Week 4

Advanced Time Management Introduction | Rolling Wave | Schedule Compression Techniques | Fast Tracking | Crashing | Resource Leveling | PERT | CCPM Network Process | Summary

Introduction

Back to Top

Last week, we created our project schedule. We followed the processes found in the PMBOK® Guide’s Time Management Knowledge Area. Remember, we started with a WBS and ended with a project schedule. 

This week, we start with that project schedule. We will look at the techniques that can be applied during project planning or during project execution to keep the project schedule within stakeholder requirements. Let’s see what new things we can learn this week! 

Rolling Wave

Back to Top

Not all projects can be entirely planned during the planning stage of a project. But from all the examples we have seen so far, a project gets planned in its entirety during planning. The truth is, it is possible to plan a project to just enough detail in the near-term to just to be able to begin working. Later, as the work progresses, successive phases are planned. This technique is known as rolling wave planning. This process reduces the time needed to begin a project.

Rolling-wave planning is a technique in which phases, deliverables, work packages, and activities that need to begin in the near term are planned in detail. As these near completion, the planning for the next set of these tasks begins. This repetitive process continues throughout the project.  

Schedule Compression Techniques

Back to Top

In many projects, the calculated end date is not in line with stakeholder expectations. What are the options for a project manager? How can a project manager bring a project back into the expectations of the key stakeholders? There are typically three methods

available to a project manager to bring a project back into compliance. They are displayed below.

Fast tracking: This technique involves doing more work in parallel.  Crashing: Crashing involves adding more costs or resources to get the work done

faster. Scope reduction: If is not possible to get all of the work done on time, perhaps

doing less work is an option. 

As you can see, each has its own advantages and disadvantages. A project manager must weigh each to determine the appropriate course of action. Fast tracking and crashing will be described in more detail below. Scope reduction is fairly straightforward. However, it is never a good first option, because stakeholders rarely like having less work done than originally planned on their project. 

Fast Tracking

Back to Top

From last week, we discussed the four types of predecessors or dependencies.

Mandatory Discretionary External Internal

Mandatory predecessors cannot be removed from the network diagram, because they are due to the type of work being accomplished. Likewise, external predecessors typically cannot be removed from the network diagram, because they are outside of the project team’s control. 

However, internal, discretionary predecessors could be removed from the network diagram. They are predecessors placed there by the convenience of the project team.  In fast tracking, the project team looks for these types of predecessors between activities on or near the critical path. These predecessors are then removed from the network diagram. This allows more activities to be performed in parallel. Thus, this method shortens the critical path of the project. One drawback of the method is that it increases the risk to the project, because more work is occurring at the same time. 

Crashing

Back to Top

Crashing involves adding more resources to get the work done faster.  It is a critical trade off in project management. Let’s explore this a bit more. 

Crashing a Project Schedule

In crashing, there are two types of project times.

1. Normal time: The schedule that is typically estimated as the most likely for each task. An estimate for the cost of each task will be made considering this normal schedule.

2. Crash time: The result of expediting the activity by the application of additional resources. Crashing is usually undertaken on critical-path (the longest paths) activities to shorten project duration. Note: When crashing, only reduce the critical path to the point of the next longest path. At that point, you have created or added a new critical path and now must repeat the process with multiple critical paths in mind.

Other Definitions

Time limited: The project must be finished on time, using as few resources as possible.

Resource limited: The project must be finished as soon as possible, without exceeding some specific level of resource use, or some general resource constraint.

System-constrained task: Fixed time and resource crashing activities, a process to reduce the schedule duration with added cost.

1. Develop cost slope for each activity; cost slope is "$ per day" or other cost and time combinations.

2. Look for activity on the critical path with lowest slope (i.e., cost/time unit).

3. Iteratively crash activities on the critical path until the desired combination of time and cost for the project is achieved.

Crashing a project schedule costs money. It should only be done when the benefit or cost has been analyzed and it is determined to be of value to the business.

Example: Crashing a Project Schedule

The Cost Slope: Optimizing Crashing SchedulesGiven a project with the data below:

Task PredecessorNormal

TimeCrash Time

Normal Cost

Crash Cost

A -- 8 6 1000 1500

B -- 6 3 150 600

C A 4 3 400 500

D B 5 3 500 700

E C 7 5 800 900

F D 4 4 250 250

G E, F 10 8 1500 1900Total Budget: $4,600 Question: Calculate the most cost-effective way to meet the goal. Goal: Reduce the schedule duration on this project to 22 days.

Solution:

1. Draw the project network diagram.

2. Calculate the critical path.

Paths and durations for this project are the following.

Path 1: Start, A, C, E, End = 8 + 4 + 7 + 10 = 29 days

Path 2: Start, B, D, F, G, End = 6 + 5 + 4 + 10 = 25 days

3. Calculate the crash cost per day for each critical task.

Normal time - crash time = days available for crashing Crash cost - normal cost = cost of crashing Cost of crashing/days available = crash cost per day

Task

Predecessor

Normal

Crash

Normal

Crash

Crash

cp Pat

2nd Pat

Time Time Cost Cost

Cost per Day

h Tim

e

h Tim

e

A - 8 6 1000 1500 250 8

B - 6 3 150 600 150 6

C A 4 3 400 500 100 4

D B 5 3 500 700 100 5

E C 7 5 800 900 50 7

F D 4 4 250 250 4

G E, F 10 8 1500 1900 200 10 10

Total Budg

et = 4600 29 25

4. Look for the activity on CP with the lowest cost per unit. Crash it as required to reduce the project duration.

5. Continually crash activities until desired combination of time/cost for project is achieved.

6. Be aware that if dual critical paths are created, multiple tasks must be crashed to continue to reduce the project duration.

