Question

16. Jane is a project manager for a company that produces two special widgets each year for suppliers around the world. Jane receives a project schedule of 10 months and a budget with estimates of what it will cost to produce both widgets (shown below). The project requires 200 widgets to be produced per month for Widget A, and 100 widgets to be produced per month for Widget B. Activity Widget A Widget B Total Start Jan 1 Mar 1 End Aug 31 Aug 31 Time Elapsed 8 months 6 months # of Widgets 2000 Total Cost $100,000 $100,000 $200,000 Jane has budgeted $50 per widget for Widget A ($100,000/$2000), and $100 per widget for Widget B ($100,000/$1000). At the end of June, Jane's project team is six months into the project. Let's take a look at the progress Jane and her team have made: Activity Time Elapsed Total Cost # of Widgets Produced 800 400 Widget A Widget B | Total 6 months | 4 months $45,000 $35,000 $80,00 As the project manager, Jane must determine how well her project team has performed. Is she ahead of schedule or behind schedule, and is the project team over or under budget - and by how much? Activ Co to

Answer 1

Let us first understand the basic terms used in the calculations:

PV-Planned Value:- It is cost of the work that is planned to be expensed as per budget.

EV-Earned Value:- It is cost of the work that is performed as per budget.

AC-Actual Cost:- It is cost of the budget that is completed till the time.

SV-Schedule Variance:- EV – PV

CV-Cost Variance:- EV – AC

SPI(scheduled performance index) = EV / PV

CPI (cost performance index) = EV /AC

Now we calculates the initial basic terms PV,EV and AC for Widget A and B:

Widget A

PV = Per Widget $50 spent x 200 Widget per month x 6 months = $60,000

EV = Per Widget $50 spent x 800 Widget Produced = $40,000

AC = $45,000

Widget B

PV = Per Widget $100 spent x 100 Widget per month x 4 months = $40,000

EV = Per Widget $100 spent x 400 Widget Produced = $40,000

AC = $35,000

Widget A			Widget B
SV = EV-PV	$40,000-$60,000		SV = EV-PV	$40,000-$40,000
	-$20,000			$0
CV = EV - AC	$40,000-$45,000		CV = EV - AC	$40,000-$35,000
	-$5,000			$5,000
SPI = EV/PV	$40,000/$60,000		SPI = EV/PV	$40,000/$40,000
	0.67			1
CPI = EV/AC	$40,000/$45,000		CPI = EV/AC	$40,000/$35,000
	0.89			1.14

Interpretation:

SPI = 1, All work has been completed as scheduled

SPI <1, Work has not been completed as scheduled

SPI >1, Work is completed fast as scheduled before time.

CPI = 1, Team is spending as originally planned

CPI < 1, Project is over Budget

CPI > 1, Project is under Budget

Here Widget A SPI is just 0.67, i.e. it is behind schedule and CPI is 0.89, I.e. Project is over budget by $5,000 ($40,000-$45,000)

Widget B SPI is 1, i.e. its is on schedule and CPI is 1.14, i.e. Project is under budget by $5,000 ($40,000-$35,000)