Week 3: Strategic Decision Management Discussion
Project Cost (graded)
Whether you are a project manager or a program manager, you will be concerned with project cost. Below is a
list of terms that you would see and use when working with project cost. Choose only one, explain it, and give
some examples of how it works.






 Cost Performance Index (CPI)







 Schedule Performance Index
 Point of Total Assumption (PTA)
Planned Value (PV)
Actual Cost (AC)
Earned Value (EV)
Budget at Completion (BAC)
Cost Variance (CV)
Schedule Variance (SV)
(SPI)
 Estimate at Completion (EAC)
 Estimate to Complete (ETC)
Variance At Completion (VAC)
Probability (P)
Impact (I)
Expected Monetary Value (EMV)
Expected Activity Duration (EAD)
Standard Deviation (SD)
Late Start, Early Start, Late Finish, Early Finish (LS, ES,
LF, EF)
 To Complete Performance Index [TCPI]
 To Complete Performance Index [TCPI]
Responses
Response
Different
ways of
defining
cost
Author
Instructor Ohayia
Date/Time
7/22/2012 5:53:38 AM
Class - there are many ways to look at cost, in general, I see
cost as a resource sacrificed or fore-gone to achieve a specific
objective or something given up in exchange. I look forward to
reading your posts this week...enjoy the discussion!
RE:
Different Corinne Lisefski
ways of
7/22/2012 3:12:00 PM
defining
cost
I discussed Late Start, Early Start, Late Finish, Early Finish (LS, ES, LF, EF) in my last
class, Project Management. The way it was explained in that class, is that Late start is
the latest date a project can start without going over schedule or costing more money to finish
on schedule. Early Start is the earliest a project can start. Late finish is the latest a project
finish and early finish is the earliest a project can finish. If a project gets behind schedule, its
going to cost more money to get it back on schedule and finish in the allotted amount of
time. Likewise it will cost more money than originally budgeted if the project doesn't finish
by the end date. It also costs more money to get started earlier and getting started late means
that you will have to make up time somewhere or the project could go both over budget and
over schedule.
"The early start, early finish, late start, and late finish dates of a project schedule
are the primary dates that are calculated in any project schedule. The early start
dates of the project schedule are the earliest that any activity in the schedule can
be scheduled to start given the logic and constraints of the schedule. The early
finish of an activity in the schedule is the earliest that the activity can be
scheduled to be completed given the logic and constraints of the schedule. The
late start of an activity is the latest that a project activity can be scheduled to be
started without having to reschedule the calculated early finish of the project. The
late finish of an activity is the latest that a project activity can be finished without
having to reschedule the late finish of the project. The late finish of the project is
the late finish of the last activity to be completed in the project.
The schedule that is made up of the early start and early finish of each activity in
the schedule is called the early schedule. The schedule that is made up of the late
start and late finish of each activity in the schedule is called the late
schedule." http://www.adeak.com/2010/01/what-are-the-early-start-early-finishlate-start-and-late-finish-dates-of-a-project-schedule/
RE:
Different
ways of Instructor Ohayia
defining
cost
7/24/2012 11:36:12 AM
Modified:7/26/2012 1:42 PM
Thanks Corrine! Class - an interesting thing about ES, LS, EF, and
LF is that they play a major role help to identify the critical path of a
project. This is a good indicator of cost management as well, delay
of any activity on the critical path will inevitably impact the project
cost!
RE:
Different
ways of Timothy Mark Thurman
defining
7/25/2012 8:54:56 PM
cost
to tie ES LS EF LF into this and your first post, I think time
is more frail and constant expenditure of a project. On a
project, or program for that matter, the work can be stopped
and sponsors can pull money but the clock is still running.
The critical path can be crashed (assuming there is time
planned for it) at a higher cost to the project but making the
project conclude sooner than originally planned. This is
important with project's like research and development, if a
company needs to get a new product to market to beat the
competition then the clock is likely to be a stronger
motivating factor than cost. I'm sure there are other
examples too.
RE:
Different
ways of Troy Brown
defining
cost
7/28/2012 6:38:21
AM
Modified:7/28/2012 6:38 AM
Timothy nice example with bring up crashing a
project. With crashing the critical it will add more
cost to the project because you are reducing the
time to do something, which would require
adding more resources to reduce the time. The
other very important thing you have to keep in mind
is that when you crash your project it will start to
affect other paths on your project. You might start
with one critical path, crash that path and end up
with 5 additional critical paths.
RE:
Different
ways of Timothy Mark Thurman
defining
cost
7/28/2012 11:55:33
AM
You bring up an interesting point, all
pieces are connected in one way or another.
This is what makes managing a project or
program as difficult as it is. It's important
to think several steps ahead so that when
surprises do arise the solution doesn't
create more problems than it solves. I'm
sure we've all seen examples in our own
lives of allowing haste to be detrimental.
That is all the more reason to be thorough
in the planning stage.
RE:
Different
ways of Tyrone Labad
defining
cost
7/25/2012 7:02:51 AM
Hello ES, LS, EF, and LF, this is what i make of them .
They are my friends" said a project manager. The newly
proposed " revisiting PM" strategies methodology is not
showing up encouraging results. What is interesting here is
to observe that , cutting costs is not always
being clinical about the system. Costs can
be optimized by processes s which focus on trimming the
layers in the organization. This in all is directed towards
identifying and then researched on for defining the critical
path of the project
RE:
Different
ways of Steven Frank
defining
cost
7/25/2012 7:21:05 PM
Just when I was getting over my nightmares about AON charts from
an earlier class, you bring this back up. HA!
Early and late schedules are very handy for adjustments due to slack
in the critical path. I can honestly say that manually creating AON
charts made me really appreciate the amount of calculations done by
software like MSProject. I never want to have to do that again,
though it is nice to know more of the work the software does for us.
