Chapter7 - exercise1

Questions:

Given the following information for a one-year project, answer the following questions. Recall that PV is the planned value, EV is the earned value, AC is the actual cost, and BAC is the budget at completion.

PV = $23,000

EV = $20,000

AC = $25,000

BAC = $120,000

a. What is the cost variance, schedule variance, cost performance index (CPI), and schedule performance index (SPI) for the project?

b. How is the project doing? Is it ahead of schedule or behind schedule? Is it under budget or over budget?

c. Use the CPI to calculate the estimate at completion (EAC) for this project. Is the project performing better or worse than planned?

d. Use the schedule performance index (SPI) to estimate how long it will take to finish this project.

e. Sketch the earned value chart based for this project, using Figure 7-5 as a guide.

Answers:

Table 1. Earned Value Formulas

Source: Schwalbe, 2006, p.272.

a. According to Table 1. Earned value formula, the results of the cost variance, schedule variance, cost performance index (CPI), and schedule performance index (SPI) are shown in the following:-

Cost variance (CV) is the earned value minus the actual cost.

CV = EV – AC = $20,000 – $25,000 = -$5,000

Schedule variance (SV) is the earned value minus the planned value.

SV = EV – PV = $20,000 – $23,000 = -$3,000

Cost performance index (CPI) is the ratio of earned value to actual cost and can be used to estimate the projected cost of completing the project.

CPI = EV / AC = $20,000 / $25,000 = 0.8 x 100 = 80%

Schedule performance index (SPI) is the ratio of earned value to planned value and can be used to estimate the projected time to complete the project.

SPI = EV / PV = $20,000 / $23,000 = 0.869565 x 100 = 86.957%

b. The project is not working well. According to Schwalbe (2006, p.272) stated that “if CV is a negative number, it means that performing the work cost more than planned. If a negative SV means that it took longer than planned to perform the work.” Moreover, “if the CPI is less than one or less than 100 percent, the project is over budget, and if the SPI is less than one or 100 percent, the project is behind schedule. Therefore, according to the project calculated CV equals -$5,000, SV equals -$3,000, the CPI is 80% less than 100 percent, and the SPI is 87% less than 100 percent, so that the project is both over budget and behind schedule.

c. As a result of the formula use the CPI to calculate the estimate at completion (EAC) for this project showed as below, the calculated EAC is $150,000 more than planned $120,000, so that the project is performing worse than planned, because if the project goes as planned, it will finish in 12 months and cost $120,000.

EAC = BAC / CPI = $120,000 / 0.8 = $150,000

d. According to the formula of estimating time to complete this project as below:

SPI = 12 months / SPI = 12 / 86.957% = 13.8 months

As a result of SPI, it will take 13.8 months to finish this project.

e. Sketch the earned value chart based for this project, using Figure 7-5 as a guide.

See Figure 1. Earned Value Chart for Project after Five Months.

Figure 1. Earned Value Chart for Project after Five Months

References

1. Schwalbe, K. (2006). Information technology project management (4^th ed.). Boston Massachusetts: Thomson Course Technology.