project management
bush78
Module5_ProjectCostManagementCreatedbyDrACabello2020.pdf
Module 5: Project Cost Management (Created by Dr A Cabello, 2020)
Institution: Platform Site: ENGG951 (S221) Engineering Project Management
Book: Module 5: Project Cost Management (Created by Dr A Cabello, 2020)
Printed by: Dixitkumar Pravinbhai Patel Date: Thursday, 9 September 2021, 5:34 PM
Table of contents
1. Introduction to Project Cost Management
2. Project budgeting
3. Estimating activity costs 3.1. Ratio Method or Mathematical Relationships (Exercise 5.1) 3.2. Apportion Method/Analogous Method (Exercise 5.2) 3.3. Creating Time phased budget (Exercise 5.3) 3.4. The importance of applying estimation methods to Costs and resources(Exercise 5.4)
4. Monitoring and controlling project costs 4.1. How does a Project Manager monitor and control a project (OVERVIEW) 4.2. How to Prepare a Status Report - Tools for Monitoring and Measuring Cost Performance 4.3. How To prepare a Status report - step by step 4.4. Calculation and Basic status Report (Exercise 5.5) 4.5. Why report in $ terms? 4.6. The S Curve 4.7. Exercise 5.6 (Part A) 4.8. Exercise 5.6 (Part B) 4.9. Indexes to Monitor Progress 4.10. Forecasting 4.11. Exercise 5.7 4.12. Exercise 5.8 (rev 2021)
5. References
6. Glossary 6.1. Agile project management 6.2. How much of detail/decomposing? (Source: Larson & Gray, 2011; p. 142) 6.3. Activity relationships 6.4. Network Exercise from Module 3.12 6.5. Importance of the critical path (Source: Larson & Gray, 2011; p. 171) 6.6. Project milestones 6.7. Comparative view of AON and AOA notations 6.8. Resource calendar 6.9. Comparison of top down and bottom up methods of estimating 6.10. Bottom-Up Estimating 6.11. Implications when considering resource availability for activity duration estimates 6.12. Analogous estimates 6.13. One point estimates 6.14. Parametric estimates 6.15. PERT estimates 6.16. Reserve analysis 6.17. Network diagrams using activity on node (AON) method 6.18. Activity on arrow 6.19. Crashing 6.20. Fast tracking 6.21. Schedule Compression 6.22. Resource Leveling 6.23. Critical chain method (CCM) 6.24. An Image of a schedule 6.25. Schedule baseline 6.26. Types of costs 6.27. Accuracy of estimates 6.28. Human resource plan (as used in cost estimating) 6.29. Analogous estimating 6.30. Example for funding limit 6.31. Control accounts 6.32. Roll-up for cost budgeting 6.33. Regular status reports 6.34. Progress reporting methods 6.35. Terminology used for Earned Value (EV) 6.36. Variance analysis 6.37. Earned value calculations
1. Introduction to Project Cost Management
The purpose of project cost management is to ensure that the project is completed within the approved budget while adhering to the agreed scope and time parameters. This is achieved through: first, developing a realistic budget based on costs estimated at the activity level; and then, ensuring that the project performs within that budget, using appropriate monitoring and controlling measures. The level of accuracy at which an activity cost is estimated will have significant implications on project budgeting and therefore, project cost performance, as well.
Figure 1 below, outlines the PMBOK® Guide processes in relation to the project cost management knowledge area.
Figure 1 An extract from the PMBOK Guide Table 1.4 (SOURCE: PMBOK GUIDE 6th Ed, 2017)
A brief explanation of each of these processes follows.
7.1 Plan Cost Management - the process of defining how the project costs will be estimated, budgeted, managed, monitored and controlled. 7.2 Estimate Costs – Develop an approximate estimate of the costs for each defined activities activity. 7.3 Determine Budget – The careful aggregation of the time phased activity cost estimates to establish the project cost baseline or budget. 7.4 Control Costs – Endeavour to maintain the agreed project budget, by way of monitoring project expenses against the budget baseline while dealing with variations.
We will go through these areas in some detail, and also introduce a popular approach used to measure project performance (i.e. project cost, scope and time), called ‘earned value analysis’ in the remainder of this module.
There are some useful concepts you might want to familiarise with prior to embarking on planning, monitoring and controlling costs such as types of cost and the expected accuracy of cost estimates.
2. Project budgeting
The project budgeting process involves the aggregation of activity cost estimates to develop a cost baseline which is also known as a time-phased budget. The incumbent organisation should closely refer to the cost baseline when authorising funds to be expended over the duration of the project. The cost baseline is used as a frame of reference in the monitoring and control of project costs – i.e. to compare the actual or committed expenses against budgeted costs so that any variations can be detected and addressed in a timely manner. This concept was covered briefly previously in module 4.
Figure 2.1: Overview of the process of budgeting
In order to compile a time-phased budget for the project; activity cost estimates and the basis of those estimates are used, along with the project schedule and scope baseline. The terms of contracts and the availability of resources are two other important aspects that need to be considered. Additionally, organisational standards, procedures, protocols, guidelines and templates may be referred to, as required.
As mentioned in prior modules, once all the cost-related data and information is compiled, in order to develop the project budget, activity costs should be progressively aggregated up to the overall project level. In developing the project budget, the organisation’s limits on funding should also be considered. The funding limit of an organisation determines whether a particular cash flow to the project is secure during a particular time period. If for some reason, an organisation fails to provide the promised cash flow at a particular time, then the related project activities may have to be moved back or altered to suit the revised funding arrangements.
Ideally, budgeting should be done in a way that allows the costs to be rolled up and down to a desired level of detail on the WBS. Intermediate levels on the WBS such as the work packages and the control accounts are good candidates for mid-way checks on the budget. Figure 2.2 below illustrates this concept. See also a more detailed example.
Figure 2.2: Rolling-up of estimates in developing a budget (Source: Mulachy, 2011; p. 238)
The diagram below depicts an aggregation of activity costs at a work package level, which allows for greater control of costs.
Figure 2.3: Time phased work package budget (Source: Larson & Gray, 221; p. 282)
When these individual work package costs from the WBS are time phased accordingto the project schedule, the outcome of this process is the cost baseline or budget baseline, also referred to as the Planned Value or PV. The funding limits for the relevant periods, should also be calculated and documented.
3. Estimating activity costs
In this process, costs of activities incorporated into the project schedule are estimated, based on information collected from a variety of sources, including quotations provided by suppliers and contractors, past experience of project managers or estimators and data derived from similar project undertaken previously. The costs incurred in completing an activity may relate to labour, equipment, materials, facilities and other aspects such as travel, consultancy and inspections.