To relate this back to cost, I would say that cost is a resource I would
gladly sacrifice to have PM software do some of the heavy lifting for
me.
I tend to see cost as one member of a troika or triad. Cost, Time, and
Quality are three parts of a balanced equation. If you reduce the
amount of cost, either the time gets larger or the quality gets smaller.
Any time you change one, the other two react accordingly within the
static scope of work. Normally a scope change is what changes the
balance.
RE:
Different
ways of Corinne Lisefski
defining
cost
7/26/2012 3:37:34 PM
I was thinking the same thing Steven. But I actually enjoyed
doing the AON, well the ones we did by hand were easy,
few steps in the project. I didn't really get to use MSProject,
just the very basics. I would like to learn more though.
I agree with you about the triad. You do have to find a
balance between all three of those, to ensure a good product
is produced and your customer is happy.
In our construction we do have alot of change orders, and its
usually for change in the scope of work or an unforeseen
condition. Sometimes it changes the time sometimes not. It
usually increases the cost.
RE:
Different
ways of Steven Frank
defining
cost
7/26/2012 5:39:44
PM
MS Project training is probably the one thing I think
my education plan lacks. Looking at the rest of my
curriculum, I see I'll need to find an outside source
for MS Project training.
Any suggestions from the class?
RE:
Different
ways of
Robert Allen
defining
cost
7/27/2012 7:52:33 PM
My observation has been that many companies seem more willing to throw
money at cost overruns, than at project planning. My theory as to why this is,
is this: large companies are built on many fiefdoms of VPs and
Directors. These people are selected for their jobs by their aggressiveness, at
least in US companies. This level of aggressiveness and desire to move up
the corporate ladder seems to mean that they are less prone to help each other
out for the common (company) good. I can somewhat understand this, as if
you're in a division that is clearly supporting current but getting older
product, you may be in more of a dead end than those working on the next
level of product to replace it. Still it's disturbing that everyone seems to have
to be engaged in protecting their domain. This causes so much waste.
Robert
RE:
Different
ways of Courtney Little
defining
cost
7/29/2012 6:25:09 PM
Robert, I agree in many ways. Companies do seem to spend
exorbitant amounts of money on projects that end up going well over
the original estimates in order to "save face" or to "look good" to
their superiors. I know when I used to work in the retail channel for
the wireless company I work for, there was a regional VP of sales
that wanted to have a kiosk at a local mall. There was a standalone
store at the bottom of the mall, but he wanted both. They paid a
ridiculous amount of rent for the space, salaries to employees (of
which most got fired for not meeting quotas due to low traffice-everyone went to the standalone store), and many times borrowed
headcount from the standalone store during holiday hours due to
higher mall traffic but still no increase in sales. For years the kiosk
struggled and the VP tried many different tactics to try to improve
sales to no avail. I would be curious to know how much he put the
company in the red due to his not wanting to admit his idea had
failed.
Planned
Value
(PV)
Nazar Eljack
7/23/2012 3:40:55 PM
Planned Value (PV) is the approved value of work to be completed in a given time
period; i.e. it is the money that you should have spent as per the schedule.
As per the PMBOK Guide “Planned Value (PV) is the authorized budget assigned to
work to be accomplished for an activity or WBS component. Total planned value for
the project is also known as Budget At Completion (BAC).”
PV = (Planned % Complete) X (BAC)
Planned Value is also known as Budgeted Cost of Work Scheduled (BCWS).
Example:
You have a project to be completed in 12 months and total cost of project is $100,000.
Six months have been passed (and schedule says that 50% of work should be
completed).
What is the Planned Value?
Let us see that what we have been given in this questionProject duration – 12 months
Project Cost (BAC) – $100,000
Time elapsed – 6 months
Percent complete – 50% (as per the schedule)
Definition of Planned Value says that Planned value is the value of work that should
have been completed so far (as per the schedule).
Therefore, in this case we should have been completed 50% of total work.
Hence,
Planned Value = 50% of value of total work
= 50% of BAC
= 50% of $100,000
= (50/100)X $100,000
= $50,000
Therefore, Planned Value (PV) is $50,000
http://pmstudycircle.com/2012/05/planned-value-pv-earned-value-ev-actual-cost-acanalysis-in-project-cost-management-2/
Project
Cost
Darren Coleman
7/23/2012 5:52:36 PM
Standard Deviation
The standard deviation is a statistic that tells you how tightly all
the various examples are clustered around the mean in a set of data.
When the examples are pretty tightly bunched together and the bellshaped curve is steep, the standard deviation is small. When the
examples are spread apart and the bell curve is relatively flat, that
tells you you have a relatively large standard deviation.
One standard deviation away from the mean in either direction on the
horizontal axis accounts for somewhere around 68 percent of the
people in a group.
Two standard deviations away from the mean account for roughly 95
percent of the people. Three standard deviations account for about
99 percent of the people.
x = one value in your set of data
avg (x) = the mean (average) of all values x in your set of data
n = the number of values x in your set of data
RE:
Project Corinne Lisefski
Cost
7/24/2012 11:35:54 AM
To add to your comment Darren, I found this site, that give the formulas for
PM. It does give the formula for Standard Deviation, but your explanation is
easier to understand.
http://69.13.149.40/Students/Formulas.htm
RE:
Project Instructor Ohayia
Cost
7/26/2012 1:49:53 PM
Thanks Darren/Corrine! Standard deviation is a great tool for
assessing variations (or deviation) from you
estimates. Typically PERT analysis is also used to address
variations in estimates.
Any experience with PERT analysis?
