1. 1 Project Management – Unit 4 – Part 1 Cost Model ACWP: Actual cost of work performed: Actual costs in performing the work so far. BCWP: Budgeted cost of work performed: The budgeted (planned) cost for the work performed so far. BCWS: Budgeted cost of work scheduled: The planned profile of expenditure against time for the project. CPI: Cost performance index: The ratio of the value of the work to the actual incurred cost: CPI = BCWP:ACWP BCTC: Cost to complete: Budgeted cost of work still to be achieved. CV: Cost variance: A measure of performance in cost terms: CV = BCWP – ACWP ECAC: Estimated cost at completion: The projected completion cost of the project. ECD: Estimated completion date: The date at which the project is estimated to be completed. PB: Project Budget. The budgeted cost of work performed when the project is completed. SPI: Schedule performance index: The ratio of the work performed to the work scheduled: SPI = BCWP/BCWS SV: Scheduled variance: The difference between the budgeted cost of work performed and work scheduled: SV = BCWP - BCWS The Typical Cost Model in Project Management The problem with managing expenditure In Project Management is that you have to see the whole iceberg

2. 2 Project Management – Unit 4 – Part 1 Cost Model tp - 155 tp - 2712 tp - 3921 tp - 41132 tp - 51547 tp - 62067 tp - 73097 tp - 845142 tp - 948190 tp - 1045235 tp - 1143278 tp - 1240318 tp - 1330348 tp - 1420368 tp - 1515383 tp - 1610393 tp - 175398 Example Data €

3. 3 Project Management – Unit 4 – Part 1 Cost Model Example using Data 100 200 300 400 Planned Cost 0 1 35 7 911131517 Time Period (tp) Actual Cost of Work Performed Budgeted Cost of Work Performed Date of calculation Budgeted Cost of Work Scheduled Budgeted cost to Completion Cost variance

4. 4 Project Management – Unit 4 – Part 1 Cost Model Calculations 1. Actual cost of work performed = €270 2. Budgeted cost of work scheduled = €390 3. Budgeted cost of work performed = €240 4. Cost performance index = BCWP:ACWP = €240:€270 = 1:1. 125 5. Budgeted cost to completion = BCWS – BCWP = €390 – €240 = €€150 6. Cost variance = BCWP – ACWP = €240 – €270 = € –30 7. ECAC = BCWS x CPI = €390 x 1. 125 = €438. 75 Using the data on the previous slide and calculating from the mid point of time period 9

5. 5 Project Management – Unit 4 – Part 1 Cost Model Positive cost variance Negative cost variance Monitoring Costs – Cost Variance (CV) Base Cost Line BCWS o Remember: – This exercise is based on the S curve – the budgeted cost of work scheduled for the project. Actual expenditure invariably follows. Time periods Planned cost CV is a value that should be regularly updated throughout the life of the project and is the difference between BCWP and ACWP

6. 6 Project Management – Unit 4 – Part 1 Cost Model Remember this? 0 20 40 60 80 100 120 140 160 1234567891011 Alpha Beta Actual Work Package – Activity ID Days

7. 7 Project Management – Unit 4 – Part 1 Cost Model Managing Time and Cost Cost Time period Days Time period Cost Time period Days Time period Example 1 Example 2 Cost Time period Days Time period Example 3

8. 8 Project Management – Unit 4 – Part 1 Cost Model Comparing the Planned and Actual Values of Work Completed Planned month end points Actual month end points Slack et al. Ed 5. pp514 ACWP Actual cost of work performed BCWP Budgeted Cost of Work performed BCWS Budgeted cost of work scheduled CV = Cost variance SV = Scheduled variance VALUE OF WORK COMPLETED BCWSBCWP SV C V ACWP ACTUAL EXPENDITURE €100,000

9. 9 Project Management – Unit 4 – Part 1 Cost Model Estimating Costs at Completion (ECAC) o Depends on what assumptions the PM chooses to make about the cost of work still to be performed – Assumption 1. The work still to be achieved will be done at the budgeted cost, the original estimate ECAC = PB – CV – Assumption 2. (Probably more realistic) is that the remaining work will be performed at the same cost / budget factor that has been observed in the work performed so far ECAC = PB * (ACWP/BCWP) ~ this is sometimes known as the cost performance index (CPI) o Cost to completion (CTC) (NB. not the cost at completion) since the cost so far is ACWP, the estimated cost of the work to be done CTC = ECAC - ACWP.....

10. 10 Project Management – Unit 4 – Part 1 Cost Model Summary o Developing the cost model o The use of S Curves o Monitoring cost variance