Note: (1) When crashing two or more critical paths with common activities, we must consider crashing a common task as the most cost-effective solution as opposed to crashing individual activities on each path.

(2) Each task is limited in the number of days it can be crashed due to physical or other constraints. As you crash, we can no longer crash an activity once it is reduced to its crash time.

The table below shows the six crash steps to reduce the project duration from the normal time of 29 days to the desired crashed duration goal of 22 days.

Task

Crash

DaysCost/Day

Cost

CP Tim

e

Additional Crash

CostProject Cost

2nd Path Tim

e

Initial schedule and cost 29 $4,600 25

E 2 50 100 27 100 $4,700 25

C 1 100 100 26 200 $4,800 25

G 2 200 400 24 600 $5,200 23

A 1 250 250 23 850 $5,450 23

At this point, the CP A-C-E-G is equal in length to the next longest path. To further reduce the project schedule, we

will have to reduce both paths.

A 1 250 250 22 $1,100 $5,700 23

D 1 100 100 22 $1,200 $5,800 22

Solution

In this project, the lowest cost crashing solution is to crash E, C, G, A, and D. This will reduce the schedule to the desired 22 days.

  What is the additional cost to reduce the duration to 22 days?

View Answer

CPM cost duration history: A graph showing the increase in cost per unit for crashing a project is useful for demonstrating to clients or managers the increased costs associated with speeding up a project. This can also be used to evaluate the effects of crashing on projects with incentive and penalty clauses, or with resource availability and utilization options. The graph above portrays the solution for our demonstration problem with a resulting $5,800 crash cost and 22 days. At this point, we have met our goal and do not need to crash any further.

Another approach is to start by fully crashing all of the tasks in the schedule; that is, use the crash duration values in the network and calculate the schedule. Then relax activities, starting with the most costly, noncritical path activities until the desired combination of duration and cost is reached.

Resource Leveling

Back to Top

How do you have just the right amount of resource available at just the right time?Resource needs vary as the project progresses, which means the amount of resources required will fluctuate, making the task even more difficult. It is beneficial to the project not only that the right resources be available when needed but also that, to the best of our ability, we schedule the resources on an even basis to reduce the changes in the team's work schedule. The example below will illustrate how to accomplish this.

Resource Load Diagram—Demonstration Problem

Task

Duration (days)

Predecessor (units)

Number of Programmers Required

A 10 n/a 5

B 5 n/a 5

C 10 B 10

D 10 A 5

E 15 D 5

F 5 D 5

To begin the solve this resource loading problem, we must first construct a network diagram. So please take the data from the table above and use the AON/AIB techniques from PROJ586, and draw out a network diagram and determine critical path. As you should see, Tasks B and C are not on the critical path and may be delayed (but not any longer than the tasks on the critical path) without affecting the project length.

See below what to do next.

Problem Data Solution

Level this project given the constraint that only 10 programmers are available. Resource Load Diagram

1. Determine the critical and other paths.

o CP = A - D - E = 35 days

o B - C = 15 dayso A - D - F = 25 days

2. Plot resource loading against time for each activity. Start with the CP:

o Task A uses 5 and takes days 1 through 10.

o Task D uses 5 and takes days 10 through 20, after its predecessor, A.

o Task E uses 5 and takes days 20

Total resource use:

Total resource demand

DaysUnleveled Leveled

1...5 10 10

5...10 15 10

10...15 15 10

15...20 5 10

20...25 10 10

25...30 5 10

30...35 5 5Note that leveling in this case assumes task C can be:

1. slowed down; and2. split.

If C cannot be split, task F could be delayed to start on

through 35, after its predecessor, D.

o Task B uses 5 and takes days 1 through 5, concurrently with A; (as resource use is cumulative, plot B on top of A).

o Task C uses 10 and takes days 5 through 15, concurrently with A and D, and after its predecessor, B.

o Task F uses 5 and takes days 20 through 25, concurrently with E, after its predecessor, D.

day 25 after C is complete. If C cannot be slowed

down, it will have to be delayed to start on day 35 and the project completion will be delayed until day 45.

Resource Load Diagram

Leveling will force task C to be completed later in the project; this could change the critical path and delay the entire project.