RE:
Project Tyrone Labad
Cost
7/27/2012 4:42:50 AM
The constant need of reviewing progress lead to the need of the PERT
formula and and how it is used to make estimates when you have a high
level of uncertainty.Regardless of the technique , the tendency in project
estimation is to provide one number for each estimate. In other words, if
you have 100 activities on your schedule, each activity would have one
estimate associated with it. This is generally viewed as the “most likely”
estimate.In many cases you can be more accurate by applying a simple
PERT (Program Evaluation and Review Technique) model. PERT is an
estimating technique that uses a weighted average of three numbers to
come up with a final estimate and provides an accurate status report.
RE:
Project Emilia Crespo
Cost
7/27/2012 3:50:57 PM
Pert is a formula similar to the risk management
process, it will examine the possible results of the
project: Best case, worse case, and expected case. In
project management always preparing for the
unexpected is important in reducing possible errors
further in the project. Pert formula does just this
provides a variety of results to increase the possible
solutions to any potential programs.
RE:
Project Corinne Lisefski
Cost
7/28/2012 12:11:07 PM
I haven't had any experience with PERT analysis. We do a
price/cost analysis before we award the project and with any
change orders that increase the total cost of the project. We
do track the amount of money spent on contracts, but that is
mostly done with task order contracts.
Schedule
Variance
(SV)
Steven Frank
7/23/2012 7:26:07 PM
Schedule variance is the difference between the planned schedule and the actual
schedule. This variance can come from delays or from tasks being performed in less
time. While early is always better, too much is a sign of schedule padding. You want
enough padding in the schedule to take the pressure off, but not enough to be
inaccurate.
One of my projects that recently had delays was a data center power outage. Facilities
was doing UPS maintenance, so they took UPS A down one weekend, then UPS B the
next weekend. The UPSes are redundant of each other, so there was little planned
impact. On the second weekend, when facilities was bringing UPS B up, UPS A failed
momentarily. It was just long enough to create a power spike when the UPS came
back up, burning 40 line cards in the server farm and dropping 1,920 server
connections. My 14 hour simple project became a week-long rush to find enough parts
to repair the site.
Most of my projects run smoother than that one. The refresh sites I'm doing, we
schedule the entire night from an hour after the last client business finishes in the
building to an hour before the first comes in in the morning. When we do a small site
like a banking center, we have 7pm to 6 am, but there is only one switch and one
router to swap out, so we finish early. we've even had equipment show up DOA and
had a tech drive 3 hours to pick up a replacement and finished the site. His drive time
gave me time to process the return paperwork for Cisco so I could replace the one I
borrowed.
Earned
Value
(EV)
Venkat Yetrintala
7/23/2012 9:15:43 PM
I have learned most of these concepts in my previous class Project Management. Here
I would like to talk about Earned Value (EV):
Earned value is a way to measure project's progress and forecast it's completion date
and final cost, and provide schedule and budget variances along the way. By
Integrating three (cost, schedule and work) measurements, it provides consistent,
numerical indicators with which you can evaluate and compare projects.
For example, if the Planned Value (PV) is $5,000 and the project is 50% complete, the
EV would be calculated as,
EV = PV x % = 5,000 x 50/100 = $2500
RE:
Earned
Elvis Niangoran
Value
(EV)
7/23/2012 10:45:04 PM
Thank you for you comment Venkat and to add to your comment Earned Value is also known
as Performance Measurement, Management by Objectives,
Budgeted Cost of Work Performed and Cost Schedule Control Systems.
RE:
Earned
Nazar Eljack
Value
(EV)
7/24/2012 11:25:22 AM
Found another example here:
You have a project to be completed in 12 months and total cost of project is
$100,000. Six months have been passed and $60,000 is spent but on closer
look you find that only 40% of work is completed so far.
What is the Earned Value (EV)?
From the above question you can clearly see that only 40% of work is
actually completed.
Definition of Earned Value says that it is the value of project that has been
earned.
In this case only 40% of work has been completed.
Hence,
Earned Value is = 40% of value of total work
= 40 % of BAC
= 40% of $100,000
= 0.4X$100,000
= $40,000
Therefore, Earned Value (EV) is $40,000
http://pmstudycircle.com/2012/05/planned-value-pv-earned-value-ev-actualcost-ac-analysis-in-project-cost-management-2/
RE:
Earned
Value Instructor Ohayia
(EV)
7/24/2012 12:17:24 PM
Thanks Nazar - EV is a powerful tool to assess the value of
your project in relation to the schedule and cost. In your
example, besides the fact that you have received 40% value,
what does that say about the overall status of the project?
RE:
Earned
Value Tiffany Bullard
(EV)
7/28/2012 4:39:55 PM
I don't think .40 is a bad earned value. As far as I know as long as it's a
positive number it's good. Its only when the figure comes back negative
that the project manager should worry. Essentially, a positive number is
good, ahead of schedule, while a negative number is bad, behind
schedule.
RE:
Earned
Value Nazar Eljack
(EV)
7/24/2012 12:49:54 PM
Unfortunately that mean something is wrong, where we
running behind. Can’t say that the project will fail but there
a possibility to go over budget or we could miss the time
target.
RE:
Earned
Value Venkat Yetrintala
(EV)
7/24/2012 4:35:42
PM
Based on earned value of above example project is
in risk, here are some advantages of using earned
value analysis to program / project managers:
- provides a set of specific guidelines and set
methods, it allows even the novice user to produce
more accurate plan than before
- eleminates subjectivity, it provides a reliable
method for understanding project status
- by maintaining record of both planned and actual
performance, it allows project managers to
understand planning errors and improve ability to
plan future projects.
- by recording actual data, it provides a basis for
making more accurate estimates next time
RE:
Earned
Value Troy Brown
(EV)
7/24/2012 7:24:55
PM
I think one more thing you can here Venkat
is the EV helps PM give better
understanding and realistic value or
measure of the performance of the
project. From an traditional standpoint,
most people other than Project
Management professionals look at only the
cost or schedule of the project to measure
the if the project is on track or at
risk. Where EV shows a realistic view of
the overall performance of the
projects. This realistic measures does help
PM's look at risk or performance of the
team. Like our Professor stated EV is a
Powerful tool, the only problem most
people outside the PM circle doesn't use it
or understand it. For example, at my
company we do not use this tool and most
of the PM's don't even know what earn
value means. And from an accounting
standpoint their major measure in the
success of a project is the cost.
