7.3.3 - Cost Variance Analysis

7/22/2019 7.3.3 - Cost Variance Analysis

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PMGT501; WBS 6.4Project Control

David Bolton

Page 1

WBS 6.4.1: Solve Problem #3 found on page 467 of the Meredith and Mantel text.

A software development project at day 70 exhibits an actual cost of $78,000 and a

scheduled cost of $84,000. The software manager estimates a value completed of

$81,000. What are the cost and schedule variances and CSI? Estimate the time

variance.

AC = $78,000

PV = $84,000

EV = $81,000

AT = 70 days

Cost Variance = EV AC = $81000 - $78000

Cost Variance = $3,000

Schedule Variance = EV PV = $81,000 - $84,000

Schedule Variance = -$3000

CPI = EV/AC = 1.03

SPI = EV/PV = 0.96

Cost Schedule Index = EV2/(AC)(PV) = ($81,000)2/($78,000)($84,000)

Cost Schedule Index = 6,561,000,000 / 6,552,000,000

Cost Schedule Index = 1.001

Time Variance = ST AT = (AT)(CSI) AT = (70)(1.001) 70

Time Variance = 0.07 days

This is good. The project is a little under budget (CPI = 1.03) and a little behind

schedule (SPI = 0.96). In theory, the PM could spend a little extra and make up that

minor schedule variance. In our PM shop, CPI and SPI between 0.95 and 1.05 is

green so theres no problem here.


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David Bolton

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WBS 6.4.2: Solve problem #4 found on page 467 of the Meredith and Mantel text.

A project to develop a county park has an actual cost in month 17 of $350,000, a

planned cost of $475,000 and a value completed of $300,000. Find the cost and

schedule variances and the three indices.

AC = $350,000

PV = $475,000

EV = $300,000

AT = 17 months

Cost Variance = EV AC = $300,000 - $350,000

Cost Variance = -$50,000


Schedule Variance = -$175,000

Cost Performance Index = EV/AC = $300,000/$350,000 = 0.857

Schedule Performance Index = EV/PV = $300,000/$475,000 = 0.632

Cost Schedule Index = (CPI)(SPI) = 0.857 * 0.632Cost Schedule Index = 0.542

This is bad. The project has spent more than scheduled and is still far behind where it

should be. CPI is yellow and SPI is red. Expect to be on the Directors radar with

performance like this.


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David Bolton

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WBS 6.4.3: Solve problem #5 found on page 467 of the Meredith and Mantel text.

A consulting project has an actual cost in month 10 of $23,000, a scheduled cost of

$17,000 and a value completed of $20,000. Find schedule and cost variances and the

three indices.

AC = $23,000

PV = $17,000

EV = $20,000

AT = 10 months

Cost Variance = EV AC = $20,000 - $23,000Cost Variance = -$3,000


Schedule Variance = $3,000

Cost Performance Index = EV/AC = $20,000/$23,000 = 0.87

Schedule Performance Index = EV/PV = $20,000/$17,000 = 1.18

Cost Schedule Index = (CPI)(SPI) = 0.87 * 1.18

Cost Schedule Index = 1.027

This one is a mixed bag. The PM has overspent (CPI=.87) and is over his earned value

projection but is way ahead of schedule (SPI =1.18).


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David Bolton

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WBS 6.4.4: Solve problem #13 found on page 468 of the text.

The following project is at the end of its sixth week. Find cost and schedule variances

and the CPI, SPI, ETC and EAC.

First, the activity chart:

Activity Predecessor DurationBudget

($)

Actual Cost

($)

%

Complete

a - 2 300 400 100.00% BAC : 1750

b - 3 200 180 100.00%

c a 2 250 300 100.00%

d a 5 600 400 20.00%

e b, c 4 400 200 20.00%


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David Bolton

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Then the Plan Chart showing 50/50 EV reporting for the tasks.

Plan! Week:

Activity 1 2 3 4 5 6

a 150 150

b 100 0 100

c 125 125

d 300

e 200

PV 250 150 525 125 200 0

Cum

PV250 400 925 1050 1250 1250

EV 250 150 286 125 40 0

Cum EV 250 400 686 811 851 851

Actual

Cost 0 400 180 300 0 600

Cum

A/C0 400 580 880 880 1480


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David Bolton

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Finally, the analysis:

Plan! Week:

Activity 1 2 3 4 5 6

CV 250 0 106 -69 -29 -629

SV 0 0 -239 -239 -399 -399

CPI 1 1.000 1.183 0.922 0.967 0.575

SPI 1.000 1.000 0.742 0.772 0.681 0.681

ETC 1750 1350 899.59184 1018.890259 929.6357227 1563.478

EAC 1750 950 319.59184 138.8902589 49.63572268 83.47826

The project appears to be going OK during the first two weeks. Problems surface in the

third week when task D reports 50% of the planned $600 task value but only completes

20% of the work. The problem worsens in week 5 when task E starts and also reports

50% of task value but only completes 20% of the work.

I think the critical input method of EV reporting might give a more accurate picture of the

project status but it is still going to show the obvious: The project is slipping schedule

(decreasing SPI) and overrunning budget (decreasing CPI, increasing ETC). Notice

EAC in week 6 is $83 and there are still two weeks to go in the program. Not good.

7.3.3 - Cost Variance Analysis

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