TUTORIAL 5 - Cost Management

Cost Management
 Total Budgeted Cost (TBC)
Cumulative Budgeted Cost (CBC)
Cumulative Actual Cost (CAC)
Cumulative Earned Value (CEV)

Cost Performance Index (CPI)

Cost Variance (CV)
Forecasted Cost at Completion (FCAC)
The Cost Performance Indicator (TCPI)
 1. Total Budgeted Cost (TBC)

The TBC of each work package will be the sum of the costs of all activities
that make up that work package.

Sum of the costs of

all activities
 2.Cumulative Budgeted Cost (CBC)
The CBC for the entire project or each work package provides baseline
against which actual cost and work performance can be compared at any
time of the project.

Weeks

TBC 1 2 3 4 5 6 7 8 9 10 11 12

Design 24 4 4 8 8

Build 60 8 8 12 12 10 10

Install &
Test 16 8 8

Total 100 4 4 8 8 8 8 12 12 10 10 8 8
Total
budget Cumulative 4 8 16 24 32 40 52 64 74 84 92 100
cost
Cumulative Budget cost
)In $ thousands(
 2.Cumulative Budgeted Cost (CBC)
Cumulative Budget cost
)In $ thousands(
100

90

80
TBC 1 2 3 4 5 6 7 8 9 10 11 12

70
Design 24 4 4 8 8
Total budget cost
Build 60 8 8 12 12 10 10
60
Install &

50
Test 16 8 8

Total 100 4 4 8 8 8 8 12 12 10 10 8 8

Cumulative 4 8 16 24 32 40 52 64 74 84 92 100 40

30

20

10

0
1 2 3 4 5 6 7 8 9 10 11 12
Weeks

Cash Flow Projection Curve for the Entire Project

 3.Cumulative Actual Cost (CAC)
To keep track of actual cost on a project it is necessary to set up a system
to collect on a regular and timely basis data on funds actually expended.

WEEK
TBC 1 2 3 4 5 6 7 8 9 10 11 12
Design 24 4 4 8 8
Build 60 8 8 12 12 10 10
Install &
Test 16 8 8
Total 100 4 4 8 8 8 8 12 12 10 10 8 8
Cumulative 4 8 16 24 32 40 52 64 74 84 92 100

Budgeted Cost Actual Cost expended by Week 8

At the end of week 8 , $ 68000 has actually been expended on this project

By comparing to the previous table the Cumulative Budgeted Cost is

$ 64000
4.Cumulative Earned Value (CEV)
Earned value is the value of the work actually performed

Earned value = the total budgeted cost X the percentage of the work
performed.
WEEK
1 2 3 4 5 6 7 8
Design 10 25 80 90 100 100 100 100
Build 0 0 0 5 15 25 40 50
Install &
Test 0 0 0 0 0 0 0 0

Cumulative Percentage completed by period

WEEK
TBC 1 2 3 4 5 6 7 8
Design 24 2.4 6 19.2 21.6 24 24 24 24
Build 60 3 9 15 24 30
Install &
Test 16
Cumulative 100 2.4 6 19.2 24.6 33 39 48 54

Cumulative Earned Value by period

80

70
$68000

$64000
60

$54000
50

CBC
40 CAC
CEV

30

20

10

0
1 2 3 4 5 6 7 8
 5. Cost Performance Index
(CPI)
Cost Performance Analysis
As a project Manger you have to analyse the
performance of your project on regular basis.
$64000 = budgeted through the end of week 8 (CBC)
$68000 = actually performed at the end of week 8 (CAC)
$54000 = earned value of the work actually performed by the end of week 8 (CEV)

Cost Performance Index = Cumulative Earned Value / Cumulative actual

cost
CPI = CEV / CAC

CPI = $54000/$68000=0.79
This ration indicates that for every $1 actually spent, only 0.79 of earned value was
received.

When CPI < 1

Corrective action should be taken
 6. Cost Variance (CV)
Cost Variance = Cumulative Earned Value -
Cumulative actual cost

CV = CEV – CAC

CV = $54000-$68000= -$14000

This indicates that the work performed till the end of

week 8 is $14000 less than the amount actually
expended.
7. Forecasted Cost at Completion (FCAC)
Forecasted cost at completion
• FCAC = TBC / CPI
• FCAC = $100,000/0.79 = $126,582
This method assumes that the work to be performed on the remaining portion
of the project or work package will be done at the same rate of efficiency as the
work performed so far.

Forecasted cost at completion

• FCAC = CAC + (TBC – CEV)
• FCAC = $68,000 + ($100,000 - $54,000) =$114,000
  This method assumes that, regardless of the efficiency rate the project or
work package has experienced in the past, the work to be performed on the
remaining portion of the project or work package will be done according to
budget.
8. The Cost Performance Indicator (TCPI)

The Cost Performance Indicator required to

complete the project without exceeding the total
budget cost

TCPI = (TBC – CEV) / (TBC – CAC)

(100-54) / (100-68) = 46/ 32= 1.437

• Total Budgeted Cost (TBC)

• Cumulative Actual Cost (CAC)
• Cumulative Earned Value (CEV)
 Example
Tables (2), (3) and (4) represent the different phases of a development project, Total Budget Cost, Actual Cost and the Cumulative
Percentage of Work Completed distributed throughout the project duration. Determine the following items at the end of week 9.
• The Cumulative Budgeted Cost 
• The Cumulative Actual Cost 
• The Cumulative Earned Value 
• The Cost Performance Indicator 
• Cost Variance
• The Forecasting Cost at Completion (use the CPI method)
The Cumulative Budgeted Cost (CBC) 

The Cumulative Actual Cost (CAC) 

The Cumulative Earned Value  (CEV)
180

162
160
150

140

123.8
120

100

80

60

40

20

0
week 1 week 2 week 3 week 4 week 5 week 6 week 7 week 8 week 9

CBC CAC CEV

• CBC at week 9 = 150

• CAC at week 9 = 162

• Earned value = The total budgeted cost X the percentage

of the work performed. CEV at week 9 = 123.8

• CPI at week 9 = CEV/CAC = 123.8/162 = 0.76 Corrective

Action should be taken

• CV at week 9 = CEV – CAC = 123.8 – 162 = -38.2

• FCAC = TBC / CPI = 240/0.76 = 315.8