1

Sharif MBAProject ManagementSession 9

Resource PlanningProject AccountsEarned Value

Burke Ch. 13, 14, 16

2

Resource Table

Example/Exercise

3

Bar-chart & Resource Histogram

4

Cumulative Resource S Curve

5

Bar-chart & Smoothed Histogram

6

Resource Smoothed Bar-chart

7

Resource ConstraintsWorking OvertimeWorking ShiftsIncrease ProductivityJob and KnockLearning CurveSub-contractorsScope of WorkDuration Deadline

8

Cost Distribution

9

Schedule of Work

10

Cash-Flow Imposed on Bar-chart

11

Expenses Bar-chart (showing expenses per day)

12

S-Curve(accumulated expenses per day)

13

Cost ManagementCost Management: processes required to ensure that the project is completed within the approved budget (PMBOK)

• Financial Accounting• Management Accounting• Project Accounting

D

Due to limited class time,Cost Management will bediscussed at the end, astime permits. Only someconcepts and Earnedvalue are explained here.

14

Cash-Flow Statement

15

Cost Estimating –Techniques & Tools

Analogous estimates / top-down estimatesBottom-up estimatingParametric modelingComputerized tools, spread sheets, MS Project

Useful tips for creating more precise estimatesHave the person doing the work create the estimate.Use task information from another project.Use the PERT techniqueBe sure to estimate all tasks for all resources:

people, equipment, and materials.

16

Influence / Cost Change of Curve

17

Project Control

If anything seems to be going well, you obviously do not know what’s going on!

Murphy’ Law

If the project is off course, then control in the form of corrective action must be applied.

It is essential for effective project control that performance is measured while there is still time to take corrective action.

18

Project Progress Against Time

PlannedProgress

=> Project Behind schedule & Over-spent

19

Earned Value

False assumption: Input == OutputExample: Projects 99% complete for a year

Expenses & Progress reported separately

The Earned Value technique measures the performance of project as it is completed. It also allows to forecast future performance based on the past performance (PMBOK)

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Input vs. Output vs. Plan

21

Project Man-hours

Planned Man-hours: Estimates of how you intendto perform the work

Actual Man-hours:Recorded on the clock cards

Earned Man-hours:Measure of work done

22

Over Optimistic Reporting

23

Project Values

1. The planned value (PV), also the budgeted cost of work schedule (BCWS), or the budget, is portion of the approved total cost estimate planned to be spent on an activity during a given period.

2. The actual cost (AC), also the actual cost of work performed (ACWP), is the total direct and indirect costs incurred in accomplishing work on an activity during a given period.

3. The earned value (EV), also the budgeted cost of work performed (BCWP), is the percentage of work actually completed multiplied by the planned value.

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Earned Value Curve

BAC:Budget At Completion

BCWS (budget):Budgeted Cost ofWork Scheduled

ACWP (actual):Actual Cost ofWork Performed

BCWP (earned):Budgeted Cost ofWork Performed

EAC:Estimate at Completion

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Earned Value

EV = PV * (% Complete)

• Expert Opinion

• % of Production

• Using WBS(Data Capture Proforma)

26

Data Capture Proforma

PipeErectionActivity

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Cost Control –Earned Value Management

28

Cost Control Calculations- Earned Value Management

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Cost VarianceCalculation

CV = BCWP - ACWP

A negative variance indicates a cost overrun

30

Schedule Variance Calculation

SV = BCWP - BCWS

A negative variance indicatesa behind schedule condition

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Variance percents

SCHEDULE VARIANCE % =(SVP)

COST VARIANCE % =(CVP)

SVBCWS X 100

CVBCWP X 100

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Estimate at completion (EAC)

EAC = ACWPBCWP X Budget at completion

(BAC)

The estimate at completion is the best estimate of the total cost at the completion of the project.

The EAC is a periodic evaluation of the status of the project - usually on a monthly basis or until a significant change has been identified.