Figure 3.1 – Overview of the process of estimating project costs
In developing activity cost estimates, a project manager will first refer to the list of activities and the project schedule. Other useful sources of information include the scope baseline, risks identified for the project and the human resource plan. It is also good practice to include the cost of project management when estimating costs, however, such costs are usually apportioned at the work package or project level. Inflation is another key consideration in estimating project costs, as certain project may continue for a few years; for example, the cost of a metric ton of metal needed for building metal structures two years from now may be much higher than what it is today. Additionally, market trends and the most competitive vendor bids should be considered to ensure that the estimates are viable.
Experienced practitioners may have the skills to estimate activity costs based on their knowledge of activity durations and resource costs. Organisations may also employ professional estimators and use databases of activity costs and durations that were developed based on past project work. However, in situations where there is no adequate knowledge, expertise or past data to draw on, estimating activity costs at a sufficient level of accuracy can be challenging and may require a few iterations of estimating.
There are a number of estimating methods. Some are referred to as 'top down' whilst others are referred to as 'bottom up'.
Watch the following video extract from a past lecture that describes these different methods.
Module 5 Lecture Video - Top-down and Bottom-up Estimation
As described in the video Top down or macro estimates are usually derived from someone who uses experience and/or information to determine the project duration and total cost and are therefore most useful when an absolutely accurate costing is not required. These include Analogous or apportion methods, consensus methods and mathematical relationships.
The video also described bottom up or micro estimates which can take place after the project has been defined in detail. The bottom-up approach at the work package level can serve as a check on cost elements in the WBS by rolling up the work packages and associated cost accounts to major deliverables. Similarly, resource requirements can be checked. Later, the time, resource, and cost estimates from the work packages can be consolidated into time-phased networks, resource schedules, and budgets that are used for control.
Upon completion of the estimation process, activity cost estimates and justifications for those estimates should be documented. The justification is also known as the ‘basis of estimates’, and therefore, will include the assumptions made, the methods used, constraints considered and the range of estimates calculated before arriving at the final estimate. Any other project documents that need updating should also be attended. This is an important tool in project management. It involves estimators and project managers maintaining a document of all calculations in the total cost needed for the entire project. It is used to support proposals, bidding and executing a project. It should be a clear document so that those involved in project management will be able to understand as well as assess the estimate.
The next few sections of this module provide some exercises for you to complete.
In addition, a very useful tool that should be considered is the concept of learning curves which are described in detail in your textbook in Chapter 5, page 145.
3.1. Ratio Method or Mathematical Relationships (Exercise 5.1)
Chris and her husband, Rudi, are planning to build a house. The land for the house sits on a flat block right near the waters edge. The plans show the size of the house to be 350 square metres. The average price for a lot and house similar to this one has been $1500 per square meter. Fortunately, Rudi is a plumber and feels he can save money by installing the plumbing himself. Chris feels she can take care of the interior decorating. They both believe they can complete the exterior painting with the help of their two children.
The following average cost information is available from a local bank that makes loans to local contractors and disperses progress payments to contractors when specific tasks are verified as complete.
8% Roof and fireplace complete 3% Wiring roughed in 6% Plumbing roughed in 5% Siding on 17% Windows, insulation, walks, plaster, and garage complete 9% Furnace installed 4% Plumbing fixtures installed 5% Exterior painting completed 4% Light fixtures installed; finish hardware installed 6% Carpet and trim installed 4% Interior decorating 4% Floors laid and finished
Fill in the missing value (whole number, no commas).
What is the estimated cost for Chris and Rudis house if they use contractors to complete all of the house?
$
Check
Fill in the missing values (whole number, no commas).
Estimate what the cost of the house would be if Chris and Rudi use their talents & family labour to do some of the work themselves.
Plumbing roughed in $
Plumbing Fixtures installed $
Interior Decorating $
Exterior Painting $
TOTAL SAVING $
_______________________________________
estimated total cost of house $
Check
saved
Q3. What should Chris and Rudi consider in relation to these savings? - are they an accurate estimate of the total cost?
Submit
3.2. Apportion Method/Analogous Method (Exercise 5.2)
You have been asked to estimate the costs for Project Pluto but your company has no prior experience in conducting these types of upgrade projects. Another of your organisation's subsidiaries based in the USA does have historic data relevant to similar projects. Assumptions are as follows:
1. All costs have been converted to AUD 2. Australian customers are very demanding and require twice the amount of testing and review as US-based customers. But you cannot compensate
for this by reducing the amount of inhouse testing performed. 3. Programming costs in Australia are generally 30% more expensive than in the USA due to taxation. 4. Collecting requirements generally cost 20% more in the USA because of higher labour costs.
Fill in the value to the following questions (whole number)
What is the estimated overall cost of project pluto? $
What is the cost of Design? $
What is the cost of Implementation? $
What is the cost of Customer Review and Testing? $
What is the cost of Programming? $
Check
saved
What weaknesses are inherent in this estimating approach?
Submit
3.3. Creating Time phased budget (Exercise 5.3)
Question
Given the time-phased work packages shown in the table below, complete the baseline budget form for the project.
Fill in the value appropriate to the letter.
A= B= C= D= E= F= G= H= I= J=
K= L= M= N= O= P= Q= R= S= T=
Check
3.4. The importance of applying estimation methods to Costs and resources(Exercise 5.4)
Read Snapshot from practice 8.3
Snapshot from 8.3
US Forest Service Resource Shortage
A major segment of work in managing U.S. Forest Service (USFS) forests is selling mature timber to logging companies that harvest the timber under contract conditions monitored by the service. The proceeds are returned to the federal government. The budget allocated to each forest depends on the two-year plan submitted to the U.S. Department of Agriculture. Olympic Forest headquarters in Olympia, Washington, was developing a two-year plan as a basis for funding. All of the districts in the forest submitted their timber sale projects (numbering more than 50) to headquarters. where they were compiled and aggregated Into a project plan for the whole forest. The first computer run was reviewed by a small group of senior managers to determine if the plan was reasonable and "doable." Management was pleased and relieved to note all projects appeared to be doable in the two-year time frame until a question was raised concerning the computer printout. "Why are all the columns in these projects labeled 'RESOURCE' blank?" The response from an engineer was "We don't use that part of the program."
The discussion that ensued recognized the importance of resources in completing the two-year plan and ended with a request to "try the program with resources Included." The new output was startling. The two-year program turned Into a three-and-a-half-year plan because of the shortage of specific labor skills such as road engineer and environmental Impact specialist. Analysis showed that adding only three skilled people would allow the two-year plan to be completed on time. In addition, further analysis showed hiring only a few more skilled people, beyond the three, would allow an extra year of projects to also be compressed Into the two-year plan. This would result in additional revenue of more than $3 million. The Department of Agriculture quickly approved the requested extra dollars for additional staff to generate the extra revenue.
saved
Q. What do you think would have happened if the Washington Forest Service did not assess the impact of resources on their two-year plan?