RE:
Earned
Value Elvis Niangoran
(EV)
7/25/2012 12:43:59 PM
This means the overall project is coming under budget. If
the ratio were one, it would be exactly on budget. If it is
over one, the project is over budget.
RE:
Earned
Tiffany Bullard
Value
(EV)
7/25/2012 5:17:57 PM
Venkat, I agree with your reasoning and I believe Earned Value is the easiest and most useful
measure of cost that a project manager can use. You can easily use this calculation to
compare various project which would prove useful to a program and portfolio manager as
well.
RE:
Earned
Value Kim Easter
(EV)
7/25/2012 10:59:38 PM
I enjoyed learning earned value (EV). Other measurements an be
determined once the EV is calculated such as the CPI. The cost
performance index refers specifically to a method, chart, or other
instrument that is implemented for the purposes of measuring the
actual cost, AC, and efficiency of a project. The CPI is determined
by measuring the ratio of EV to AC. The equation to determine the
CPI can be derived by the following equation: CPI=EV divided by
AC. If the resulting value is greater than one indicates that the
conditions of cost efficiency for the project are considered to be
favorable. A resulting value that is less than one indicates that the
conditions of cost efficiency for the project are considered to be less
than favorable. The CPI can change over the life of a project
depending on the ways in which the EV and AC change.
http://project-management-knowledge.com/definitions/c/costperformance-index/
Project
Oral Bestman
7/24/2012 12:11:06 PM
cost
Actual Cost- is the total amount of material, labor cost and any directly associate with
overhead costs that can be charge to a specific project. The goal is to breakdown
specific cost of a project. For example, a pair of shoe cost $20.00 in material, $10.00
in labor, and $25.00 for overhead cost which include equipment, and operation cost.
The actual cost for the pair of shoe is $55.00.
RE:
Project Tiffany Bullard
cost
7/26/2012 4:51:19 PM
I believe Actual cost is an important measure in project management because it doesn't allow
costs to 'hide' . With your shoe example it shows you exactly how much it will cost to
manufacture the shoe and that helps the company figure an acceptable cost in order to break
even.
RE:
Project Instructor Ohayia
cost
7/27/2012 10:03:00 PM
Thanks Tiffany/Oral - Actual cost is good once your begin
the project, however, at the beginning of the project all you to
work with is an estimate.
RE:
Project Jenna Pingitore
cost
7/29/2012 6:46:22 PM
Actual cost and estimate cost are both used at different times
in a project, but are both important in their own way. Before
the project is officially up and running and you are
comparing what one company may have to offer versus
another, you need to know what you are comfortable
spending and need to make sure that what you are paying for
will give you what you are looking for. When you look at
the estimate cost, you need to keep in mind that it is just
that, an estimate. When you get in to the thick of a project
and are actually spending money on the project, that is when
it becomes actual cost and when you have done just that,
actually spent the money.
RE:
Emilia Crespo
7/29/2012 9:39:19 PM
Project
cost
The esitmate should also be higher then the actual
cost. If the estimate is just taking into consideration
the labor and materials it may lead to problems
when during the project. Once the actual project
begins there is also a high possibility that additional
funding will need to be use, whether that is for labor
or materials. Therefore, having a higher estimate is
most beneficial in reducing the possibility of not
having enough funding if the project needed it.
RE:
Project Corinne Lisefski
cost
7/28/2012 12:43:53 PM
We start with an estimate (Independent Cost Estimate - ICE)
for the cost of project. When in bids come in, we compare
the bids to the estimate. There is an acceptable range that
the bids must be within. If they are below the range, we ask
the bidder to explain the scope of work to ensure they
understand the scope of the work and can do the work for
the price they bid. If the bid is above the ICE, we reevaluated the ICE or ask the bidder for a Best and Final
Offer. Prices are evaluated by out in-house architects and
engineers(A/E), as well as our consulting A/E
RE:
Project Shavonda Marks
cost
7/28/2012 11:55:37
PM
I believe in certain instances that starting with an
estimate is always better. There was one project in
my department where they were trying to
implement a new gateway that will pass along
information to the FDA faster. Other pharma
companies were researched on how they use their
gateway. The software was reviewed by quality,
speed, and cost. From these estimates, the project
team could determine if it more cost effective to
purchase the software or built own.
RE:
Paul Lindeke
7/28/2012 12:52:27 PM
Project
cost
With working on a huge project, there are a lot of variables and it is
difficult to determine the actual cost of the project so you don't know the
actual cost until the end of the project. Of course the estimate that you
come up with is usually pretty close to the actual cost, unless something
huge happens and the project has to go through a huge change which
would cost more money. Planning the project first is the most important
step since you will be able to figure out how much materials and labor
you are going to need to get the project done within budget, plus it will
give you a very accurate estimate.
RE:
Project Ricardo Antezana
cost
7/28/2012 7:05:06 AM
Yes professor is an estimate that could have been done by a
top-down estimating where there is actually not very many
details know about the project, it's just based on previous
projects of similar nature, often used on early stages of a
project. Or a bottom-up estimating where most of the details
are know about the project, basically the people who
are doing the work, look closely to each activity and
estimate the cost of that activity, this is often used on later
stages of a project.