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Exercise Template

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Solution to Number 4

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Solution to Number 7

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Solution to Number 13

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Project Variance Analysis

R&D QUALIFICATION DEVELOPMENTPHASE I PHASE II PHASE III

VARIANCE LOWER BOUNDARY

ACTUAL COST VARIANCE

PROJECTED COST

VARIANCE UPPER BOUNDARY

TIME

$

38

Management Reserve

CONTRACTED COST

RELEASED BUDGET

ACTUAL COST

TIME

MANAGEMENTRESERVE

$

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Variance Analysis Questions

What is the problem causing the variance?

What is the impact on time, cost, and performance?

What is the impact on other efforts, if any?

What corrective action is planned or under way?

What are the expected results of the corrective action?

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Variance Reporting

Variance reporting is accomplished at each reporting interval. However, the variance threshold reports are exception reports and occur only when the variances exceed the upper and lower boundaries of the project variances envelope.

Reporting Intervals

Depends on the type of organization and characteristics of the projects.Project-driven organization - weekly.Non-project-driven organization - monthly

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Cost Account Variance Analysis Report

Cost account no/camWBS/Description

Cost performance data Variance

Reporting levelAs of

At completionBudget EAC Var.BCWS BCWP ACWP SCHED COST

Month to date ($)Contract todate ($k)

Problem cause and impact

Corrective action (including expected recovery date)

Cost account Date Cost center Date WBS element Date DateMgr. Mgr. Mgr.

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The 50/50 rule

Half of the budget for each element is recorded at the time that the work is scheduled to begin and the other half at the time the work is scheduled to be completed.

For a project with a large number of elements the amount of distortion from such a procedure is minimal.

43J F M A M J J A S O N D

AnalysisBudgeted cost for work Scheduled (BCWS)

Performed (BCWP)

Budget - 6

814

12

10

12

812

10

8

Work packages

Cost account budget = 100(thousands)

BCWS = 38BCWP = 49SCHED. VARIANCE = +11

50-50 rule used for work in process

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Using The 50-50 Rule

4,000

10,000

12,000

4,000

6,000

6,000

10,000

TIME

TIME LINE

COMPLETED

NOT COMPLETED

LEGEND

BCWS = 34,000BCWP = 33,000BAC = 52,000

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Earned Value Status Reporting

SV

CV

BCWS

BCWP

ACWP

TIME LINE

CU

MM

ULA

TIVE

CO

ST, $

TIME

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Monthly Project Report 1. VARIANCE ANALYSIS (Cost in Thousands) 1 June 1997

Budgeted Budgeted Cost Milestone Cost Work Work Actual Variance, %

Subtask Status Scheduled Performed Cost Schedule Cost1 Completed 100 100 100 0 02 Completed 50 50 55 0 -103 Completed 50 50 40 0 204 Not Started 70 0 0 -100 --5 Completed 90 90 140 0 -55.56 Not started 40 0 0 -100 --7 Started 50 50 25 0 508 Not started 0 0 0 -- --

Total 450 340 360 -24.4 -5.9

2. ESTIMATE AT COMPLETION (EAC)EAC = (360/340) X 579,000 = $613,059Overrun = 613,059 - 579,000 = $34,059

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3. COST SUMMARYCosts are running approximately 5.9% over budget due to higher salaried labor.

4. SCHEDULE SUMMARYThe 24.4% behind schedule condition is due to subtasks 4 and 6 which have not yet begun due to lack of raw materials and the 50/50 method for booking costs. Overtime will get us back on schedule but at an additional cost of 2.5% of direct labor costs.

5. MILESTONE REPORTMilestone/ Scheduled Projected Actual Subtask Completion Completion Completion

1 4/1/97 4/1/972 5/1/97 5/1/973 5/1/97 4/23/974 7/1/97 7/1/975 6/1/97 6/1/976 8/1/97 8/1/977 9/1/97 9/1/978 10/1/97 10/1/97

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6. ACTIVITY REPORTCurrent Potential CorrectiveProblem Impact Action

(a) Lack of raw Cost overruns and Overtime is scheduled. materials. behind schedule We will try to use lower

condition. salaried staff. Rawmaterials are expectedto be on dock next week.

(b) Customer un- May need add- Customer will providehappy with test itional planning. us with revised statementresults. of work on 6/15/97.