Submit
4. Monitoring and controlling project costs
Cost control involves monitoring the performance of the project against the cost baseline at regular intervals. The cost baseline also referred to as the planned value (PV) is the sum of the cost accounts, and each cost account is the sum of the work packages in the cost account. Three direct costs are typically included in baselines - labor, equipment, and materials - because these are direct costs the project manager can control. Overhead costs and profit are typically added later by accounting processes.
The cost performance of a project in relation to the cost baseline needs to be reported using appropriate progress reporting. To be able to accomplish this goal, we need to have a system that can capture and record data relating to accrued costs and the physical work completed by time period.
Figure 4.1: Overview of the process of cost control
Earned value (EV) management is a widely used method of project cost control which, through a series of calculations, provides information relating to the project’s cost performance, including any variations in schedule and scope against the budget. If the project manager just reported actuals against the planned, then only one dimension of scope, cost or schedule, can be monitored at any given time, whereas with EV, the performance measurement baseline (i.e. the collection of schedule, scope and cost baselines) is monitored. With EV, the work that has been completed, the work that needs to be completed and the variances can be monitored. Also possible is forecasting of project performance on completion.
Earned Value is best understood by way of example.
Example
Imagine you are a project manager for a large painting company that has secured the contract with a local developer to paint 10 identical condos. It is estimated that it will take your team 2 weeks to paint each condo at a cost of $10,000. You expect to complete the project in 20 weeks at a total cost of $100,000. After 10 weeks management asks for a status report. You report you have spent $50,000. Management might conclude the following: good, you spent as much as you were supposed to spend, and everything is going according to plan. This might be correct, but it might not be. It is also possible that after 10 weeks due to unusually warm weather you were able to paint 6 condos at a cost of only $50,000. Conversely, due to inclement weather you may have been able to paint only 4 condos at a cost of $50,000. What is true?
From this example it is easy to understand why using only actual and planned costs can mislead management and customers in evaluating project performance. Cost variance of budget-to-actual alone is inadequate. It does not measure how much work was accomplished for the money spent.
SOURCE: Larson and Grey, 2021, pp32
The following sections explain the concept of earned value more fully.
4.1. How does a Project Manager monitor and control a project (OVERVIEW)
There are a number of steps that must be covered by the project manager when attempting to monitor and control a project. In this section of the module you will be given an overview. In the sections which follow you will be stepped through the calculations.
Watch the following video extract from a past lecture which will give you an overview of the process.
Module 5 Lecture Video - How does a PM monitor and control a project?
Exception - sessionwaiterr
4.2. How to Prepare a Status Report - Tools for Monitoring and Measuring Cost Performance
Generally the method for measuring progress against baseline centers on two key calculations:
Comparing earned value with the expected schedule value. Comparing earned value with the actual costs.
Project status can be determined for the latest period, all periods to date, and estimated to the end of the project. Assessing the current status of a project using the earned value cost/schedule system requires three data elements:
planned cost of the work scheduled (PV), budgeted cost of the work completed (EV), and actual cost of the work completed (AC).
From this data the schedule variance (SV) and cost variance (CV) are computed each reporting period. A positive variance indicates a desirable condition, while a negative variance suggests problems or changes that have taken place.
Cost variance tells us if the work accomplished costs more or less than was planned at any point over the life of the project. Schedule variance presents an overall assessment of all work packages in the project scheduled to date. Although schedule variance contains no critical path information it is very useful in assessing the direction all the work in the project is taking.
Watch the following video extract from past lectures which explains the process of computing, PV, EV and AC.
Module 5 - Process of computing, PV, EV and AC
The following section will step you through the instructions on the video and include exercises for you to practice the concepts covered.
4.3. How To prepare a Status report - step by step
There are a number of steps that must be covered by the project manager when attempting to monitor and control a project. In this section of the module you will be stepped through the calculations.
Step 1
Define the work that has to be done and who will do it. The documents which define these include:
1. The Detailed Scope Statement 2. The WBS which identifies the "Work Packages" and ultimately the deliverables 3. The RAM which identifies responsibility by organizational units or resource
Step 2
Develop work and resource schedules by time-phasing the work packages from the WBS into a network.
and then scheduling resources to the activities which enables you to identify if you have any resource overloads, which you can address to create a project schedule.
Step 3
Develop a time-phased budget using work packages included in an activity, which allows you to create a Time Phased Budget Baseline. This is used to compare a project’s actual performance to its schedule and budget.
This is a good point in time to differentiate between the various calculations for PV which are possible. There is the Planned Value for the entire project otherwise known as the BAC (Budget at Completion) which is the cumulative total of the PV for each time period and in the above figure equals 320 cost units. There is the PV at any particular point in time for example consider the figure below which identifies that at time period 3 the cumulative PV of the activities to that point in time is 60 cost units.
However, in creating status reports you will look at this in another way. When calculating the EV (using the % complete in later steps) you will need to consider the Total PV for an individual activity (ie the originally planned budget for the activity). In the table above the PV for A is 20, The PV for B is 15, the PV for c is 100 and so on.
Moving on from this - at a specific point in time when a status report is required - for example let us consider Time unit 3 ( this could be 3 days, or 3 weeks or 3 months etc depending on the units chosen):
Step 4
At the work package level - collect the actual costs (AC) for the work performed. Whilst the PV is what you plan to spend the AC is what you have actually spent.
Step 5
Determine the % complete for each work package which might be in one of 3 conditions. They may not have started (or 0% completion), They may have been completed (or 100% completion) or they may be in progress and partially complete (n% completion). In the example below activity A is 100% complete, B is 33% complete, C is 20% complete and D is 60% complete but neither activity E or F has as yet started (or 0% complete).
Step 6
The next step is to calculate the actual work that has been performed or the earned value ie EV = %Complete x Total PV (original budget) for the activity.
So in the example below EV for Activity A = 100% x 20 = 20 whilst the EV for Activity B is 33% x 15 = 5 and so on.
Step 7
You are now in a position to calculate the cost variance (CV). Keep in mind the formula for CV shown below.
This calculation has enabled you determine the cost variance from the plan. If the number is -ve this tells you that the cost of the work accomplished to this point is more than what was planned. This is referred to as being "Overbudget" or your project is exhibiting a "Cost Overrun".
If the number is +ve then the opposite is true ie the cost of the work accomplished to this point in time is less than what was planned. This is referred to as being "Underbudget".
Step 8
You can also compute the schedule variance (SV) at this particular point in time. Note the formula for SV in the image below.