Project
Cost
Darren Coleman
7/24/2012 1:20:25 PM
Schedule Performance IndexConsiders all tasks, not just those on the critical path, so that non-critical tasks are not
ignored. Does not take into account if a project's critical path is on schedule. Ignores tasks
that have $0 budget such as submittals that require approval or ordering materials. Is used in
conjunction with critical path analysis
A project with a SPI greater than 1.0 indicates that the project is ahead of schedule this is a
great thing. If the project SPI is less than 1.0 the project is behind schedule
absolutely unacceptable. An SPI equal to 1.0 indicates that a project is precisely on
schedule. The SPI for individual projects and a company's projects as a whole will
vary. Some parts of a project may be ahead of schedule and some will lag behind.
RE:
Project
Costs
Andrea Johnson
7/24/2012 1:49:56 PM
It has been a few classes back since I used these formulas so I had to do some
research. I looked into CPI, the Cost Performance Index. The CPI is “a measure of
how well the project is doing in terms of spending the project budget.” The CPI is
calculated by dividing the budgeted cost of work performed by the actual cost of work
performed. It is a comparison of the actual money spent to complete work up to date
versus the actual amount of work that has been completed to date. This article stood
out to me because it explains how calculating the CPI is beneficial for projects of all
sizes. It also rationalizes that if the project is running as planned the actual amount of
money spent to complete work up to a certain point in the project will equal the actual
amount of work completed at that same point in the project, and this would generate a
computing result of 1. Therefore any variation from 1 should provide an indication to
reevaluate project costs whether they are slightly good (results greater than 1) or
slightly bad (results less than 1).
http://www.adeak.com/2010/03/what-is-the-cost-performance-index/
EAC.
Robert Allen
7/24/2012 3:46:38 PM
Being a computer programmer I'm somewhat anal-retentive. Thus I find it particularly
annoying that the shell is asking us about these things when the book doesn't discuss them
at all, and the lecture notes say what the formula is but nothing more. I've seen these
discussed in a previous PM class but couldn't find EAC. Who knows, maybe the search
mechanism in VitalSource bookshelf is just broken.
I was going to expand and explain the forumula a step at a time, but it gets cumbersome so
I'll just fall back to this web definition: "EAC is equal to the actual cost of work performed
(ACWP) plus the estimate to complete (ETC) for all of the remaining work.",
http://www2.cit.cornell.edu/computer/robohelp/cpmm/Glossary_Words/Estimate_at_Com
pletion.htm .
To explain this, you would use EAC at a time/times during a project when the project is
not yet complete, and you'd like to know if you're going to complete on budget. Thus it
looks at what you've already spent. Actual Cost of Work Performed, plus the amount
Estimated To Complete the project/portfolio. Note that you can't simply say for example,
if you're 2/3 of the way through the budget halfway through the project that you're in
trouble, because ETC could be 1/3 or less than the budget. Budget and time are not in the
same timeline.
Robert
RE: Point of
Total
Assumption
Steven Frank
7/24/2012 7:40:00 PM
Modified:7/24/2012 7:43 PM
The point of total assumption is the fixed price of a fixed price contract.
This is the balance point where the seller starts to absorb costs. The PTA is usually set
at a point where the seller doesn't absorb costs with reasonably expected issues. An
earthquake at a construction site would quickly push most sellers past the PTA, as an
example.
I found a pretty good graphic for this one:
http://er-sspawar.blogspot.in/
RE: Point of
Total
Troy Brown
Assumption
7/26/2012 8:48:47 PM
To add to Steven post I found an detailed article explaining PTA and how to
arrive at using or formulating the PTA formula:
http://pmpsnacks.wordpress.com/2011/07/23/point-of-total-assumption-ptawhats-the-point/
With using PTA it gives an opportunity for the seller/buyer to negotiate an
fixed contract or an target cost of a project with attached unknown
cost. Instead of of the seller eating the cost of a very risk project that goes
over the target price because of the variables that can't be defined as a cost,
both parties share some of the burden. When the project hits the target cost It
is usually than both parties will split the cost to a certain % of the project
cost. Usually there is a 80/20 between the seller and buyer.
I wish the company that I work at now would start using a tool like this for
some of our riskier projects and rebuild that have a lot of unknowns... These
projects usually turn to a big issue because the unknowns inflate the cost of
the project as does the expediting costs as more unknown come up later in the
project.
Cost
Performance
Index (CPI)
Troy Brown
7/24/2012 7:44:33 PM
CPI is a measure of the cost efficiency with which the project is being performed.
(Gido 253)
CPI = CEV(cumulative earned value)/CAC(cumulative actual cost)
To determine the performance of a task or of the project using the CPI it is measured
in a ratio that is equaled 1. So for every dollar that is consumed in the project, the CPI
measures the earned value of each dollar. So, if you earned $9 of work but actual
spent $10 your CPI would be .9 or $.90 of of every dollar used on the project so
far. Shown in formula:
CPI = $9/$10 = .9
The thing you have to look at here is how much below or how high your are above
1. The standard for a successful project or to be on track with your project is staying
as close to the ratio of 1 as you can. If you get too low or too high, as a PM you then
need to look into the issue and find a way to get back on track or develop an action
plan to fix the risk or problem. A rule of thumb that I learned from another PM class
is the threshold is +/- 10% of 1 before you start to looking into the problem or risk.
Gido, Clements. Successful Project Management, 5th ed., 5th Edition. South Western
Educational Publishing, 02/2011. <vbk:9781133614487#outline(7.7.2)>.
Cost
Performance
Index
Damion Alexander
7/24/2012 10:05:32 PM
The cost performance index refers to a method, chart, or other instrument that is
implemented for the purposes of determining/measuring the actual cost efficiency of a
project. The cost performance index is determined by measuring the ratio of earned
value (also known by the abbreviation of EV) to actual costs (also known by the
abbreviation of AC).
The formula for cost performance index is CPI=EV divided by AC.
If the resulting value is greater than one indicates that the conditions of cost efficiency
for the project are considered to be favorable. A resulting value that is less than one
indicates that the conditions of cost efficiency for the project are considered to be less
than favorable.
