is used to monitor the status of contingency and
management reserves for the project to
determine if these reserves are still needed or if
additional reserves need to be requested.

 Project Management Team use this technique to

accommodate risks to minimize their impacts.
 2 Types of Reserves:
 Contingency Reserves:
Cost Baseline the cost impacts
of the remaining risk
 Management Reserves:
Cost Budget extra fund to cover
unforeseen risk or changes
to the project
Cost budget
Management reserves
Cost baseline
Contingency reserves
Project estimates
Control account estimates
Work package estimates
Activity estimates
Example:
 For instance, in a software project, if a software
developer is estimating a screen development activity
as 5 days, but stating that it might take up to 8 days due
to risks, extra 3 days here is contingency reserve.

 Let’s consider that in a construction project,

estimations show that groundbreaking will cost
$200,000. But due to the geological area of the project,
you might hit big rocks and that would cause to cost up
to $240,000. And the extra $40,000 will be your
management reserve to accommodate the risk of hitting
big rocks during groundbreaking activity.
COST CONTROL OUTPUTS
WORK PERFORMANCE
INFORMATION
Work Performance Information
 The performance data collected from
various controlling processes, analyzed
in context and integrated based on
relationships across areas. Examples of
performance information are status of
deliverables, implementation status for
change requests, and forecasted
estimates to complete. (PMBOK 5th Edition)
Work Performance Information
Examples

 The calculated CV, SV, CPI, SPI, TCPI,

and VAC values for WBS components,
in particular the work packages and
control accounts, are documented and
communicated to stakeholders.
Work Performance Information
Examples
Work Performance Information
Examples
COST FORECAST
Cost Forecast
 Either a calculated EAC value or a
bottom-up EAC value is documented
and communicated to stakeholders.
Cost Forecast Example
Cost Forecast Example
CHANGE REQUESTS
Change Requests
 Analysis of project performance may
result in a change request to the cost
baseline or other components of the
project management plan. Change
requests may include preventive or
corrective actions, and are processed
for review and disposition through the
Perform Integrated Change Control
process (Section 4.5).
Change Request Example
Change Request Example
Change Request Example
Change Request Example
PROJECT MANAGEMENT
PLAN UPDATES
Project Management Plan Updates

Cost Management Plan

The cost management plan should

be updated as per the identified
acceptable variances for the Project
Cost Performance. ( SV, CV, SPI or
CPI)
Example:
If the Schedule Performance Index or Cost Performance Index
has a variance of between 0.1 and 0.2 the Project Manager must
report the reason for the exception. If the SPI or CPI has a
variance of greater than 0.2 the Project Manager must report the
reason for the exception and provide management a detailed
corrective plan to bring the projects performance back to
acceptable

Performance Measure Yellow Red

Between 0.9 and 0.8

Schedule Performance Less Than 0.8 or Greater
or Between 1.1 and
Index (SPI) than 1.2
1.2

Between 0.9 and 0.8

Cost Performance Index Less Than 0.8 or Greater
or Between 1.1 and
(CPI) than 1.2
1.2
Cost Management Plan

In the required report formats, all cost

variances outside of the threshold identified
in the Cost Management Plan is reported
including any corrective actions. Change
Requests which are triggered based upon
project cost overruns will be identified and
tracked in this report.
Cost Management Plan

 As a result of the Change Control

Process, project budget / cost changes
are updated as per approved by the
project sponsor.
Cost Management Plan

As a part of the Cost Variance Response

Process the Project Manager, presents
options for corrective action to the Project
Sponsor who will then approve an
appropriate action in order to bring the
project back on budget. The Project Manager
may propose to increase the budget for the
project, reduce scope or quality, or some
other corrective action.
Cost Baseline
• Budget updates are the changes to
the approved cost baseline.
• If changes have occurred or risk
events have materialized, the
baseline may be updated (but only
after going through the formal
change control process).
• In some cases, cost variances maybe
so severe that re-baselining is
needed to provide a realistic measure
of performance.
 Re-baselining
The decision to re-baseline a
project rests on the
recognition that the current
project has changed enough
that the re-planning the
project is worth the effort.
A re-baseline occurs only with the consent of all
parties involved in the project, and only with the full
knowledge and approval of the customer. Often a re-
baseline involves significant scope changes. The
major results of the re-baseline are a revised plan
with revised cost, schedule, scope, and staffing for
the project.
PROJECT DOCUMENT
UPDATES
Project Document Updates
Cost Estimates
& Basis of
Estimates

