A project with a total budget of $100,000 is underway, but not finished. The project manager calculates that sixteen work packages that were budgeted at $40,000 in total have been completed, and that no others have begun. Accounting advises the manager that $50,000 has been spent in completing those 16 work packages. According to the project plan $45,000 should have been spent to date in order to finish 18 work packages.
a) what is EV in dollars
b) what is Cv in dollars
c) what is sv in dollars
d) what is CPI
e) what is EAC
The correct answer and explanation is :
Let’s break down the given information first:
Given Data:
- Total Budget (BAC) = $100,000
- Completed Work Packages = 16
- Budget for Completed Work Packages (EV basis) = $40,000
- Actual Cost for Completed Work (AC) = $50,000
- Planned Value (PV) = $45,000 (amount planned for completing 18 work packages)
Answers:
a) Earned Value (EV) = $40,000
b) Cost Variance (CV) = EV – AC = $40,000 – $50,000 = –$10,000
c) Schedule Variance (SV) = EV – PV = $40,000 – $45,000 = –$5,000
d) Cost Performance Index (CPI) = EV / AC = $40,000 / $50,000 = 0.80
e) Estimate at Completion (EAC) = BAC / CPI = $100,000 / 0.80 = $125,000
Explanation (Approx. 300 words):
In project management, key performance indicators are used to assess how well the project is progressing compared to the plan in terms of budget and schedule.
Earned Value (EV) is the value of work actually performed to date, based on the budgeted cost of that work. In this case, the 16 completed work packages were budgeted at $40,000, so EV = $40,000.
Cost Variance (CV) is a measure of cost performance. It tells us whether the project is under or over budget. It is calculated as EV minus AC (Actual Cost). Here, the cost incurred to complete the 16 work packages is $50,000. So, CV = $40,000 – $50,000 = –$10,000, meaning the project is over budget by $10,000.
Schedule Variance (SV) shows whether the project is ahead or behind schedule. It is the difference between EV and PV (Planned Value). The plan expected $45,000 of work to be done by now (18 work packages), but only $40,000 worth (16 packages) is complete. So, SV = –$5,000, meaning the project is behind schedule.
Cost Performance Index (CPI) is a ratio that reflects cost efficiency. A CPI of 0.80 means the project is only earning $0.80 of value for every $1.00 spent, indicating inefficiency.
Estimate at Completion (EAC) predicts the final cost of the project if current trends continue. Calculated as BAC/CPI, EAC = $100,000 / 0.80 = $125,000, suggesting the project will exceed the original budget by $25,000 if no corrective actions are taken.
Understanding these metrics helps project managers make informed decisions to bring the project back on track.