Source: http://project-management-knowledge.com/definitions/c/cost-performanceindex/
Good
or
bad...
Instructor Ohayia
7/25/2012 12:35:19 PM
Class - What constitutes a good or bad CV, SV, CPI, or SPI? Explain your answer.
RE:
Good Damion Alexander
or
7/26/2012 9:22:35 PM
bad...
Schedule variance provides metrics on individual performance that can be
loaded into a tool like critical path analysis and can be used for prediction of
future tasks. But if the task is not staffed per the dates needed, then Schedule
Variance provides an answer that is accurate, but not particularly useful.
Schedule Variance is not useful for parallel development efforts, so if there is
any parallelism at all in the project, then the summation of schedule variances
has no meaning.
RE:
Good
Oral Bestman
or
bad...
7/25/2012 1:56:49 PM
A good CV is when the cost is under or met budget, and bad CV is when
project is go over budget which create variance that affect the CV total. On
the other hand SV is good when project are ahead of schedule or meet
schedule, if the project is delay or run schedule as plan, it increase the CV
cost.
RE:
Good
Jenna Pingitore
or
bad...
7/25/2012 2:56:11 PM
I would absolutely agree with you, Oral. A good CV is definitely
when the cost is under budget or has met budget and this is often
easier said, than done. Everyone wants to end up under or on budget
when a project has been completed, but there are often things that
can get in the way. I watch a lot of HGTV (sorry if this is not a great
example) and there is a show called Love It or List It and when the
woman is doing the renovations, there is always something that
comes up and causes an additional cost to the home owners, which
brings down the amount that they can use on renovations. Along this
line, when these costs come up, they are going against the CV and
can bring it down in a bad way.
RE:
Good
Timothy Mark Thurman
or
bad...
7/27/2012 2:19:16 PM
exactly, and this is where the CPI comes in. The cost
performance index is how to measure the health of the
project. Criteria should be determined for the CPI so the
project doesn't fly off course in regards to how much it costs
and the PM can know when something is going awry when
it comes to cost. This criteria should be determined in the
planning stage and monitored regularly.
RE:
Good
Jenna Pingitore
or
bad...
7/28/2012 7:12:26 PM
It absolutely does need to be monitored from the
beginning (planning) stages so that unexpected
things do not throw the budget off course. If you
think of the saying "prepare for the unexpected" you
will often find yourself in a better situation by
following that. If you have a budget of $100,000 to
complete renovations (example) and you know that
there are certain things that you want to be able to
accomplish, it may be a good idea to keep $10,000
(give or take) as a contingency budget so that as the
project gets rolling, if you come across any issues,
you have a budget already set aside to work with
and aren't trying to scrounge for additional funding.
If you get to the end of the project and have that
$10,000 remaining, you can do one of two things:
1) you can use this to show that the project is below
budget or 2) you can use this $10,000 for additional
improvements that you may not have budgeted for
initially.
RE:
Good
Instructor Ohayia
or
bad...
7/29/2012 6:49:53 AM
Excellent input folks - CPI is and SPI are great
measure of how efficiently are resources being
applied to as assigned task! For example, if the
outcome of your SPI is 90%, this means that the
resource is operating at a 90% efficiency. The
question becomes, why, because a a 90% efficiency
the project would end up behind schedule!
RE:
Good
Melinda Larsh
or
bad...
7/29/2012 6:43:04
PM
I think a reason a project can get behind
when the resources are running at 90% is
things that are out of resources control such
as weather delays if the work is outdoors.
Another reason could be external delays
such as government red tape or parts not
being delivered on time. The resources of
the project are just one component of it and
there are many influences on a project.
RE:
Good
Kyle Simmons
or
bad...
7/29/2012 10:18:55
PM
Well I agree this could be a
resource issue but it could also be
out of the control of the PM to get
the project done in time. Natural
disasters could hit and you have no
control. You could lose an entire
data center for a day and then your
project could be off target. I think
that it is good to look at an index
of how you are doing but in the
end it is the question of Why that
must be addressed in the AAR
(After Action Review)
RE:
Good
Venkat Yetrintala
or
bad...
7/25/2012 7:44:39 PM
Cost Variation helps answer following questions:

Why did one project cost more or less than planned?

Were objectives met?

Is a positive variance a cost saving or a failure to implement?
RE:
Good
Ricardo Antezana
or
bad...
7/25/2012 8:34:42 PM
Well, since the CV is equal to the BCWP (budget cost of work performed) ACWP (actual cost of work performed), a negative result would mean that the
project is over budget. And SV is equal to the BCWP- BCWS (budget cost of
work schedule), a negative result would mean that the project is behind
schedule. Going to the CPI that is the equal to the BCWP/ACWP, a low ratio
would mean that the project is not cost efficient, close to 1 efficient, close to
0 very inefficient. Now going to SPI that is equal to BCWP/BCWS, a low
ratio would mean that the project is not time efficient, a ratio of 1 the project
is on track, greater that 1 the project is very efficient.
RE:
Good
Kyle Simmons
or
bad...
7/25/2012 11:40:20 PM
SPI (Schedule Performance Index) is the measurement of the amount of work
complete based on the goal of completion. SPI will take into account Planned
Value and End Value and multiplying them together to get a number that will
allow you to determine if the project is on or over schedule, on or over
budget.
A good SPI is going to be ~1 or >1 because this will indicate that the project
is on or ahead of schedule. When you get a lower value then you are running
over budget and are behind schedule.
RE:
Good
Damion Alexander
or
bad...
7/27/2012 1:55:50 PM
I agree with you Kyle because when the SPI is a negative number or less than 1,
the project would be in bad shape and behind schedule. But when it is a positive
number or greater than 1, then the project would be in good shape and ahead of
schedule. So this is a way to determine whether you have a good or bad SPI.
RE:
Tyrone Labad
7/26/2012 6:19:35 AM
Good
or
bad...