This calculation has enabled you determine the time variance from the plan. If the number is -ve this tells you that the work accomplished to this point is less than what was planned. This is referred to as being "Behind Schedule".
If the number is +ve then the opposite is true ie the time that has been taken to complete the work accomplished to this point, is less than what was planned. This is referred to as being "Ahead of Schedule".
You now have all the data you need to prepare a basic status report.
The following video from a live lecture explains how a project manager monitors and controls a project in more detail.
Module 5 Lecture Video - How does a PM monitor and control a project?
4.4. Calculation and Basic status Report (Exercise 5.5)
Consider the data provided in the network diagram and Project Baseline report below.
Q1. Copy the tables below into Excel and complete the form to develop a status report for the project at the end of period 4 and the end of period 8. Once complete click the 'Show Solution' button below to compare your work with the solution.
End of period 4
Task Actual % Complete
EV
($)
AC
($)
PV
($)
CV
($)
SV
($)
Task Actual % Complete
EV
($)
AC
($)
PV
($)
CV
($)
SV
($)
A Finished 300 400
B 50% 1000 800
C 33% 500 600
D 0%
E 0%
Cumulative Totals
End of period 8
Task Actual % Complete EV ($)
AC
($)
PV
($)
CV
($)
SV
($)
A Finished 300 400
B Finished 2200 2400
C Finished 1500 1500
D 25% 300
E 33% 300
F 0%
Cumulative Totals
Show solution
saved
Q2. From the data you have collected and computed for periods 4 and 8, what information are you prepared to tell the customer about the status of the project at the end of period 8?
Submit
Professional project managers also like to include measures of project efficiency in their status report. These are discussed in more detail in later sections of this module.
4.5. Why report in $ terms?
Schedule variance measures progress in dollars rather than time units. Why is this the case?
The following video explains the concept.
Module 5 Lecture Video - Our Project: Build a Fence
Exception - sessionwaiterr
4.6. The S Curve
To assist tracking the progress of a project, all of these important parameters that describe a project status ie PV, AC, EV, SV and CV can be plotted as a cumulative total on a Cost/Schedule graph commonly referred to as an S-Curve. It’s called an S curve because it often forms the shape of an “s” because the growth of the project in the early stages is typically slow as the project progresses from its initiation through the first activities that are executed. Then as progress is made and the project team settles in and resources are scheduled and made available, the growth accelerates rapidly creating an upward slope. The peak of this is referred to as the inflexion point. After this growth generally slows forming the upper part of the S curve which corresponds to the project reaching a mature stage and typically winding down.
An S curve is helpful in monitoring the progress of a project because real time actual data can be plotted visually against planned data providing a visual comparison of plan against actual progress.
SOURCE: Larson – Grey, ISE Project Management: The Managerial Approach, LARSON – GREY ISE
PROJECT MANAGEMENT: THE MANAGERIAL APPROACH, 8e, 2021, P485
The following video describes this same concept.
Module 5 Lecture Video - The S Curve
Exception - sessionwaiterr
On the following pages, there are a number of activities to complete in relation to the S curve.
4.7. Exercise 5.6 (Part A)
Consider the data provided in the network diagram and Project Baseline report below.
End of period 4
Task Actual % Complete
EV
($)
AC
($)
PV
($)
CV
($)
SV
($)
A Finished 400 300 400 100 0 B 50% 1200 1000 800 200 400 C 33% 500 500 600 0 -100 D 0% 0 0 0 0 0 E 0% 0 0 0 0 0
Cumulative Totals 2100 1800 1800 300 300
End of period 8
Task Actual % Complete EV ($)
AC
($)
PV
($)
CV
($)
SV
($)
A Finished 400 300 400 100 0 B Finished 2400 2200 2400 200 0 C Finished 1500 1500 1500 0 0 D 25% 400 300 0 100 400 E 33% 300 300 300 0 0 F 0% 0 0 0 0 0
Cumulative Totals 5000 4600 4600 400 400
Activity - Plotting status points
In the below activity click the appropriate area (hotspot) on the graph to plot the status point.
Exception - sessionwaiterr
4.8. Exercise 5.6 (Part B)
But what if a project was not doing so well?
Given the following project network, baseline, and status information, develop status reports for periods 2, 4, 6, 8 and complete the performance indexes table.
Activity 1
Copy the following tables into Excel and complete. Once complete click the 'Show Solution' button below to compare your work with the solution.
Status Report: Ending Period 2
Status Report: Ending Period 2
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 75% 25 B 50% 12
Cumulative Totals 37
Status Report: Ending Period 4
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 35 B 100% 24
Cumulative Totals 59
Status Report: Ending Period 6
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 35 B 100% 24 C 75% 24 D 0% 0 E 50% 10
Cumulative Totals 93
Status Report: Ending Period 8
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 35 B 100% 24 C 100% 32 D 33% 20 E 100% 20
Cumulative Totals 131
Performance Indexes Summary
Period EV AC PV SPI CPI PCIB 2 37 4 59 6 93 8 131
EAC= VAC=
Once complete, compare your answers with the solution.
Show Solution
Activity
Exception - sessionwaiterr
Draw a summary S Curve chart showing each of the key indices AC, PV and EV. Once attempted, compare your chart with the solution below.
S Curve Chart Solution
4.9. Indexes to Monitor Progress
Rather than refer to SV and CV, project managers often refer to indices such as the schedule performance index (SPI) and the Cost Performance Index (CPI) which according to PMBOK allow you to analyse and reflect the performance of a project.
The SPI shows how a project is progressing compared to planned schedule and is expressed as a ratio of EV to PV. Ie SPI = EV/PV.
What can be concluded from this is if the SPI is :
=1 then the project is on schedule <1 then the project is behind schedule >1 then the project is ahead of schedule
It is important to remember however that all activities must be included in this calculation – not only those that are on the critical path.
Similarly the CPI enables you to demonstrate the cost efficiency of a project. According to PMBOK the CPI is expressed as a ration of earned value to actual cost ie CPI = EV/AC
Just as was the case with SPI – you can conclude that if the CPI is:
=1 then the project is on budget and proceeding as per the planned spend. <1 then the project is over budget – you are earning less than what you have spent >1 then the project is under budget – you are earning more than you are spending
In addition to these project managers may also use a Project Percent Complete Index. Please reference your text books on page 493 for a complete explanation.
Consider the figurebelow. The SPI indicates $.80 worth of work has been accomplished for each $1.00 worth of scheduled work to date. Whilst the CPI indicates that $.70 worth of work planned to date has been completed for each $1.00 actually spent. Both indexes suggest an unfavourable situation.
Indexes for Periods 1 through to 7.
SOURCE: Larson – Grey, 2021, 8e, 2021, pp493
Watch the following video extract from a past lecture regarding performance indexes.