Gantt Chart Per Initial Project Plan

TaskDuratio

n

Week# 5 10 15 20 25 30 35

40 45

A 10 R = 5R = 5

B 5 R = 5

C 10R =10

R = 10

D 10R = 5

R = 5

E 15R = 5

R = 5

R = 5

F 5R = 5

CP = 25 WEEKS

Total Resources

10 15 15 5 10 5 5 0 0

15 C C10 B C C F5 A A D D E E F

Gantt Chart After Resources are Leveled

Task DurationWeek#

5 10 15 20 25 30 35 40 45A 10 R = 5 R = 5B 5 R = 5C 10 R =5 R = 5 R = 5 R =5D 10 R = 5 R = 5E 15 R = 5 R = 5 R = 5F 5 R = 5

CP = 25 WEEKS

Total Resources

10 15 15 5 10 5 5 0 0

1510 B C C C F C5 A A D D E E F

Week #

Weekly Cash Flow Before Leveling

Weekly Cash Flow After Leveling

1 $20,000 $20,000

2 $30,000 $20,000

3 $30,000 $20,000

4 $10,000 $20,000

5 $20,000 $20,000

6 $10,000 $20,000

7 $10,000 $10,000

Note that leveling resources provides a much more even cash flow and leads to more manageable financial management and control.

Conclusion

Resource leveling: Shifting tasks within their slack time to even out demands on resources which are common to different tasks.

Advantages o Less management is required when resource use is constant. o If the resource is people, leveling improves morale.

Constrained resource scheduling: If the quantity of resources available is limited, then we have a resource constrained project. If the resources available are less than required it will result in an increased schedule or additional cost to resolve.

Two Approaches to Solve the Problem

Heuristic methods: This will produce a solution but not necessarily the best solution. Start with the PERT/cpm schedule and analyze resource use period by period, resource by resource; if resource supply is exceeded in a given period, examine tasks and allocate resources to them sequentially, according to some priority rules.

o Priority rules: (examples) Shortest task first Most resources first Minimum slack first Most critical followers Most successors

o If excess resources are left idle, they can be reassigned in the organization or used to accomplish future tasks.

o If resources are exhausted, tasks must be slowed or delayed. Optimization: This will produce the best solution based upon the project

requirements and objectives. There are two types of optimization: mathematical (linear) programming and enumeration. They are complex, and we will not address the methods here.

Demonstration Problem

This example introduces the cost factor into the resource leveling problem in a resource-constrained project. In the case where we need to add resources to avoid increasing the project schedule, we need to understand how to determine the additional cost involved. Use the Gantt chart to determine and resolve resource conflicts.

Example:

Problem Data Solution

Activity

Predecessor

Duration

Resources

Required

A ---6

Weeks

3 Drill Rigs, 6 Labor

ers

B ---2

Weeks

4 Truck

s, 1 Labor

er

C A1

Week

2 Backhoes, 2 Labor

ers

D B3

Weeks

2 Drill Rigs, 4 Labor

ers

E C & D4

Weeks

3 Truck

s, 1 Labor

er

Resource Constraints

Resource Cost (per unit)

Activity

Resources

Cost Calcula

tion

Total

Cost

A Drill Rigs

6 x 3 x $2,000

= $36,000 $50,

400Laborers

6 x 6 x 40 x

$10 = $14,400

B Trucks

2 x 4 x $1,000

= $8,000 $8,8

00Laborers

2 x 1 x 40 x

$10 = $800

C Backhoe

1 x 2 x $3,000

= $6,000 $6,8

00Laborers

1 x 2 x 40 x

$10 = $800

D Drill Rigs

3 x 2 x $2,000

=

$16,800

3 Drill Rigs$2,000 per

week

4 Trucks$1,000 per

week

2 Backhoes$3,000 per

week

8 Laborers$10.00 per

hourCalculate:

1. The total budget for the project. Are there any resource conflicts?

2. The most cost-effective method of resolving the conflict . . . either by adding or leveling resources (additional resources can be obtained at a 50% cost premium).

$12,000

Laborers

3 x 4 x 40 x

$10 = $4,800

E Trucks

4 x 3 x $1,000

= $12,000 $13,

600Laborers

4 x 1 x 40 x

$10 = $1,600

Total Budget

=

$96,400

Resource

GANTT Chart The line for each task shows the number of weeks needed to complete each task as well as which tasks must be done

first before the next task can start. Task A and B can be done at the same time at the start of the project (week 0),

task D must wait until task B is complete before starting at week 2; task C must wait until week 6 when task A is

complete. Task E cannot start until task C is complete at week 7.

Resource Use (cumulative) by Week

Week Number

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Drill Rigs 3 3 5 5 5 3

Trucks 4 4 3 3 3 3

Backhoes 2

Laborers 7 7 10 10 10 6 2 1 1 1 1

Resource conflict exists between tasks A and D. These tasks need five drill rigs and 10 laborers; only three drill rigs and eight laborers are available. The time frame of the conflict is weeks 3, 4, and 5.

The Effect of Adding or Leveling Resources

We can add resources, level the resources, or do a combination of the two.

Adding Resources

Adding resources at a 50% premium:

2 Drill Rigs x 3 weeks x $2,000 x 0.50 = $6,000 2 Laborers x 3 weeks x 40 hrs. x 0.50 = $1,200 Adds a total of $7,200 to the budget. The schedule remains the same. Note that only the premium (50%) is added; the original budget included all

resources required, including those in conflict.

Leveling

Delay D to weeks 7, 8, and 9 using slack. This will delay the start of E by 2 weeks and the project completion by 2 weeks until week 13. There are no extra costs.