Although you can easily calculate most all earned value metrics (i.e. PV, EV, AC, SV, CV,
SPI, CPI, EAC, ETC, etc) you don’t necessarily need to track all these values , what is critical
for most projects is to track the Schedule Variance (SV), Cost Variance (CV), Schedule
Performance Index (SPI) and Cost Performance Index (CPI). These four values provide a
reliable measurement of the project’s performance.For example if the project is on Schedule
and is greater than zero, the clear understanding is the project is is earning more value than
planned thus it’s ahead of schedule. If SV is less than zero, the project is earning less value
than planned thus it’s behind schedule.
RE:
Good
Robert Allen
or
bad...
7/28/2012 11:47:22 AM
Tyrone, thanks for pointing that out. I agree that we don't have to
track all things all the time. The way I see it is these formulae are a
box of tools. Most of the time we use the same few tools to do our
jobs (hammer, screwdriver :)). But sometime we reach in and pull
out that special tool to solve a particular problem. The key is to
ensure that we have all the metrics we need along the way so that if
we do need to use the different tools, we can.
Robert
RE:
Good
Nazar Eljack
or
bad...
7/26/2012 10:56:52 AM
Schedule Performance Index tells us about the efficiency of time utilized on
the project. It is a measure of progress achieved compared to planned
progress.
Schedule Performance Index = (Earned Value)/(Planned Value)
Schedule Performance Index informs us that how efficiently we are
progressing with compared to planned progress.


If SPI is greater than one, means more work has been completed than
planned work.
If SPI is less than one, means less work is completed than planned

work.
If SPI is equal to one, means work completed is equal to planned
work.
http://pmstudycircle.com/2012/05/schedule-performance-index-spi-and-costperformance-index-cpi/#axzz21kQ0yTwc
RE:
Good
Instructor Ohayia
or
bad...
7/26/2012 2:05:41 PM
Thanks Nazar!
Class - is positive SV or SPI always a good thing?
RE:
Good
Charlese Adams
or
bad...
7/27/2012 10:42:05 PM
Professor,
Having a positive SV and SPI can be considered a good
thing because you are ahead of schedule and under budget. I
can't really think of a negative aspect of having a positive
SV or SPI. Could it be that the company may have
overbid the project and although it would not affect them
right now because the project has already started but could
affect future projects if another company manages to bid
under them.
Chalese Adams
RE:
Good
Kyle Simmons
or
bad...
7/28/2012 7:11:39 PM
I think that a positive number as in 1.1 through 1.2 would be
good but after that your sponsors may start to think that we
have over allocated resources or that the project is not define
correctly. Too much of a good thing can always be bad.
RE:
Good
Ricardo Antezana
or
bad...
7/27/2012 7:06:59 PM
Professor a positive SV would mean that the project is ahead
schedule, and if it is too favorable that could mean that the
project is not being performed with high quality or the
efforts have been overestimated. Same with SPI, if the ratio
is equal to 1 the project is on track and if it greater than 1 the
project is very efficient and if it is too greater than 1
something could be going on that needs the project manger's
attention.
RE:
Good
Darren Coleman
or
bad...
7/27/2012 7:18:22 PM
If your SV >0 and your SPI > 1.0, you are ahead of schedule and under
budget. To me is a good place to be in. If your SV < 0 and your SPI <
1.0 you are behind in budget and schedule. This means you have to fix
this now and get back on budget and see where you can make some time
up.
RE:
Good
Paul Lindeke
or
bad...
7/26/2012 6:03:28 PM
I would have to say that a positive value could be good or bad since it
could mean that unnecessary work is being done that is not planned
which can cause money to be wasted. Of course it could also mean that
work that needs to be done is getting done ahead of time without being
planned and that could result in the project being done faster than
expected. It all depends on the work that is being done and whether or
not it is beneficial to the project.
RE:
Good
Courtney Little
or
bad...
7/28/2012 10:18:52
AM
Paul, I would tend to agree. Being under budget
and ahead of schedule can definitely be a bad
thing. I think the inital reaction is that it's great, but
if you're doing this much faster and cheaper than
you initially estimated, either you gave a bad
estimate or you are missing something in the overall
picture. You could be skipping steps or not
covering all your bases. To have a successful
project, it entails a lot of anticipation and
contingency plans because in the real world, things
don't always go as planned.
Honestly, assuming that your initial estimates in
your bid or whatever were well thought out and you
were able to anticipate future roadblocks, etc. you
should be pretty close to all values you initially
stated.
RE:
Good
Andrea Johnson
or
bad...
7/29/2012 10:30:45 PM
I believe that a positive SV or SPI is good, for obtaining the
very bottom line of completing on time and within
budget. These indicators do not measure quality
however. A high SV or SPI could also indicate that work
may have been rushed or not up to standard. It may also
mean that resources were overestimated and with that comes
money being spent for those resources.
RE:
Good
Kim Easter
or
bad...
7/26/2012 8:10:13 PM
Variances will always exist, unless there is perfect execution of the
Project Plan. Variances are not always a bad omen, or cause of
concern, or an indicator of poor management. Significant variances
are those variances that break predetermined thresholds, require
management attention, and corrective action. Significant variance
may mean the original plan was inappropriate, or the EVT was not
appropriate, or the actuals (ACWP) were incorrect. Significant
variances inform management that something needs to be examined,
analyzed and proper corrective action instituted.
http://guidebook.dcma.mil/79/evhelp/var.htm
RE:
Good
Instructor Ohayia
or
bad...
7/29/2012 6:53:57 AM
"Variances will always exist, unless there is perfect
execution of the Project Plan." Great observation
Kim! There no perfect plans - remember, our plans is as
good as our estimates. The only way to get to perfection
execution to to have exact data, but unfortunately we do not
have the exact data until the end of the project.
