1 project management – unit 4 – part 1 cost model acwp: actual cost of work performed: actual...
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Project Management – Unit 4 – Part 1 Cost Model1
ACWP: Actual cost of work performed: Actual costs in performing the work so far.
BCWP: Budgeted cost of work performed: The budgeted (planned) cost for the work performed so far.
BCWS: Budgeted cost of work scheduled: The planned profile of expenditure against time for the project. CPI: Cost performance index: The ratio of the value of the work to the actual incurred cost: CPI = BCWP:ACWP
BCTC: Cost to complete: Budgeted cost of work still to be achieved.
CV: Cost variance: A measure of performance in cost terms: CV = BCWP – ACWP ECAC: Estimated cost at completion: The projected completion cost of the project.
ECD: Estimated completion date: The date at which the project is estimated to be completed.
PB: Project Budget. The budgeted cost of work performed when the project is completed.
SPI: Schedule performance index: The ratio of the work performed to the work scheduled: SPI = BCWP/BCWS
SV: Scheduled variance: The difference between the budgeted cost of work performed and work scheduled: SV = BCWP - BCWS
The Typical Cost Model in Project Management
The problem with managingexpenditure In Project Management
is that you have to see the whole iceberg
Project Management – Unit 4 – Part 1 Cost Model2
tp - 1 5 5
tp - 2 7 12
tp - 3 9 21
tp - 4 11 32
tp - 5 15 47
tp - 6 20 67
tp - 7 30 97
tp - 8 45 142
tp - 9 48 190
tp - 10 45 235
tp - 11 43 278
tp - 12 40 318
tp - 13 30 348
tp - 14 20 368
tp - 15 15 383
tp - 16 10 393
tp - 17 5 398
Example Data
€
Project Management – Unit 4 – Part 1 Cost Model3
Example using Data
100
200
300
400
Pla
nn
ed C
ost
01 3 5 7 9 11 13 15 17
Time Period (tp)
Actual Costof
Work Performed
Budgeted Costof
Work Performed
Date ofcalculation
Budgeted Costof
Work Scheduled
Budgeted costto
Completion
Costvariance
Project Management – Unit 4 – Part 1 Cost Model4
Calculations
1. Actual cost of work performed = €270
2. Budgeted cost of work scheduled = €390
3. Budgeted cost of work performed = €240
4. Cost performance index = BCWP:ACWP = €240:€270 = 1:1.125
5. Budgeted cost to completion = BCWS – BCWP = €390 – €240 = €€150
6. Cost variance = BCWP – ACWP = €240 – €270 = € –30
7. ECAC = BCWS x CPI = €390 x 1.125 = €438.75
Using the data on the previous slide and calculating from the mid point of time period 9
Project Management – Unit 4 – Part 1 Cost Model5
Positive costvariance
Negative costvariance
Monitoring Costs – Cost Variance (CV)
Base Cost LineBCWS
o Remember:– This exercise is based on the S curve – the budgeted cost of work
scheduled for the project. Actual expenditure invariably follows.
Time periods
Plannedcost
CV is a value that should be regularly updated throughout the lifeof the project and is the difference between BCWP and ACWP
Project Management – Unit 4 – Part 1 Cost Model6
Remember this?
0
20
40
60
80
100
120
140
160
1 2 3 4 5 6 7 8 9 10 11
Alpha
Beta
Actual
Work Package – Activity ID
Days
Project Management – Unit 4 – Part 1 Cost Model7
Managing Time and Cost
Cost
Time period
Days
Time period
Cost
Time period
Days
Time period
Example 1 Example 2
Cost
Time period
Days
Time period
Example 3
Project Management – Unit 4 – Part 1 Cost Model8
Comparing the Planned and Actual Values of Work Completed
Planned month end points
Actual month end points
Slack et al. Ed 5. pp514
ACWP Actual cost of work performedBCWP Budgeted Cost of Work performedBCWS Budgeted cost of work scheduled
CV = Cost varianceSV = Scheduled variance
VALUE OF WORK COMPLETED
BCWSBCWP
SV
C V
ACWP
AC
TU
AL
EX
PE
ND
ITU
RE
€100,000
€100,000
Project Management – Unit 4 – Part 1 Cost Model9
Estimating Costs at Completion (ECAC)
o Depends on what assumptions the PM chooses to make about the cost of work still to be performed
– Assumption 1. The work still to be achieved will be done at the budgeted cost, the original estimate ECAC = PB – CV
– Assumption 2. (Probably more realistic) is that the remaining work will be performed at the same cost / budget factor that has been observed in the work performed so far ECAC = PB * (ACWP/BCWP) ~ this is sometimes known as
the cost performance index (CPI)
o Cost to completion (CTC) (NB. not the cost at completion) since the cost so far is ACWP, the estimated cost of the work to be done CTC = ECAC - ACWP
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Project Management – Unit 4 – Part 1 Cost Model10
Summary
o Developing the cost model
o The use of S Curves
o Monitoring cost variance