Combining Leveling and Adding Resources

The third option is a combination. Shift the start of D to week 5 within the slack for the task. We now have reduced the conflict from 3 to 2 weeks. We then add resources to cover those 2 weeks. The extra cost at a 50% premium is the following.

2 Drill Rigs x 2 weeks x $2,000 x 0.50 = $4,000 2 Laborers x 2 weeks x 40 hrs. x 0.50 = $800 Adds a total of $4,800 to the budget. The schedule remains the same. Note that only the premium (50%) is added, the original budget included all

resources required, including those in conflict.

This option preserves the schedule, but at a reduced cost because we also used the slack available to level the resources.

Discussion

To solve these problems, draw the Gantt chart and use a grid like the one shown to accumulate resources of each type. Compare resource use to constraints to determine if conflicts exist. When leveling, if you move a task you have to recalculate total resource use from the start of the moved task to make sure additional conflicts have not been made.

The needs of the project and business will dictate which of the solutions the project manager should use.

Note: This is the method used by Microsoft Project and other PM software to determine and level resource conflicts. Software can be a helpful tool to resolve complex resource conflict problems.

PERT

Back to Top

PERT or program evaluation and review technique was developed as both a risk management system and a schedule and cost control system. It combines both of the entities into one cohesive process for a project manager to use. 

Below is an example of how PERT is used in project management.

Example Problem

Given a project with the following data and the Z Value Table from Doc Sharing.

Activity Optimistic Pessimistic Most Likely Expected

Time(a) Time(b) Time(m) Time (TE)

A 5 10 7 7.17

B 7 14 12 11.50

C 4 7 5 5.17

D 6 12 8 8.33

E 15 26 22 21.50

F 18 23 20 20.17

G 17 29 24 23.67

H 14 22 17 17.33

I 4 7 6 5.83

J 8 11 10 9.83

K 5 9 8 7.67

L 3 6 4 4.17

The critical path for this project is: B - F - J

A: Calculate the expected time (TE) for critical path activities. B: Calculate the scheduled duration (S) for the project using the TE of

critical path tasks. C: What is the probability of the project being complete in a desired time (D)

of 44 days? D: What is the probability of the project being complete in a desired time (D)

of 38 days?

Answer:

Step 1: Calculate the TE for each activity using the following equation.

TE= [optimistic + pessimistic + 4(most likely)]/6

Form this, we get the expected duration of each activity and when added, the project duration.

Step 2: Calculate the variance for each activity using the following equation.

Var = [(pessimistic – optimistic)/6]² 

Step 3: Add the variance and take the square root of that number. This number is the standard deviation of the project.

Step 4: Using the standard deviation of the project along with the Z-score equation and Z- score table from Doc Sharing, we calculate the probability of success on any given day of the project. 

Z score = (desired completion day – scheduled completion day)/standard deviation of the project. 

See the example below.

A B C D

Activity TE Variance -(a + (4m) + b) / 6 ((b-a) / 6) squaredB 11.50 1.36 F 20.17 0.69 J 9.83 0.25

Schedule = 41.5 Days Sum of variance for CP = 2.31 Square root of variance for CP = 1.52

44 Days Z = (D-S) / 1.52 = 1.65 Probability (from table) = 0.4501 0.4501 +0.500 = 95%

38 Days Z = (D-S) / 1.52 = -2.31 Probability (from table) = (0.4896) 0.4896 +0.500 = 1%

CCPM Network Process

Back to Top

Critical chain project management (CCPM) is based upon the theory of constraints (TOC) developed by Eliyahu Goldratt. It was initially used in manufacturing environments but was expanded for use in project management. This technique is different and unique in some of the principles it uses as compared to traditional project management. It uses the basic critical-path process but introduces different concepts on how to manage the project using the CPM process. It also requires all levels of

management to accept these different philosophies and processes to manage a project. It is believed to have merit, but of course, it will not be for everyone.

Summary

Back to Top

When NASA launches a rocket or Apple launches a new product, getting the finished product out on time is critical. There has to be a way to meet aggressive deadlines set by management. I trust this week you have seen a number of tools and techniques that can be used by project managers to improve the project schedule. This knowledge is imperative for a project manager to employ on a project. You, as a project manager, will use these techniques often in managing projects. 

Week 5

Time and Cost Monitoring Control—Part IIntroduction | Earned Value Basics | Earned Value Formulas | Earned Value Example | SummaryIntroductionBack to Top

A project needs some method of monitoring and control to ensure the project stays on time and on budget. Organizations use a number of methods to do this. One method used by some organizations is known as earned value or EV. This system compares the actual value of work completed to the value of the work as planned to a given point in the project. In other words, we look at the value of the work to date with respect to where we should have progressed by that given date. Earned Value BasicsBack to Top

Earned value is a system for relating planned budget and schedule to actual time and cost performance, and is at the heart of the project control system. Responsibility for effective monitoring systems lies with the PM even though tasks may be delegated. In project management, there is a tendency to focus on doing rather than monitoring. Lots of activity is assumed to mean a lot is getting done. It is important to design effective monitoring systems at the planning stage, and to maintain (and update) these systems as the project progresses. The importance of monitoring and controlling systems grows with the size and complexity of the project, but they are always required.

Earned value revolves around three terms.

