Cost Variance

„ Is project spending more or less money than anticipated

for the work that I did?
„ Cost Variance (CV = BCWP - ACWP)
„ + (Underrun); - (Overrun); 0 (On Budget)

„ Cost Index (CI = BCWP/ACWP)

„ > 1 (Underrun); < 1 (Overrun); 1 (On Budget)
 Time Variance
„ Is project spending more or less time than anticipated for the
work that I did?
„ Measured in units of time
„ May be very close even if big difference in the resource
spending
„ Time Variance (TV = STWP - ATWP)
„ + (Ahead); - (Delay); 0 (On Schedule)

„ Time Index (TI = STWP / ATWP)

„ > 1 (Ahead); < 1 (Delay); 1 (On Schedule) i
Earned Value Chart
Example: Gantt Chart Schedule

A
B
ACTIVITY C
D
E
F
G

0 5 10 15 20 25
WEEKS

Non Critical Path Activity

Critical Path Activity

Example: Traditional Reporting
Example: Earned Value Reporting
Example: Activity Analysis
Example: Variances
ACTIVITY BCWP - ACWP = CV

A $ 1,500 - $ 1,500 = $ 0

B $ 3,000 - $ 3,000 = $ 0

E $ 1,628 - $ 2,900 = -$ 1,272

CUMULATIVE VARIANCE = -$ 1,272

ACTIVITY BCWP - BCWS = SV

A $ 1,500 - $ 1,200 = $ 300

B $ 3,000 - $ 3,000 = $ 0

E $ 1,628 - $ 3,256 = -$ 1,628

CUMULATIVE VARIANCE = -$ 1,328

 Example: Schedule and Cost Index

Schedule Index for the Project Cost Index for the Project

1.00 1.00
0.88
0.90 0.85 0.90
0.82
0.79
0.80
0.80 0.83
0.82 0.79
0.70 0.78
0.70
Schedule index, SI

0.60

Cost Index, CI
0.60
0.50
0.50
0.40
0.40
0.30
0.30
0.20
0.20
0.10
0.10
0.00
1 2 3 4 0.00
1 2 3 4
Week Week
Example: Integrating CI and SI
Forecasting Completion Dates

Forecasted completion date

= Current date + (Work remaining / Expected work rate)

Expected work rate

= Expected productivity* Workers

Expected productivity
= [Work accomplished / Workers] / Time spent
 Forecasting Total Costs

Forecasted total cost

= Cost spent + (Work remaining * Expected unit
cost)

Expected unit cost

= Costs spent / Work accomplished
 Beware of Delays
„ Financial, time indicators are necessary but not
sufficient to alert to problems
„ In most cases of serious problems and “normal”
reporting, the problem may be very serious by
the time that it is noticed in the formal reports
„ Rapid qualitative judgment is often much more
effective than delayed quantitative reporting
Project Control: Managing Risks
„ Monitoring alerts us to when there’s a problem
„ Key elements of control
„ Problem diagnosis (discussed later)
„ Either
„ Plan correction (often political process)
„ Problem correction (often technical & managerial)

„ All of the above must be undertaken rapidly to

effectively control a project
„ Need to see if they correct the problem and react
accordingly
„ Control without rapid monitoring highly handicapped
 Value of Flexibility
„ Flexibility is primary defense against risk
„ Planning too tightly may highly complicate
control
„ Already Discussed: Flexibility value to the owner
„ (Expandability via clearspanning, larger # conduits,
„ Flexibility in construction is key during control
„ Want enough “give” to change plans if necessary
„ Usual tradeoff: Overoptimizing for cost can limit
flexibility
„ E.g. Equipment, materials, personnel

„ Be careful on value engineering that limits flexibility!

The Project Control Process
Initial Targets Project
Targets
Performance
Targets
Forecasted
Performance
Forecasting Performance Target Changes
Test
Performance
Deficits and
Surpluses
Error Signal Target-Driven
Measured Descriptors Control Loop
Performance
Error Signals

Control
Actions
Performance-Driven
Control Loop Project Changes

Project

Performance
Performance-Driven Control
Project
Targets
Performance
Targets
Forecasted
Performance
Forecasting Performance
Test
Performance
Deficits and
Surpluses
Error Signal
Measured Descriptors
Performance
Error Signals

Control
Actions
Performance-Driven
Control Loop Project Changes

Project

Performance
Performance Driven Control
Planned Versus Actual Expenditures on a Project

100%
Planned Expenditure

80% Revised Estimate of

Future Expenditure
PROJECT TIME (%)

60%
Actual Expenditure

40%

20%

0%
0% 20% 40% 60% 80% 100%

BUDGETED EXPENDITURE (%)

Performance-Driven Control Methods

„ Awkward fact: Can typically only correct for one

attribute of a problem at a time
„ Time
„ Cost

„ Quality

„ Need to understand tradeoffs and triage

„ Most “easy wins” will already be in place
„ Exception: Sometimes new information is available
that can enable improved performance now
 Activity Time-Cost Tradeoffs
„ Frequently we have a tradeoff b.t. $ and time
„ “Time is money”
„ Can finish more rapidly if have
„ More highly skilled labor

„ More expensive equipment

„ More workmen
„ More highly paid (motivated!) labor
Project Time-Cost Tradeoff
Project Time-Cost Trade-off Curve

25

20

project
15
penalty
($)
Overhead
10
Total

0
1 2 3 4 5 6 7 8 9 10

Total cost is non-monotonic: Sometimes using less time globally

NOTE: If activity time-cost curves are linear, then finding the optimal z
 Resource Leveling
„ Insight: a more steady usage of resources
leads to lower resource costs.
• Labor: costs associated with hire, fire, and
training
• Material: storage requirement, planning
and controlling efforts
„ Resource Leveling : the reallocation of slack
(TF or FF) in non-critical activities to
minimize fluctuations in the resource
requirement profile.