Module 5 Lecture Video - Performance Indexes
Exception - sessionwaiterr
4.10. Forecasting
Forecasting helps a project manager to predict the future performance of the project and is calculated based on the past performance of a project.
According to PMBOK the estimate at completion or (EAC) is the expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate of the work required to complete the project.
You can calculate the Estimate at Completion in different ways depending on the project context.
Option 1: if you as the project manager believe that your future performance will be the same as your past performance on the project then the CPI will remained unchanged and the estimate at completion will be
EAC = BAC / CPI
Option 2: if as the project manager you recognise that you have deviated from your budget estimate however you are confident that from now on you can complete the remaining work as planned then the formula to use is:
EAC = AC + (BAC – EV)
Option 3: if as a project manager you find that your original cost estimate was flawed and you must cost calculate a new cost estimate for the remaining project work then you need to go to the activity level to find each cost and add them and get the cost of the remaining work. So in this case the estimate at completion is:
EAC = AC + Bottom-up estimate to complete
another way of saying this is
EAC = AC + ETC
where"
EAC = revised estimated cost at completion
ETC = revised estimate to complete the remaining work.
Option 4: is used in large projects where the original budget is reliable. This method uses the actual costs to date plus an efficiency index (CPI = EV/AC) applied to the remaining project work. When the estimate for completion uses the CPI as the basis for forecasting cost at completion, we use the acronym EAC . The equation for this forecasting model (EAC ) is as follows:
re
re
re
f f
Then finally the Variance at completion or VAC indicates the expected actual or over run of costs at completion.
VAC = BAC - EAC
The figure below visually represents the relationship between key indices that should be incorporated into a status report.
4.11. Exercise 5.7
The following information is the data you have already calculated in Exercise 5.6.
Status Report: Ending Period 2
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 75% 30 25 20 5 10 B 50% 16 12 12 4 4
Cumulative Totals 46 37 32 9 14
Status Report: Ending Period 4
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 40 35 40 5 0 B 100% 32 24 24 8 8
Cumulative Totals 72 59 64 13 8
Status Report: Ending Period 6
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 40 35 40 5 0 B 100% 32 24 32 8 0 C 75% 36 24 24 12 12 D 0% 0 0 6 0 -6 E 50% 14 10 8 4 6
Cumulative Totals 122 93 110 29 12
Status Report: Ending Period 8
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 40 35 40 5 0 B 100% 32 24 32 8 0 C 100% 48 32 48 16 0 D 33% 6 20 10 -14 -4 E 100% 28 20 28 8 0
Cumulative Totals 154 131 158 23 -4
Performance Indexes Summary
Period EV AC PV SPI CPI PCIB 2 46 37 32 4 72 59 64 6 122 93 110 8 154 131 158
EAC= VAC=
Activity
From the previous exercise (5.6) you have completed - add the SPI and CPI index
Once complete, compare your answers with the solution.
Show Solution
Exception - sessionwaiterr
4.12. Exercise 5.8 (rev 2021)
The following information is the data you have already calculated in Exercise 5.7.
Status Report: Ending Period 2
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 75% 30 25 20 5 10 B 50% 16 12 12 4 4
Cumulative Totals 46 37 32 9 14
Status Report: Ending Period 4
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 40 35 40 5 0 B 100% 32 24 24 8 8
Cumulative Totals 72 59 64 13 8
Status Report: Ending Period 6
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 40 35 40 5 0 B 100% 32 24 32 8 0 C 75% 36 24 24 12 12 D 0% 0 0 6 0 -6 E 50% 14 10 8 4 6
Cumulative Totals 122 93 110 29 12
Status Report: Ending Period 8
Task Actual % Complete EV
($000) AC
($000) PV
($000) CV
($000) SV
($000) A 100% 40 35 40 5 0 B 100% 32 24 32 8 0 C 100% 48 32 48 16 0 D 33% 6 20 10 -14 -4 E 100% 28 20 28 8 0
Cumulative Totals 154 131 158 23 -4
Performance Indexes Summary
Period EV AC PV SPI CPI PCIB 2 46 37 32 1.44 1.24 4 72 59 64 1.13 1.22 6 122 93 110 1.11 1.31 8 154 131 158 0.97 1.18
EAC= VAC=
Activity
From the previous exercise (5.7) you have completed - add the EAC and VAC
Once complete, compare your answers with the solution.
Show Solution
Based on your new indices data, what is your assessment of the current status of the project?
You can use your assessment from Exercise 5.7 and expand on this to include indices data.
saved
Submit
5. References
Gido, J. and Clements, J.P. (2003), 2 edition, Successful Project Management, Thomson South-Western
Larson, E.W. and Gray, C.F. (2021), Project Management: The Project Management Process, 8 edition, McGraw Hill
Project Management Institute (2016),6th Ed, A Guide to the Project Management Body of Knowledge
Sherrer J.A.(2009), Project Management Road Trip for the Project Management Professional
nd
th
6. Glossary
Module 3: Supplementary Information
6.1. Agile project management
A term commonly associated with present day project management, agile project management is seen by many as the answer to managing volatility in projects. Agile project management relies on incremental, iterative development cycles to complete projects (Larson & Gray, 2011; p. 583). It should be noted that the term, Agile is generic, used to address multiple agile methods. Some of the popular agile methods include Scrum, Extreme Programming (XP), Rational Unified Process (RUP), Dynamic Systems Development Method (DSDM) and Rapid Product Development (RPD). Agile methods stand on the following principles: focus on customer value, iterative and incremental delivery, experimentation and adaptation, self-organization and continuous improvement (Larson & Gray, 2011).
However, in order for agile project management to successfully meet the targets, the stakeholders involved in projects, which include an organisation’s top managers, project managers, team members and the customers are expected to be able to cope with rapid change. The changes in the project environment may be associated with requirements, technology, the planned sequence of events, etc.
Refer to your text Larson & Gray (2011), Chapter 17 for more information on agile project management.
6.2. How much of detail/decomposing? (Source: Larson & Gray, 2011; p. 142)
Case snippet 6.2A: How much of detail/decomposing? (Source: Larson & Gray, 2011; p. 142)
6.3. Activity relationships
Four types of activity relationships are explained in project management literature. These relationships are best explained with examples.
Finish-to-Start relationship
This is the most widely used relationship; it implies that predecessor activity needs to be completed in order for the successor activity to start. An example can be taken from a project undertaken to build a robot. A situation where the design specifications need to be completed in order for the programming to start could be identified with the finish to start relationship.
Finish-to-Finish relationship
Implies that the successor, cannot be completed until the predecessor activity is completed. Take the example of a road construction project, until the complete route is dug and prepared, the tar layering of the road cannot be completed.