PV or planned value: This is the value of the work planned or scheduled at a given point in the project. It is calculated by the formula:

PV = % of time expended X BAC

EV or earned value: This value represents the amount of value gained from the work completed so far. It is calculated by the formula:

EV = % complete X BAC

AC or actual costs: This value represents the actual costs to date.

One other term is needed to begin using EV: BAC.

BAC or budget at completion is the calculated value during the planning of project of the cost of a given activity once the activity is complete. This may also be the projected cost of the entire project.

In other words, how much did you expect this activity cost when you originally planned the activity? Earned Value FormulasBack to Top

There are a number of EV formulas. We will be covering some of these in this week’s lecture. The remainder will be covered next week.

CV or Cost Variance = EV - AC

SV or Schedule Variance = EV - PV

CPI or Cost Performance Index = EV/AC

SPI or Schedule Performance Index = EV/PV

A positive cost variance or a CPI greater than one indicates the project is under budget.

A negative cost variance or a CPI less than one indicates the project is over budget.

A CV of zero or a CPI of one indicates the project is on target.

A positive schedule variance or a SPI greater than one indicates the project is ahead of schedule.

A negative schedule variance or a SPI less than one indicates the project is behind schedule.

An SV of zero or a SPI of one indicates the project is on target.

Earned Value ExampleBack to Top

Below are two examples of EV calculations. Both are typical examples of EV problems, but each is a little different in its approach.

Example One

You are the project manager for a small HR project in your organization. This project has four activities. Using the data provided on the project, calculate CV, SV, CPI, and SPI.

Activity one: Activity one is 50% complete. It was to have cost $100,000 dollars. It is at the end of week 2 of 5. Its costs so far are $45,000 dollars.

Activity two: Activity two is 75% complete. It was predicted to cost $500,000 dollars. It is entering week 3 of 5. Its costs so far are $300,000 dollars.

Activity three: Activity three is complete. It finished 2 weeks late at a cost of $250,000 dollars. It was to have cost $275,000 dollars.

Activity four: Activity four is 25% complete and has cost $25,000so far. It was budgeted to cost $100,000 dollars. It has just finished week 1 of 3.

Answer

First we calculate the AC, PV, and EV for each activity.

Step One:

Activity One:AC = $45,000EV = 50%X $100,000 = $50,000PV = 2/5 X $100,000 = $40,000

Activity Two:AC= $300,000EV=75% X $500,000 = $375,000PV= 2/5 X $500,000 = $200,000

Activity Three:AC = $250,000EV= 100% X $275,000 = $275,000PV= $275,000

Activity Four:AC = $25,000EV= 25% X $100,000 = $25,000PV=1/3 X $100,000 = $33,000

Step Two:Calculate the cumulative values of AC, PV, EV, and BAC.

AC cumulative = 45,000 + 300,000 + 250,000 + 25,000= $620,000

PV cumulative = 40,000 + 200,000 + 275,000 + 33,000 = $548,000

EV cumulative = 50,000 + 375,000 + 275,000 + 25,000 = $725,000

BAC = $100,000 + $500,000 + $275,000 + $100,000 = $975,000

Step Three:Calculate the requested values.

CV = EV-AC = 725,000 - 620,000 = $105,000

SV = EV-PV = 725,000 – 548,000 = $177,000

CPI = EV/AC = 725,000/620,000 = 1.17

SPI= EV/PV = 725,000/548,000 = 1.32

As we can see from the variances, we are ahead of schedule and under budget.

Cost and schedule performance index thresholds

(Less than 1 = poor performance, greater than 1 = good performance)

1.3 and up: Investigate immediately 1.2: Investigate at your leisure 0.9 to 1.2: Generally okay 0.9 to 0.8: Investigate 0.8 to 0.6: Prompt review and action required Less than 0.6: This project is in dire straits. Intervention by management may be needed to determine what actions should be taken as to the future of this project.

Variances and indexes are plotted on control charts for trend analysis.

Now let’s look at the indexes in more detail. Normally, values of CPI/SPI between .90 and 1.20 are normally considered fine in a project. On the good side of the indexes (values above 1.0), values above 1.2 require investigation, because sometimes things too

good to be true usually are. Values above 1.3 should be investigated immediately, because they are much too good to be true.

On the bad side of the indexes (values less than 1), values below .90 require investigation with the degree and urgency of the investigation increasing the lower of the CPI/SPI value. Values less than .8 require immediate investigation. Values less than .6 typically require serious intervention by the project manager and senior management to save such a project.

So in the project above, we need to investigate this project immediately, because its SPI is greater than 1.3.

Example Two:

For this example, you are given the following information.

Activity

Predecessor

Duration

Budget

A

---

6 weeks

$50,400

B

---

2 weeks

$ 8,800

C

A

1 week

$ 6,800

D

B

3 weeks

$16,800

E

C

4 weeks

$13,600

Total Budget = $96,400

First, we need to create a Gantt chart.

Schedule Gantt Chart

The line for each task shows the number of weeks needed to complete each task as well as which tasks must be done first before the next task can start. Task A and B can be done at the same time at the start of the project (week 0); task D must wait until task B is

complete before starting at week 2; task C must wait until week 6 when task A is complete; task E cannot start until task C is complete at week 7.