Schedule
Variane
Melinda Larsh
7/25/2012 12:42:58 PM
Schedule variance is any deviation in what was originally noted for completion date
vs. the actual completion date. For example, if you are building a house for your
project and the framing is supposed to take you only four days for the framing, but
maybe due to weather delays it takes eight. Well your schedule variance would be +4
days. Once you have a variance (especially if it is a delay vs. finishing early) you need
to make adjustments in your schedule so you ensure you meet the time frame set by
the stakeholder.
RE:
Schedule Shavonda Marks
Variane
7/29/2012 6:36:27 PM
I just wanted to add to your post. The formula for calculating schedule
variance is EV (earned value) - PV (planned value) = SV (scheduled
variance). Also, a positive variance means the project is ahead of schedule
and negative variance means it is behind schedule. It is very important for the
project management to manage the variance throughout the project.
Actual
Cost
(AC)
7/25/2012 5:41:11 PM
Paul Lindeke
"The actual cost of a project represents the true total and final costs accrued during the process of
completing all work during the pre-determined period of time allocated for all schedule activities as
well as for all work breakdown structured components. Actual costs are primarily made up of a number
of specific items including, but not limited to, cost in direct labor hours, direct costs alone, and also all
costs including indirect costs."
http://project-management-knowledge.com/definitions/a/actual-cost/
At the beginning of the project only an estimate of how much the project will cost is given because it is
hard to determine the actual cost of the project. Only till the end of the project with the actual cost be
known and then adjustments can be made later to the estimate so it will match the actual cost.
CPI
Courtney Little
7/25/2012 6:30:59 PM
A CPI of 1 means the project is exactly on budget. Anything below 1 means the
project is over budget and anything over 1 means the project is under budget. In this
case, the closer to 1 you can be the better. You wouldn't want to be too much under or
over because that means you mis-estimated to begin with. Obviously, too far below 1
and the stakeholders would not be very happy.
RE:
CPI Troy Brown
7/25/2012 9:01:36 PM
To add to Courtney's thoughts I think a good CPI or SPI is anything that is
within your contigency plan for the project. If your organization has a
threshold of 10% +/- of 1 and you stay within that variance than I would
consider that a good SPI or CPI. Because projects have so many changes that
go on during the life cycle of the project that you need to have some variance
below or below 1 to allow you as the PM to be effeicent and effective Project
facilitator. If you don't have this contingency in place for the project, every
time the project falls off track or misses the budget you will be creating an
action plan to fix the issue that might plays it's self as the project moves on.
RE:
CPI Instructor Ohayia
7/26/2012 2:03:07 PM
Thanks Courtney/Troy/Class!
Troy says "If you don't have this contingency in place for the
project, every time the project falls off track or misses the
budget you will be creating an action plan to fix the issue that
might plays it's self as the project moves on." In reality,
contingency are used for manage unexpected deviation from
a "planned task", it should not be used for any changes or
new items.
RE:
CPI Kyle Simmons
7/28/2012 7:24:57 PM
Just to be clear you are saying we would use congregant for
unexpected issues arising, for example your project is to
drill 500 feet into a mountain and when you hit 300 you hit
some unforeseen rock density so it requires around the clock
drilling. As opposed to once you hit 300 feet the sponsor
tells you that you need to drill 650 on the same timeline?
RE:
CPI Elvis Niangoran
7/27/2012 10:40:44 PM
I would agree with you professor, contingency will offset the
project uncertainties, such as unexpected events that can make
initial budgets inaccurate and meaningless.
Standard
Deviation
Shavonda Marks
7/25/2012 9:54:31 PM
The standard deviation is a measure of the degree of dispersion of the data from the
mean value. A large standard deviation indicates that the data points are far from the
mean and a small standard deviation indicates that they are clustered closely around
the mean.
For example, the sets {0, 5, 9, 14} and {5, 6, 8, 9} each have a mean of 7, but the
second set has a much smaller standard deviation.
Sometimes, the standard deviation is defined as the average distance between any
score in a distribution and the mean of the distribution.
http://www.wordiq.com/definition/Standard_deviation
RE:
Standard Melinda Larsh
Deviation
7/28/2012 6:56:05 PM
Great example! I often get confused by the standard deviation. I wonder when
see it if the SD is good or not good and what it tells me about the data itself. I
think that the standard deviation is a wide know term, but I don't think a lot of
people understand the meaning.
EV
Emilia Crespo
7/25/2012 10:03:40 PM
EV= PV+AC Earned value is sort of like x'tra money but not really. The actual cost is
the actual cost and the planned value is an estimate of the cost based on a number of
factors. Once both are determine there is going to be a gap which is the earned value,
which is what may be left after the actual cost has been subtracted from the planned
value.
Example
House for sale
Plan on spending $200,000
Actual cost of house $120,000
Earned value which is what we saved $70,000
However the earned value should not be spent or perceived as earned money because
it may come in handly for another project that the actual cost exceeds the planned
value
-Emilia Crespo
RE:
EV Kim Easter
7/28/2012 3:55:52 PM
Modified:7/28/2012 3:57 PM
The earned value that is remaining, $70,000, can be deposited in the project
reserve or contingency reserve for potential unidentified risks that could
materialize later in the project or saved for other projet endeavors.
RE:
EV Oral Bestman
7/29/2012 12:53:58 PM
Setting aside reserver can definitely become useful, when unexpected
challenges develop later on the project.
Point of Total
Charlese Adams
Assumption
7/29/2012 11:34:15 PM
The point of total assumption is the point in a contract where the subcontractor
assumes responsibility for all additional costs. The formula is calculated as:
PTA = (Ceiling Price - Target Price) / BSR (Buyer's Share Ratio) + Target Cost
On the fixed price plus incentive fee contract (FPIF), the target cost, target price,
ceiling price, and one or more share ratios are specified.