Start-to-start relationship
In this type of relationship the successor activity may start when predecessor activity starts. Consider an engineering project where the documentation of the requirements could start as soon as the discussions with the customer are initiated.
Start-to-finish relationship
This type of relationship implies that in order for the successor activity to be completed the predecessor activity needs to start. Think of a situation where a legacy system is being phased out, the predecessor activity is the new system which is being introduced, in such a case the legacy system cannot be taken off until the new system has started; because, any down time may be undesirable.
An illustration of the relationships discussed above is given below. Note that for all of the following illustrations activity B is the successor.
Figure 6.3A: Activity relationships (Source: Adapted from Sherrer, 2009; pp. 136-137)
6.4. Network Exercise from Module 3.12
The solution to the network diagram exercise provided in Module 3.12 is as follows:
ID Activity Duration (working
days)
Precedence requirements
1 Order and take delivery of new equipment 15
2 Design building extension 10
3 Prepare site and excavate foundations 7 2
4 Pour foundations and concrete slab floor 15 3
5 Erect frame for building extension 8 4
6 Clad building extension 5 5
7 Locate new sales office in building extension 8 6
8 Install equipment 9 1
9 Commission equipment 5 6
6.5. Importance of the critical path (Source: Larson & Gray, 2011; p. 171)
6.6. Project milestones
Milestones on a project can be interpreted as pointers on a project schedule. These pointers represent important events in the project schedule, for example, ‘end of requirements gathering’ or ‘completion of the design phase’ of a project. Milestones, unlike activities, do not consume time on the project schedule, but as described above, is an important point in time during the duration of the project. Milestones can be used as instances for reviewing and communicating the progress of the project to key stakeholders or as an opportunity to celebrate an achievement so as to motivate team members; example: throw a party for the project team to reflect on and celebrate the successful completion of the design phase of a project.
6.7. Comparative view of AON and AOA notations
Figure 6.7A Comparative view of AON and AOA notations (Source: Gido & Clements, 2003; p. 157)
6.8. Resource calendar
This document illustrates the engagements and availability of a resource, be it human, machinery or other. Consider this example for further clarification: BridgesrUs is an engineering company that specialises in designing and building bridges. The company has just been requested to submit a project proposal for a new project, within two weeks, and their project management office is assessing the availability of the Company’s most experienced design engineer who usually oversees the preparation of new designs. However, the resource calendar indicates that he is currently engaged with another project and won’t be available for three more weeks. Hence, another option needs to be considered: for example, assigning another design engineer to the new job with provisions for a final review undertaken by the lead design engineer; or splitting the work of the current job undertaken by the lead engineer so that part of that work can be off-loaded to a another design engineer, allowing the lead engineer to oversee the design work associated with the new project on a part time basis. The research calendar, as explained, is the document that records the engagements and availability of resources, and as such, is a valuable reference that can be used in this type of situations.
6.9. Comparison of top down and bottom up methods of estimating
Figure 6.9A: Comparison of top down and bottom up estimates
(Source: Larson & Gray, 2011; p. 141)
6.10. Bottom-Up Estimating
Table 6.10A: Bottom up estimating pros and cons (Source: Mulachy, 2011; p. 236)
6.11. Implications when considering resource availability for activity duration estimates
The following figure illustrates the intricacies involved with calculating the duration of an activity, for a particular resource.
Figure 6.11A - Complexities in calculating activity duration(Source: Sherrer, 2009; p. 148)
Case snippet 6.11A: Estimating for complex projects (Source: Larson & Gray, 2011; p. 145)
6.12. Analogous estimates
This type of estimate takes into consideration expert judgements and historical data. Analogous estimates could also be called a best guess, yet, is based on some facts and not entirely superficial. An example is, if a particular activity from a past project(s) took a month, the experts are likely to estimate the same duration for a similar activity in the current project. However, circumstances may have changed, thereby, what was a probable estimate for a previous project may not be viable on the current project. Therefore, there are some risks involved with this method.
6.13. One point estimates
With this method, the estimator would submit one estimate for an activity and the estimator may not have a proper understanding of the work that needs to be conducted. Therefore, it is likely that the estimator would unnecessarily add extra padding (i.e. unjustifiable add-ons) to the estimate, which will expand the duration or cost depending which is being estimated. Therefore, there are negative prejudices around this type of estimate.
6.14. Parametric estimates
Input for parametric estimates can come from historical data, industry standards and the likes. Some examples of estimates using parametric estimating may be listed as: number of days taken for an installation of a computer, time taken to fence a square meter of land, time taken for tiling a square foot of floor and so on.
Parametric estimates could be evolved to map the relations between two variables; it could be the time and no of tiles laid, or the time and no of computer installations done. Therefore, if relationships between variables are discovered they could be used for future project estimating.
Another factor that could be used in parametric estimating is the learning curve; as the term implies, when the same activity is performed repetitively, the time taken reduces, until a plateau is reached. Depending on where a particular organisation is on the learning curve for a particular type of activity, a suitable value could be selected for estimating
6.15. PERT estimates
Another type of estimate is the program evaluation and review technique (PERT). This allows placing an estimate as a range, instead of a single value. The rationale here is that most projects do not go according to plan and therefore, a single estimate may be a hard target to meet and is considered an improbable estimate. Therefore, PERT brings up a 3 point estimate. The variables used are, a pessimistic value, the most likely value and an optimistic value.
This method will be discussed in greater detail when discussing RISK.
6.16. Reserve analysis
Reserves are applicable to both time and cost estimates and are, basically, spare time or cost, that may be allocated as fall back in case of any schedule or cost mishaps. Two types of reserves, contingency reserve and management reserve are briefly explained below.
Contingency reserve is the additional time/cost allocated as responses to already identified risks. Management reserves are allocated for any unforseen risks. The authority to release this type of reserves lies with the top management. Management reserves may be calculated based on lessons learnt on similar projects conducted previously, or based on the judgement of experienced project managers and subject experts.
6.17. Network diagrams using activity on node (AON) method
Note that there are different notations sued in different textbooks in regards to network diagramming. However, once you have grasped the logic of network diagraming algorithm you should be able to work with any one of them; the trick is to understand what information is required for the calculations. Some notations may carry an extensive number of keywords, but the most common ones are listed below.