Image Description

At any point in the project, we should be able to calculate planned performance and compare it to actual performance using earned value. Given the following information, determine the cost and schedule variance for each task, and for the project as a whole. The project is at the end of week 3.

ProblemActivity

Budgeted Cost

Actual Cost

To Date Completion

A

$50,400

$35,000

40%

B

$ 8,800

$7,200

100%

C

$ 6,800

$0

0%

D

$16,800

$14,000

90%

E

$13,600

$0

0%

Total = $96,400

Total = $56,200

Calculate

the schedule variance for each task; the cost variance for each task; and the CV for the project as a whole. What is your assessment of the project at this time?

Solution

Determine the scheduled completion for each task at the end of week 3 using the Gantt chart. Task A is only 50% complete, task B is 100% complete, task D is only 33% complete, and task E has not started.

Image Description

The heavy-dashed vertical line on the Gantt chart indicates the end of week 3.

Scheduled status of tasks at the end of week 3 is as follows.

Activity

Scheduled Completion

A

50%

B

100%

C

0%

D

33%

E

0%

Sample Calculations:

BCWP = Actual completion to date x task budget For task A, BCWP = 40% x $50,400 = $20,160 BCWS = Scheduled completion to date x task budget For task A, BCWS = 50% x $50,400 = $25,200

ACWP = Actual cost to date (given) For task A, ACWP = $35,000 Cost Variance = BCWP - ACWP For task A, the CV = $20,160 - $35,000 = ($14,840) Schedule Variance = BCWP - BCWS For task A, the SV = $20,160 - $25,200 = ($5,040)

Summary results for all tasks are as follows:

Activity

Budget

% complete

BCWP

BCWS

ACWP

Cost Variance

Schedule Variance

CPI

SPI

A

$50,400

40%

$20,160

$25,200

$35,000

-$14,840

-$5,040

0.58

0.80

B

$8,800

100%

$8,800

$8,800

$7,200

$1,600

$0

1.22

1.00

C

$6,800

0%

$0

$0

$0

$0

$0

D

$16,800

90%

$15,120

$5,544

$14,000

$1,120

$9,576

1.08

2.73

E

$13,600

0%

$0

$0

$0

$0

$0

Totals

$96,400

$44,080

$39,544

$56,200

($12,120)

$4,536*

0.78

1.11

Analysis:

Schedule: Although the project SV and SPI indicate the project is ahead of schedule, task A is behind schedule. Budget: The project is currently significantly over budget by 27.5% ($12,120/$44,080) = 0.275. This is due to a severe over-budget situation in task A.

SummaryBack to Top

Earned value is a powerful tool for monitoring and controlling a project. However, it is utilized by relatively few organizations in the industry. Many project managers see the system as too cumbersome to perform, too difficult to track costs, or too easy to manipulate for adoption. But in the end, whether one uses EV or not is not as important as having a cohesive process to monitor and control a project to ensure its success.

Week 6

Time and Cost Monitoring—Part 2Introduction | Estimate at Completion (EAC) | Estimate to Completion (ETC) | Variance at Completion (VAC) | To Complete Performance Index (TCPI) | Example Problems | Cost and Schedule Management | SummaryIntroductionBack to Top

Last week, we began our exploration of earned value. We looked at the tools available to monitor and control a project. These tools included CV, SV, CPI, and SPI. This focused on performance to alert us to how the project has progressed from the start of the project to the assessment date. Week 6 adds to the process with a focus on the time between the assessment date and the end of the project (i.e., the immediate future). We will be forecasting an estimate at completion (EAC), determining the cause of any variances, and determining plans of action to control the project. For this, it's necessary to revisit the

budget and estimates generated at the start of the project (i.e., our baselines) as we figure out exactly why the variances are occurring and our appropriate response to them. The importance of accurate estimating and documenting assumptions during the planning stage now becomes evident, because deviations to the plan can be the result of either the parameters of execution differing from our plan, or of lapses in actual performance.

Our decisions made at this point in time will likely require us to evaluate and adjust the project management triple constraints: cost, time, and scope. As we have previously discussed, these constraints help define the project and must be balanced because they are directly related to each other. For example, if we decide to spend additional money to get the project back on schedule (time), then cost will increase. We could also reduce the scope as well and preserve the budget (cost).Estimate at Completion (EAC)Back to Top

The estimate at completion is another name for an adjusted project budget. This process for adjusting the budget builds upon the earned value calculations for a project in progress. Forecasting the total cost of the project at completion requires mathematics, management decisions, and judgment. We can consider four possible process options or methods for the project to continue from where we are to the finish.

Our experience with the project to date makes us believe it will continue to perform much as it has. Hence, we will modify the budget for the remainder of the project using the CPI as a modifying factor. Remember the CPI is the cost performance index for the project up to this point. It is an indicator of how efficiently or inefficiently we are spending money. Applying it to the remainder of the project assumes we will continue at the same rate of efficiency. This is sometimes called the trend adjustment. For this option, we use the following equation.

EAC = (BAC/CPI)

Your project is experiencing variances and indexes that may not be what was expected. However, you believe these atypical variances are not going to continue and that the project performance will likely improve, such that future spending will be at the original, planned spending rate. In that case, use the below equation to calculate EAC.

