6.3 Cost Control and Performance Measurement

Cost control and performance measurement are crucial for project success. They help managers track progress, identify issues, and make informed decisions. These tools compare actual costs and work completed to the original plan, allowing for timely adjustments.

Earned Value Management (EVM) is a key technique, using metrics like Cost Variance and Schedule Variance. It helps predict future performance and costs, enabling proactive management. Effective cost control also involves a structured change process to manage scope and budget modifications.

Performance Measurement

Earned Value Management and Variances

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• Earned Value Management (EVM) integrates project scope, schedule, and cost to measure performance
• EVM compares planned work to completed work and actual costs
• Cost Variance (CV) measures the budgetary performance of a project
  • Calculated as the difference between Earned Value (EV) and Actual Cost (AC)
  • CV = EV - AC
  • Positive CV indicates project is under budget, negative CV means over budget
• Schedule Variance (SV) assesses if a project is ahead or behind schedule
  • Calculated as the difference between Earned Value (EV) and Planned Value (PV)
  • SV = EV - PV
  • Positive SV indicates project is ahead of schedule, negative SV means behind schedule
• EVM provides early warning signals for project managers to identify and address issues (cost overruns, schedule delays)

Performance Indices

• Cost Performance Index (CPI) measures the cost efficiency of work completed
  • Calculated as the ratio of Earned Value (EV) to Actual Cost (AC)
  • CPI = EV / AC
  • CPI > 1 indicates better than expected cost performance, CPI < 1 suggests poor cost performance
• Schedule Performance Index (SPI) measures the schedule efficiency of work completed
  • Calculated as the ratio of Earned Value (EV) to Planned Value (PV)
  • SPI = EV / PV
  • SPI > 1 indicates faster than planned progress, SPI < 1 suggests slower than planned progress
• Performance indices help project managers assess project health and make informed decisions
• CPI and SPI can be used to forecast future project performance and estimate completion dates

Forecasting and Estimates

Estimate at Completion and Estimate to Complete

• Estimate at Completion (EAC) predicts the total cost of the project at completion
  • EAC can be calculated using various methods depending on current performance and future expectations
  • Common EAC formula: EAC = BAC / CPI (where BAC is Budget at Completion)
  • EAC helps project managers determine if the project will be over or under budget
• Estimate to Complete (ETC) forecasts the additional cost needed to complete the remaining work
  • ETC = EAC - AC (where AC is Actual Cost to date)
  • ETC helps in planning resource allocation and budgeting for the remainder of the project
• Both EAC and ETC are dynamic and should be updated regularly throughout the project lifecycle

Performance Indices for Forecasting

• To-Complete Performance Index (TCPI) measures the cost performance required to meet a specified goal
  • TCPI = (BAC - EV) / (BAC - AC) for meeting the original budget
  • TCPI = (BAC - EV) / (EAC - AC) for meeting the revised estimate at completion
  • TCPI > 1 indicates that future performance must improve to meet the goal
• Forecasting uses historical data and current trends to predict future project outcomes
  • Includes techniques such as trend analysis, Monte Carlo simulations, and earned value forecasting
  • Helps project managers anticipate potential issues and make proactive decisions
• Forecasting accuracy improves as the project progresses and more data becomes available

Cost Control

Change Control Process and Tools

• Change Control manages modifications to project scope, schedule, or budget
• Implements a formal process for requesting, evaluating, and approving changes
  • Change requests are documented and assessed for their impact on project objectives
  • Change Control Board (CCB) reviews and approves or rejects change requests
• Tools for effective change control include:
  • Change request forms to standardize the process
  • Impact analysis to evaluate the effects of proposed changes
  • Change log to track all modifications throughout the project lifecycle
• Change control helps maintain project baseline integrity and prevents scope creep
• Integrates with configuration management to ensure all project documents reflect approved changes

Cost Control Techniques

• Regular cost performance reviews compare actual costs to budgeted costs
• Variance analysis identifies discrepancies between planned and actual performance
• Earned Value Management (EVM) provides metrics for cost control decision-making
• Cost forecasting helps anticipate future spending trends and potential overruns
• Implementing corrective actions to address unfavorable cost variances
  • May include cost-cutting measures, resource reallocation, or scope adjustments
• Reserve analysis ensures contingency and management reserves are properly utilized