Earliest Start (ES) The earliest an activity could start without influencing any dependencies
Latest Start (LS) The latest an activity could start without influencing any dependencies
Earliest Finish (EF) The earliest and activity could be completed without influencing any dependencies
Latest Finish (LF) The latest and activity could be completed without influencing any dependencies
Activity duration The duration estimate for the activity
Slack/float The ‘play’ in the activity, when the dependencies are not affected. Follow this method to calculate float; i.e (ES- LF) or (EF – LF)
Activity Description The description of the activity
Person ResponsibleThe person whose responsibility is to see the activity completion
Figure 6.17A: AON notation 1 (Source: Gido & Clements, 2003; p. 175)
Figure 6.17B: AON notation 2 (Source: Larson & Gray, 2011; p. 182)
Figure 6.17C: AON notation 3 (Source: Mulachy, 2011; p. 198)
Examples for AON using two of these notations are presented below. There are two steps in network diagram calculations, and they are commonly called the ‘forward pass’ and the ‘backward pass’. First, let’s have a look at the network diagram below, and identify the activities and the sequence. Pay attention to the direction of each arrow, node and the descriptions.
Example 1- AON
Figure 6.17D: Network diagram (Source: Larson & Gray, 2011; p. 164)
Next, the durations are identified and calculations are undertaken on the forward pass. The Forward pass is applied to find the longest time taken for the project to be completed. The path of activities that represent the longest time taken to complete the project is known as the critical path. The network diagram below (Figure 3.10A), illustrates how the durations for each activity should be included in the diagram. The network diagram that follows (Figure 3.11A) illustrates the forward pass.
Figure 6.17E: Network diagram with activity descriptions and durations (Source: Larson & Gray; 2011; p. 167)
Figure 6.17F: Network diagram illustrating the forward pass (Source: Larson & Gray, 2011; p. 167)
Notes for Forward Pass:
Calculated as EF=ES + [activity] duration
The EF of the preceding node is taken as the ES of the successor. It is useful to know the norm when a successor has multiple predecessors; this scenario is called activity convergence. Node F which is sequenced after nodes B, C and D has taken the larger EF - i. e. node B offers a value of 20, node C offers a value of 15 and node C offers a value of 10. The largest value, i.e. 20, is acquired by node F as the ES; this is the convention applied to the forward pass.
Let us now review the backward pass for the same network diagram. Note that the backward pass gets its name because it starts the calculations at the project completion end of the diagram and proceeds in the opposite direction to that of the forward pass.
Figure 6.17G: Network diagram, with backward pass (Source: Larson & Gray, 2011; p. 169)
Notes for Backward Pass:
Calculated as LS = LF – [activity] duration
The LF of the successor node gets its value from the LS of the preceding node, in the backward pass. A path convergence was mentioned in the forward pass, which took the highest values offered. In the backward pass, path divergence needs to be considered. In contrast, divergence takes the least value offered. Take node A as an example, node D offers a value of 15, node C a value of 10 and node B a value of 5. Therefore the least value offered, i.e. 5, is acquired.
Finally, we calculate the float of activities; nodes that have a high float may later be analysed to reduce their float, as may be necessary in schedule compression. Knowing the values for all four notations indicated above provides sufficient information for calculating the float associated with each activity.
Figure 6.17H: Network diagram, with float calculations (Source: Larson & Gray, 2011; p. 170)
Notes for calculation of float
Float could be calculated using (LS-ES) or (LF-EF). See Node D for example, there,
LS=15 and ES =5 therefore (LS-ES) = (15-5) = 10 also
LF=20 and EF = 10 therefore (LF-EF) = (20-10) =10
Can you find the critical path in the above diagram?
Tip: It’s the path with the longest duration
Example 2- AON : Note the use of a different notation
The forward pass
Figure 6.17I: Forward pass on an AON network diagram (Source: Mulachy, 2011; p. 198)
Notes for Forward Pass
Calculated as EF=ES + duration
Node G which is sequenced after E and F has taken the larger EF. Note that node F offers an EF of 12 while node E offers an EF of 13; node G has acquired the larger of the two values which is 13. Remember the rule of thumb mentioned above on path convergence, with example 1.
The backward pass
Figure 6.17J: Backward pass on an AON network diagram (Source: Mulachy, 2011; p. 199)
Notes for Backward pass
Calculated as LS = LF-duration
The LF of the backward node gets its value from the LS of the preceding node in the backward pass. Consider LF of node F in the backward pass; it has two values to choose from, node G which offers a value of 13 and node B which offers a value of 22. It is reminded that in the backward pass the smaller value is taken, i.e. value 13 which is the LS of node G.
After both forward and backward passes are completed we could use the values of ES, LS, EF and LF to calculate float.
The two methods mentioned above are stated again as,
Float = LS-ES OR Float = LF-EF
Figure 3.17K: Illustration of the critical path and float (Source: Mulachy, 2011; p. 200)
The value indicated in the middle of each node in the above diagram is float. The critical path consists of activities or nodes that do not have any float. The network diagram below indicated the critical path as start-D-E-G-H-C-End.
What is the CP if a network diagram has two paths which gives the same end value.
Tip: Always choose the one where the float is 0
When the float is zero, there is no ’play’ therefore, that path is critical
6.18. Activity on arrow
Figure 6.18A: Activity on arrow (AOA) notation (Source: Gido & Clements, 2003; p. 161)
Refer the AOA diagram in Gido & Clements (2003; p.155) as supplementary reading.
6.19. Crashing
In order to compress the project schedule, more resources are applied to the project; however, this has to be meticulously navigated. Over application of resources has proven to be a project management hazard, especially when it comes to human resources. However, this method can be successfully utilised after weighing the pros and cons.
6.20. Fast tracking
In this schedule compression method, multiple activities that were sequentially organised are now conducted in parallel while respecting the technical constraints, again, just like in crashing, careful consideration should be given to determine which activities could be conducted in parallel.
6.21. Schedule Compression
Schedule compression is undertaken with a view to reduce the project duration; there are two commonly used methods known as crashing and fast tracking.
6.22. Resource Leveling
This is a mechanism to achieve an even distribution of resources over the duration of the project, i.e. if there is an uneven fluctuation of resource utilization, this approach may be used to adjust resource levels. Currently there are software tools such as Microsoft Project that would indicate when resource leveling is required.
6.23. Critical chain method (CCM)
his method is known to assist in managing the variability in duration estimates resulting from risks associated with resource availability on a project. With this method, most important activities are identified, noting that these activities do not necessarily have to be sequential. This method takes into account both activity and resource dependencies and calculates activities to occur as late as possible, yet not interrupting the end date. Buffers are introduced to cushion the impact of risks at the end of work packages (rather that at the activity level). The figure below illustrates these buffer types. Refer Sherrer (2009), chapter on time management, from the suggested supplementary reading list for further details.