• New information about costs is likely

to emerge. This can enable you to
make more accurate estimates of
how much remaining work will cost.
ORGANIZATIONAL
PROCESS ASSETS
Organizational Process Assets

Causes of Variances

• The specifics or justifications of what

might have caused the changes are
also accounted since these can be
taken into consideration for future
projects.
Corrective Actions

• refers to any activity of action that is

instituted, the point of which is to alter
the course of a specific task or project
that may have lost focus or somehow
deviated form the pre-specified
direction it was intended to take.
 Cost Variance Causes Corrective Actions
Poor estimation and budgeting Prepare an accurate and detailed budgeting
of materials cost based on direct market surveys

Poor development and Evaluate the available standard method in

application of the standard work accordance with the scope of work, situation,
procedure condition and environment

Develop an excellent payment schedule to

Delay of materials payment
prevent delay in material delivery.

Conduct comprehensive and careful selection

Poor purchasing strategy in
of suppliers, which consider supplier daily
selecting vendors
capacity and material quality.

Provide state of the art security system to

High number of stealing in
support competent and honest security
warehouses
personnel.
Organizational Process Assets
Lessons Learned

• are experiences gained from a

project that should be actively
taken into account in future
projects.
Lessons Learned List
Problem/
Category Issue Name Impact Recommendation
Success
All requirements were PM must be fully
The Project not included in the engaged in all
Manager (PM) was initial contract award. contract processes.
Procurement Contract
not fully engaged A contract modification This must be
Management Requirements
in the contract was required which communicated to
process. added a week to the both PM and
project. contract personnel.

This allowed the

project team to work
A process for
with the contractors to Always plan quality
determining
smoothly ensure all standards and
acceptable
Quality Building materials were of allowances into the
building
Management Material acceptable quality and project plan. This
material quality
avoided any re-work helps avoid delays
was planned into
and delays associated and cost overruns.
the project.
with substandard
material.
 Lessons Learned List
Category Issue Name Problem/ Success Impact Recommendation
Scope Scope Creep Stakeholders The PM did not have a The PM must have an
Management continuously tried plan for addressing approval process for
adding to the scope creep and allowed any proposed scope
project scope some requirements to changes and
throughout the be added until the communicate this
project lifecycle. sponsor stopped it. process to all
Overall project delay of stakeholders.
3 weeks was the result.

Risk Zoning A risk was Impact was minimal Always consider

Management Approval identified that because the PM external impacts on
there may be included potential the project cost and
delays in receiving zoning delays into the schedule. This must
approval from the project schedule. be continuous
county zoning throughout the
board. This was a project lifecycle.
success because it
was identified
early and planned
for.
Financial Databases

• These involves data updates of the

software-based cost & schedule
performance management system that
may have been due to cost control
changes to policies, procedures &
guidelines.
REFERENCES:
 http://www.dummies.com/careers/project-
management/pmp-certification/cost-control-inputs-and-
outputs-you-should-know-for-the-pmp-certification-exam/
 https://library.skillport.com/courseware/Content/cca/proj_
23_a02_bs_enus/output/html/sb/sbproj_23_a02_bs_enus
003011.html
 PMBOK, 5TH Ed.
 https://pmstudycircle.com/2012/05/to-complete-
performance-index-tcpi-in-project-cost-management/
 http://www.brighthubpm.com/monitoring-projects/57317-
tools-used-to-monitor-and-control-costs-in-projects/
 Veronika, et. al. (2006). Corrective action
recommendation for project cost variance in construction
material management. In Kanok-Nukulchai, Worsak and
Munasinghe, Sunil and Anwar, Naveed, Eds.
Proceedings The Tenth East Asia-Pacific Conference on
Structural Engineering and Construction 05,pages pp.
23-28, Bangkok, Thailand. (Accessed from
http://eprints.qut.edu.au)
 Nevison, John M. PMP, Earned-Value Benchmarks for
Re-baselining Your Project. 2009-2010 New Leaf Project
Management (Accessed from www.newleafpm.com)
 Humphreys, Gary C. (2011). What is Scheduling?
Schedule Types. Project Management Using Earned
Value 2nd Edition,(pp. 137-146). Orange, United States
Of America : Humphreys & Associates Inc
END OF REPORT