EAC = AC + (BAC – EV)

We are experiencing variances and indexes that indicate our estimations were fundamentally flawed. Thus, the indexes we created during project planning are of little use in predicting future costs for the project. This requires an entire re-estimation of project costs to completion. In this case, use the below equation for calculating EAC.

EAC = AC + Bottom up estimate to completion

Your project has a firm completion date to meet, such as a Memorial Day celebration. Further, your spending to date is considered typical of remaining spending on the project. Thus both CPI and SPI are impacting spending rates. For this type of project, use the equation below.

EAC = (BAC - EV)/(CPI x SPI)

Estimate to Completion (ETC)Back to Top

Estimate to completion is an estimate for how much more will be needed to be spent to complete this project from this point. It can be calculated two ways.

If the project is proceeding more or less to plan, use the equation below.

ETC = EAC - AC

However, if the project is not, within reason, proceeding to plan, one must re-estimate the EAC as shown above before calculating the ETC. Variance at Completion (VAC)Back to Top

Variance at completion looks at how far the project will be over or under budget upon completion. This allows the project manager to better understand his or her budgetary needs to complete the project. VAC is calculated as shown below.

VAC = BAC - EAC

To Complete Performance Index (TCPI)Back to Top

The purpose of the TCPI equation is to determine what cost performance would be required to complete the remaining work of the project within the original project plan or within the newly calculated EAC. In other words, what work rate (cost performance) must be achieved to stay on the project budget? This calculation has two equations depending on management’s goal: achieving the original BAC or achieving the newly calculated EAC.

To complete original plan:

TCPI = (BAC – EV)/(BAC – AC)

To complete to ETC:

TCPI – (BAC – EV)/(EAC – AC)

Example ProblemsBack to Top

Example Problem One

This problem is a continuation of Week 5’s EV problem number one.

You are the project manager for a small HR project in your organization. This project has four activities. Using the data provided on the project, calculate CV, SV, CPI, and SPI.

Activity one: Activity one is 50% complete. It was to have cost $100,000 dollars. It is at the end of week 2 of 5. Its costs so far are $45,000 dollars.

Activity two: Activity two is 75% complete. It was predicted to cost $500,000 dollars. It is entering week 3 of 5. Its costs so far are $300,000 dollars.

Activity three: Activity Three is complete. It finished 2 weeks late at a cost of $250,000 dollars. It was to have cost $275,000 dollars.

Activity four: Activity four is 25% complete and has cost so far $25,000. It was budgeted to cost $100,000 dollars. It has just finished week 1 of 3.

For this week, we will add to the calculations EAC, ETC, VAC, and TCPI.

Let’s start with where we left off last week.

AC cumulative = 45,000 + 250,000 + 300,000 + 25,000= $620,000

PV cumulative = 40,000 + 200,000 + 275,000 + 33,000 = $548,000

EV cumulative = 50,000 + 375,000 + 275,000 + 25,000 = $725,000

BAC = $100,000 + $500,000 + $275,000 + $100,000 = $975,000

CV = EV-AC = 725,000 - 620,000 = $105,000

SV = EV-PV = 725,000 - 548,000 = $177,000

CPI = EV/AC = 725,000/620,000 = 1.17

SPI= EV/AC = 725,000/548,000 = 1.32

Let’s assume we will have the same rate of spending as we have seen so far in the project. Also, the senior manager has expressed his or her interest in conforming to the original project plan. Given this information, we proceed as follows.

EAC = (BAC/CPI) = 975,000/1.17 = $833,333

ETC = EAC – AC = 833,333 - 620,000 = $213,333

VAC = BAC - EAC = 975,000 - 833,333 = $141,667

TCPI = (BAC - EV)/(BAC - AC) = (975,000 - 725,000)/(975,000 - 620,000) =0.56

For TCPI

Less than 1 is good. The farther below 1, the easier it will likely be to achieve the desired result.

At one: The same results are needed to achieve results.

Greater than one is not good. The farther above one, the more difficult it will be to achieve the desired result.

Analysis

Our project is doing quite well. It is estimated to come in at a cost of $833,333, which likely means spending another $213,333 to finish the project. This is $141,667 less than originally planned. This means it should be quite easy to meet senior-management goals as denoted in the original project plan.

Example Problem Two

This is a continuation of last week’s example number two.

Activity

Predecessor

Duration

Budget

A

---

6 weeks

$50,400

B

---

2 weeks

$ 8,800

C

A

1 week

$ 6,800

D

B

3 weeks

$16,800

E

C

4 weeks

$13,600

Total Budget = $96,400

Schedule Gantt Chart

The line for each task shows the number of weeks needed to complete each task as well as which tasks must be done first before the next task can start. Tasks A and B can be done at the same time at the start of the project (week 0); task D must wait until task B is complete before starting at week 2; task C must wait until week 6 when task A is complete; task E cannot start until task C is complete at week 7.

Image Description

We have calculated planned performance and compared it to actual performance using earned value. We have determined the cost and schedule variance for each task and for the project as a whole. Now we will look at calculating the EAC for the project.