6.23A: SOURCE: PMI, PMBOK Guide 5th Edition, Figure 6-19. Example of Critical Chain Method
6.24. An Image of a schedule
Figure 6.24A: Schedule tracking- planned and actual (Source: Maylor, 2010; p. 305)
6.25. Schedule baseline
The schedule baseline is the project schedule that has been agreed upon by all the stakeholders involved in the project. Changes may be needed on the schedule baseline for a variety of reasons, these could be due to additional requirements, unexpected staff turnover, team members falling sick, breakdown of equipment and so on. Changes to the schedule should be carefully evaluated and necessary change control should be carried out. Once change is incorporated and agreed upon, the revised schedule will become the schedule baseline.
6.26. Types of costs
Figure 6.26A: Type of costs (Source: Sherrer, 2009; p. 193)
Direct costs As the term implies, these are costs directly related to the project. Some examples for direct costs are labour, training, machinery and licensing.
Indirect Costs These are the types of costs that are consumed partly by the project, and partly by the rest of the organisation – examples are rent, stationary, print and copy facilities.
Variable costs As the term suggests these are the costs that vary. The variance may depend on external factors such as price of fuel or internal factors such as raw material needed for the project.
Fixed Costs These types of costs are usually stable for the duration of the project; an example is the fixed rates promised for the employees for the duration of the project.
6.27. Accuracy of estimates
The accuracy of estimates used in project time and cost management will be based on the information acquired on the project activities and supporting information. When the project requirements are not very clear, it is difficult to estimate with a high precision. There are alternative estimating methods, which allow estimating with different degrees of precision and are usually conducted at different project phases.
Rough order of magnitude Usually estimated as a response to the request for project proposal or at project initiation. The range of precision is acceptable at +-50%. These estimates are calculated based on initial customer requirements that are communicated or using very high level documents, which lack the details to improve the precision of the estimate.
Budget estimate These are estimates that are developed during project planning and may have an acceptable range of precision between -10 to +25%. These estimates are usually conducted once the contract of work has been offered. Therefore, more information is available, and as a result the precision of the estimate will improve.
Definitive estimate Is compiled as part of rolling-wave planning, when the project progresses, and when the requirements become clearer, the precision would improve. The detailed project and customer documents are also readily available during the execution of the project. Commonly accepted range of precision for this type of estimate is between -10 and +10%.
6.28. Human resource plan (as used in cost estimating)
This document will be discussed in detail in a separate module. For the time being keep in mind that labour rates should be referred to from this document when estimating. There may be intricacies with these rates as they may differ according to the level of experience and as per the time of work – i.e. normal hours or the weekend. Also referred to from this document are the costs for reward systems in the organisation, these costs should be integrated in to the cost estimates.
6.29. Analogous estimating
This method uses estimates from similar project activities as a basis for estimating. The table below describes pros and cons of analogous estimating.
Table 6.29A – Pros and cons of analogous estimating (Source: Mulachy, 2011; p. 235)
6.30. Example for funding limit
As an example, consider a particular machine which needs replacement parts for uninterrupted production, and the organisation fails to provide the funds required to acquire some parts for an urgent repair job due to lack of available funds or other cash flow problems. Therefore, the repair activities needed to restore the machine cannot take place, and will need to be shifted to be done later in the schedule. During such times, the project manager will need to liaise with the organisation, either for an alternative technical solution or to shift time and cost of the project delivery. More importantly, project managers should consider the organisations funding limits or commitments as part of budgeting deliberations.
6.31. Control accounts
Control accounts are known as intermediate levels on the WBS where scope, cost, time and resource information may be summarised to measure the project performance.
6.32. Roll-up for cost budgeting
This following explanation is taken from youer text book by Larson and Gray (2021). By using information from your WBS and resource schedule, you can create a time-phased cost baseline. The WBS and the organization breakdown structure (OBS) can be integrated so that the work packages could be tracked by deliverable and organization responsible. Figure 6.32A below shows an example of a project arranged by deliverable and organization unit responsible.
For each intersection point of the WBS/OBS matrix, you see work package budgets and the total cost. The total cost at each intersection is called a cost or control account. The sum of all cost accounts in a column should represent the total costs for the deliverable. Conversely the sum of the cost accounts in a row should represent the costs or budget for the organization unit responsible for accomplishing the work.
You can continue to “roll up” costs on the WBS/OBS to total project costs. This WBS provides the information you can use to time-phase work packages and assign them to their respective scheduled activities over the life of the project.
Figure 6.32A: Rolling up the direct labour budget (Source: Larson & Gray, 2021 ; p. 282)
6.33. Regular status reports
Case snippet 6.33A: Regular status reports (Source: Larson & Gray, 2011; p. 458)
6.34. Progress reporting methods
Three methods are introduced in this module, they are as follows:
50/50 rule Reported as 50% completed when activity starts, then, once completed, is reported as the remaining 50% is completed.
20/80 rule Reported as 20% completed when activity starts, then, once completed, is reported as the remaining 80% is also completed.
0/100 rule No credit is given for partial completion, once the activity is completed, is reported as 100% of the work was completed.
Refer the case snippet 3.5A also:
Case snippet 6.34A: (Source: Larson & Gray, 2011; p. 479)
6.35. Terminology used for Earned Value (EV)
Table 6.35A: Terminology used for Earned Value (EV) - (Source: Mulachy, 2011; p. 241)
Table 6.35B: More Terminology used for Earned Value (EV) - (Source: Mulachy, 2011; p. 241)
Table 6.35C: More Terminology used for (EV) continued (Source: Mulachy, 2011; p. 242)
6.36. Variance analysis
Variance analysis is the calculation of variance between the planned and the actual. The calculations for cost and schedule variances were illustrated previously with three examples. The following diagrams are graphical representations of notations relating to the Earned Value method.
6.37. Earned value calculations
Earned value calculations - Example 1
EVM Example -1 (Source: Mulachy, 2011; p. 244)
Table 6.37A: EVM-question1 (Source: Mulachy, 2011; p. 245)
Table 6.37B: EVM-answer1 (Source: Mulachy, 2011; p. 245)
Table 6.37C: EVM-answer1 continued (Source: Mulachy, 2011; p. 245)
Earned value calculations – Example -2
Table 6.37D: EVM-question2 (Source: Mulachy, 2011; p. 246)
Table 6.37E: EVM-answer2 (Source: Mulachy, 2011; pp. 247-248)
Table 6.37F: EVM-answer2 continued (Source: Mulachy, 2011; pp. 247-248)
Earned value calculations - Example 3
Case snippet 6.37G: Trojan decommissioning project (Source: Larson & Gray, 2011; p. 475)
Table 6.37H: EV figures for the Trojan decommissioning project (Source: Larson & Gray, 2011; p. 476)
Figure 6.37I: Graphical representations of EV method (Source: Larson & Gray, 2011; p. 462)
Figure 6.37J: Graphical representations for variance calculations (Source: Larson & Gray, 2011; p. 463)
Where SV = EV-PV
CV = EV-AC
