Module 06 Adv PM Budget Mgmt

Budget Management

57Budget ManagementBudget DevelopmentGood scheduling skills and abilitiesUnderstanding of the project scopeWell developed WBS and project schedule

57Budget ManagementKey reasons for overspendingBad LuckOverly optimistic initial estimatesPoor communicationPoor cost/time estimating practices

57Budget ManagementThree methods of estimatingAnalogous EstimatingUses values from previous, similar projects as the basis for estimating the same values for future activities or projects. Also called Top-down estimating.

57Budget ManagementThree methods of estimatingParametric EstimatingUses statistical relationship between historical data and other variables to calculate an estimate for an activity or project.

58Budget ManagementThree methods of estimatingBottom-up EstimatingDecomposition of the work into smaller packages or more detail. Estimates are made at the lowest level and then summarizes, or aggregated, into the higher level activities.

Cost BudgetingThe planning process that involves summarizing, or aggregating, the estimated costs for individual activities to establish a total cost baseline for the project.Budget Management58

Cost BaselineTime based budget that is used as a basis for measuring, monitoring, and controlling the overall cost performance of the project.Also represents Planned ValueBudget Management58

Cost BaselineBudget Management58

Cost ControlThe process of influencing factors that create variances, and controlling changes to the project budget.Budget Management58

Project cost control includes:Ensuring changes are agreed uponManaging changes when they occurAssure potential cost overruns do not exceed authorized fundingMonitor cost performance and understand variancesBudget Management58

Project cost control includes:Recording all appropriate changes against the cost baselinePreventing incorrect, inappropriate, or unapproved changesInform stakeholders of approved changesActing to bring overruns within limitsBudget Management59

Cost Change Control SystemDefines the procedures by which the cost baseline can be changed.WSDOT policy found in the Project Control & Reporting GuideAlso documented in the Project Management PlanBudget Management59

What is Earned Value Management (EVM)?A method of integrating scope, schedule, and resources, and for measuring project performance.It compares the amount of work that was planned with what was actually earned with what was actually spent to determine if cost and schedule performance are as planned.Earned Value Management59

What is needed for EVM?A baseline planA project budget (BAC Budget at Completion)A project end dateTasks are identified & scheduledEach task has a budget or effort (resource loaded / weighting)Actuals trackedEarned Value Management59

To perform EVM, three values need to be determinedPlanned Value (PV or BCWS)Actual Costs (AC or ACWP)Earned Value (EV or BCWP)Earned Value Management59

Planned Value (PV)What are the budgeted costs of the work scheduled?Time phased based on baseline budgetOnly changes when baseline is changedAlso referred as BCWS & BACEarned Value Management60

Earned Value Management60Actual Costs (AC)What are the actual costs of the work performed?Based on the actual completion of work packagesActual costs for reported workAlso referred as ACWP

Earned Value Management60Earned Value (EV)What are the budgeted costs of the work performed?Based on the actual completion of work packagesBaseline value of the reported workAlso referred as BCWP

Earned Value Management ExampleTask Drill & install 10 piezometersBudget - $100,000 ($10K per piezometer)Time 10 weeks (1 piezometer per week)At week 5:4 piezometers drilled and installed$47,500 spent to datePV = $50,000AC = $47,500EV = $40,000

Calculating Earned Value and interpreting resultsto measure the progress of the projecthelp identify trendsforecast costsand identify ways to correct/mitigate project pitfalls.Earned Value Management60

Cost Variance (CV)CV = EV - ACGood News: If CV value is positive, the project is currently under budget (spending less than planned for the work)Bad News: If CV value is negative, the project is currently over budget (spending more than planned for the work) Earned Value Management60

Earned Value Management60Cost Variance % (CV%)CV% = CV / EVGood News: If CV% value is positive, the project is currently under budget by the CV%Bad News: If CV% value is negative, the project is currently over budget by the CV%

Earned Value Management61Schedule Variance (SV)SV = EV - PVGood News*: If SV value is positive, the project is currently ahead of scheduleBad News: If SV value is negative, the project is currently behind schedule