ProblemActivity

Budgeted Cost (Total)

Actual Cost To Date

Actual Completion

A

$50,400

$35,000

40%

B

$ 8,800

$7,200

100%

C

$ 6,800

$0

0%

D

$16,800

$14,000

90%

E

$13,600

$0

0%

Total = $96,400

Total = $56,200

Calculate

the EAC for the project at the end of week 3. What is your assessment of the project at this time?

Solution1. Determine the scheduled completion for each task at the end of week 3 using the Gantt chart. Task A is only 50% complete, task B is 100% complete, task D is only 33% complete, and task E has not started.

Image Description

The heavy dashed vertical line on the Gantt chart indicates the end of week 3. Summary results for all tasks as we calculated last week are the following.

Activity

BCWP

BCWS

ACWP

Cost Variance

Schedule Variance

CPI

SPI

A

$20,160

$25,200

$35,000

($14,840)

($5,040)

0.58

0.80

B

$8,800

$8,800

$7,200

$1,600

$0

1.22

1.00

C

$0

$0

$0

$0

$0

---

---

D

$15,120

$5,544

$14,000

$1,120

$9,576

1.08

2.73

E

$0

$0

$0

$0

$0

---

---

Totals

$44,080

$39,544

$56,200

($12,120)

$4,536*

0.78

1.11

3. Calculating EAC

This process depends upon the option you use.Option 1: EAC = ACWP (if task is complete)+ Budgeted cost (if task is not started)+ Task Budget / CPI (if task is underway)

Task A (underway): EAC = $50,400/0.576 = $87,500 (rounded)Task B (complete): EAC = Actual cost = $7,200Task C (not started): EAC = Budgeted cost = $6,800Task D (underway): EAC = $16,800/1.08 = $15,560 (rounded)Task E (not started): EAC = Budgeted Cost = $13,600Project total EAC: $87,500 + $7,200 + $6,800 + $15,560 + $13,600 = $130,660

Option 2: Expect the project to continue to perform as it has to date.EAC = BAC/CPI = $96,400/0.78 = $123,590

Option 3: We will not evaluate this option here as we do not have the data to re-estimate the remainder of the project. In the real world, you would re-estimate the remaining tasks based on your specific project and tasks.

4. Analysis

Schedule: The positive schedule variance and SPI above 1.0 indicates the project is ahead of schedule; however, the critical path for this project is A - C - E, and CP tasks are significantly behind schedule (SPI for A = 0.80). Be careful when analyzing project totals for SPI, as the critical path is not taken directly into consideration. Budget: The project is currently significantly over budget (CPI = 0.78) by 27.5% where CV / EV = $ over budget = ($12,120 / $44,080) = 0.275. This is due to a severe over-budget situation in task A, which is 73.6% ($14,840 / $20,160 = 0.736) over cost. The EAC indicates the project’s actual cost will exceed the budgeted amount by $34,260, or the project will be 35.5% over budget at completion when calculating using Option 1. When the EAC is calculated using Option 2, the result is actually less than when using Option 1. This is because the size of task A and its poor performance compared to the other tasks is moderated when forecasted using the general project CPI.

Cost and Schedule ManagementBack to Top

Variances are used to establish thresholds, which are established for all levels of the organization. Thresholds are used to set guidelines for priority and corrective action. Variance thresholds may be dependent on such factors as

life-cycle phase; length of life-cycle phase; length of project; type of estimate; and accuracy of estimate.

Organizational Level Variance Threshold

Section greater than $2,500 that exceeds 10% of costs

Department greater than $7,500 that exceeds 10% of costs Division greater than $10,000 that exceeds 10% of costs

Using the indexes SPI and CPI, automatically include the size factor because it is a ratio that allows for a standard comparison from one project to the next. They provide more immediate feedback than the variances.

Cost and Schedule Performance Index Thresholds

(Less than 1 = poor performance, greater than 1 = good performance)

1.3 and up: investigate immediately 1.2: Investigate at your leisure 0.9 to 1.2: Generally okay 0.9 to 0.8: Investigate 0.8 to 0.6: Prompt review and action required Less than 0.6: This project is in dire straits. Intervention by management may be needed to determine which actions should be taken as to the future of this project.

Variances and indexes are plotted on control charts for trend analysis.

Integrated Cost/Schedule Control System (C/SCSC)

Reserves

The project estimated budget + the contingency reserves = the project baseline budget.

Contingency reserves as typically controlled by the project manager or project sponsor to help control cost overruns and risks on a project.

The project baseline budget + the managerial reserves = the total project budget.

Managerial reserves are not typically controlled by the project manager. They are controlled by someone in management to offset cost overruns associated with a number of projects.

Schedule/Cost Caveats

The work at hand expands to fill the time available. Expenditures rise to meet budgets.

The lesson is to be realistic when establishing schedules and costs, and to be wary if performance exceeds expectations there will be a tendency to decrease vigilance and efficiency.SummaryBack to Top

This week, we explored the forecasting side of EV. This method allows the project manager to see into the future to predict the new, final cost of the project and other important variables. In this way, decisions and tradeoffs can be made earlier in the project to permit the project manager to better manage the stakeholder’s expectations associated with the project. And in this way, the project manager can improve his or her chances for success on the project