Question

Given the following information for a one-year project, answer the following questions. Recall that PV is the planned value, EV is the earned value, AC is the actual cost, and BAC is the budget at completion.

PV=$22,000
EV=$20,000
AC=$25,000
BAC=$120,000
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a) What is the cost variance, schedule variance, cost performance index (CPI), and schedule performance index (SPI) for the project? Show your calculations.
b) How is the project doing? Is it ahead of schedule or behind schedule? Is it under budget or over budget? Explain.
c) Use the CPI to calculate the estimate at completion (EAC) for this project. Is the project performing better or worse than planned? Explain.
d) Use the SPI to estimate how long it will take to finish this project. e) Sketch the earned value chart for this project, using Figure 7-6 in textbook as a quide.

Answer 1

The cost variance is -$5,000, the schedule variance is -$2,000, the project is over budget and behind schedule, the estimate at completion is $150,000, and it will take 6 years to finish the project.

Step-by-step explanation:

a) To calculate the cost variance (CV), we subtract the actual cost (AC) from the earned value (EV). CV = EV - AC = $20,000 - $25,000 = -$5,000. Therefore, the cost variance is -$5,000. To calculate the schedule variance (SV), we subtract the planned value (PV) from the earned value (EV). SV = EV - PV = $20,000 - $22,000 = -$2,000. Therefore, the schedule variance is -$2,000.

The cost performance index (CPI) is calculated by dividing the earned value (EV) by the actual cost (AC). CPI = EV / AC = $20,000 / $25,000 = 0.8. Therefore, the cost performance index is 0.8. The schedule performance index (SPI) is calculated by dividing the earned value (EV) by the planned value (PV). SPI = EV / PV = $20,000 / $22,000 = 0.909. Therefore, the schedule performance index is 0.909.

b) Based on the cost variance (CV) of -$5,000, the project is over budget. Based on the schedule variance (SV) of -$2,000, the project is behind schedule.

c) To calculate the estimate at completion (EAC), we divide the budget at completion (BAC) by the cost performance index (CPI). EAC = BAC / CPI = $120,000 / 0.8 = $150,000. Therefore, the estimate at completion is $150,000.

d) To estimate how long it will take to finish the project, we divide the budget at completion (BAC) by the earned value (EV) and multiply by the planned duration. Time to finish = BAC / EV * planned duration = $120,000 / $20,000 * 1 year = 6 years. Therefore, it will take 6 years to finish the project.