* - not all positive SVs are good

Earned Value Management61Schedule Variance % (SV%)SV% = SV / PVGood News: If SV value is positive, the project is currently ahead of scheduleBad News: If SV value is negative, the project is currently behind schedule

Earned Value Management61Estimate at Completion (EAC)#1Actual costs to date plus a new estimate for all remaining work (original plan no longer valid)

EAC = AC + ETC(ETC Estimate to Complete)

Earned Value Management61Actual costs to date plus remaining budget (current variances are viewed as atypical of future variances)

EAC = AC + BAC - EV Estimate at Completion (EAC)#2

Earned Value Management62Estimate at Completion (EAC)#3 & #4Actual costs to date plus remaining budget modified by a performance factor (CPI) (current variances are viewed as typical of future variances). EAC = AC + [(BAC - EV) / CPI]EAC = BAC / CPI

Earned Value Management ExampleTask Drill & install 10 piezometersBudget - $100,000 ($10K per piezometer)Time 10 weeks (1 piezometer per week)At week 5:4 piezometers drilled and installed$47,500 spent to datePV = $50,000AC = $47,500EV = $40,000CV = -$7,500CPI = 0.82CV% = -19%SV = -$10,000SPI = 0.80SV% = -20%

Earned Value Scenario62

Earned Value Scenario63

Earned Value Scenario64

Earned Value Scenario65

Earned Value Scenario65BAC = $100,000 (current project budget)EV = $42,000 (42% of project completed, $100,000 planned)PV = $56,000 (56% of project planned $100,000 completed initial aging report)AC = $48,000 (from actual expenditures reporting)Is this project on schedule / budget? Or is it in trouble?

Earned Value Scenario66Cost Variance (CV):CV = EV AC = $42,000 - $48,000 = - $6,000

Cost Performance Index (CPI):CPI = EV / AC = $42,000 / $48,000 = 0.875

Cost Variance % (CV%):CV% = CV / EV = - $6,000 / $42,000 = 14% OVER BUDGET

Earned Value Scenario66Schedule Variance (SV):SV = EV PV = $42,000 - $56,000 = - $14,000

Schedule Performance Index (SPI):SPI = EV / PV = $42,000 / $56,000 = 0.750

Schedule Variance % (SV%):SV% = SV / PV = - $14,000 / $56,000 = 25% BEHIND SCHEDULE

Earned Value Scenario67Estimate at Completion (EAC):Method #1:EAC = AC + ETC (say $68,000) = $48,000 + $68,000 = $116,000(Change Management for $16,000 funds request)

Method #2:EAC = AC + BAC EV = $48,000 + $100,000 - $42,000 = $106,000(Change Management for $6,000 funds request)

Earned Value Scenario67Estimate to Complete (ETC):Method #3EAC = AC + [(BAC EV) / CPI] = $48,000 + [($100,000 - $42,000) / 0.875] = $48,000 + $66,285 = $114,285(Change Management for $14,285 funds request)

Method #4EAC = BAC / CPI = $100,000 / 0.875 = $114,285(Change Management for $14,285 funds request)

Earned Value Scenario68

Budget Management69Module 6 ExerciseWork as a team to perform EVM on assigned project on page 69.Prepare a report similar to the module scenario reporting project progress.Brief class on methods of recovery, if needed, for project.

Budget ManagementGraphing Earned Value exerciseGantt chart baseline (report)EVM graphTask informationCost distributionEVM worksheets

Budget ManagementGraphing Earned Value exercisePlanned Value (PV) is always shown in blue with circle nodesActual Cost (AC) is always shown in red with square nodesEarned Value (EV) is always shown in green with triangle nodes

Budget ManagementGraphing Earned Value exerciseWork together as a team to calculate the task cost (task budget) for each taskRecord these values on the worksheet with the total (BAC) calculatedWarning: Wait to plot on the EVM graph as a class we will use the Cost Distribution Report

Budget ManagementGraphing Earned Value week 1Task A started on time 30% completeTask B started 2 days late 30% completeTask C started 1 day late 25% completeTasks D, E, F, G, H, and J have not startedProject Management is on-goingActual Costs reported for week 1 = $5000

Schedule VarianceCost Variance

Advanced Project Management - CPHModule 6 - Budget Management