The document discusses budget management and earned value management. It provides information on three methods of project cost estimating, developing a cost baseline, and controlling costs. It also describes key aspects of earned value management including planned value, actual costs, earned value, calculating variances, and using earned value to estimate project completion costs. The document includes an example of tracking a project's schedule and cost performance using earned value metrics.

1. Budget Management

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Budget Management
Budget Development
• Good scheduling skills and abilities
• Understanding of the project scope
• Well developed WBS and project
schedule

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Budget Management
Key reasons for overspending…
• Bad Luck
• Overly optimistic initial estimates
• Poor communication
• Poor cost/time estimating practices

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Budget Management
Three methods of estimating
1. Analogous Estimating
Uses values from previous, similar
projects as the basis for estimating the
same values for future activities or
projects. Also called “Top-down”
estimating.

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Budget Management
Three methods of estimating
2. Parametric Estimating
Uses statistical relationship between
historical data and other variables to
calculate an estimate for an activity or
project.

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Budget Management
Three methods of estimating
3. Bottom-up Estimating
Decomposition 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.

7. Cost Budgeting
• The planning process that involves
summarizing, or aggregating, the
estimated costs for individual
activities to establish a total cost
baseline for the project.
Budget Management
58

8. Cost Baseline
• Time based budget that is used as a
basis for measuring, monitoring, and
controlling the overall cost
performance of the project.
• Also represents “Planned Value”
Budget Management
58

9. Cost Baseline
Budget Management
58
Time
Cumulative
Costs
Time
Cumulative
Costs

10. Cost Control
• The process of influencing factors
that create variances, and controlling
changes to the project budget.
Budget Management
58

11. Project cost control includes:
• Ensuring changes are agreed upon
• Managing changes when they occur
• Assure potential cost overruns do
not exceed authorized funding
• Monitor cost performance and
understand variances
Budget Management
58

12. Project cost control includes:
• Recording all appropriate changes
against the cost baseline
• Preventing incorrect, inappropriate,
or unapproved changes
• Inform stakeholders of approved
changes
• Acting to bring overruns within limits
Budget Management
59

13. Cost Change Control System
• Defines the procedures by which the
cost baseline can be changed.
• WSDOT policy found in the Project
Control & Reporting Guide
• Also documented in the Project
Management Plan
Budget Management
59

14. 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 Management
59

15. What is needed for EVM?
• A baseline plan
• A project budget (BAC – Budget at
Completion)
• A project end date
• Tasks are identified & scheduled
• Each task has a budget or effort (resource
loaded / weighting)
• Actuals tracked
Earned Value Management
59

16. To perform EVM, three values need
to be determined
• Planned Value (PV or BCWS)
• Actual Costs (AC or ACWP)
• Earned Value (EV or BCWP)
Earned Value Management
59

17. Planned Value (PV)
What are the budgeted costs of
the work scheduled?
•Time phased based on baseline
budget
•Only changes when baseline is
changed
•Also referred as “BCWS” & “BAC”
Earned Value Management
60

18. Earned Value Management
60
Actual Costs (AC)
What are the actual costs of the
work performed?
•Based on the actual completion of
work packages
•Actual costs for reported work
•Also referred as “ACWP”

19. Earned Value Management
60
Earned Value (EV)
What are the budgeted costs of
the work performed?
•Based on the actual completion of
work packages
•Baseline value of the reported work
•Also referred as “BCWP”

20. Earned Value Management Example
Task – Drill & install 10 piezometers
• Budget - $100,000 ($10K per piezometer)
• Time – 10 weeks (1 piezometer per week)
At week 5:
• 4 piezometers drilled and installed
• $47,500 spent to date
PV = $50,000
AC = $47,500
EV = $40,000

21. Calculating Earned Value and
interpreting results
• to measure the progress of the project
• help identify trends
• forecast costs
• and identify ways to correct/mitigate
project pitfalls.
Earned Value Management
60

22. Cost Variance (CV)
CV = EV - AC
•Good 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 Management
60

23. Earned Value Management
60
Cost Performance Index
(CPI)
CPI = EV / AC
•Good News: If CPI value is >1 or =1, the project
cost trend is currently under or at planned budget
•Bad News: If CPI value <1, the project cost trend
is currently over budget

24. Earned Value Management
60
Cost Variance % (CV%)
CV% = CV / EV
•Good 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%

25. Earned Value Management
61
Schedule Variance (SV)
SV = EV - PV
•Good News*: If SV value is positive, the project is
currently ahead of schedule
•Bad News: If SV value is negative, the project is
currently behind schedule
* - not all positive SVs are good

26. Earned Value Management
61
Schedule Performance
Index (SPI)
SPI = EV / PV
•Good News: If SPI value is >1 or =1, the project
schedule trend is currently ahead or on planned
schedule
•Bad News: If SPI value <1, the project schedule
trend is currently behind schedule

27. Earned Value Management
61
Schedule Variance % (SV%)
SV% = SV / PV
•Good News: If SV value is positive, the project is
currently ahead of schedule
•Bad News: If SV value is negative, the project is
currently behind schedule

28. Earned Value Management
61
Estimate at Completion
(EAC)
#1
Actual costs to date plus a new estimate for all
remaining work (original plan no longer valid)
EAC = AC + ETC
(ETC  Estimate to Complete)

29. Earned Value Management
61
Actual costs to date plus remaining budget
(current variances are viewed as atypical of future
variances)
EAC = AC + BAC - EV
Estimate at Completion
(EAC)
#2

30. Earned Value Management
62
Estimate at Completion
(EAC)
#3 & #4
Actual 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

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

32. Earned Value Scenario
62

33. Earned Value Scenario
63

34. Earned Value Scenario
64

35. Earned Value Scenario
65

36. Earned Value Scenario
65
BAC = $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?

37. Earned Value Scenario
66
Cost 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

38. Earned Value Scenario
66
Schedule 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

39. Earned Value Scenario
67
Estimate 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)

40. Earned Value Scenario
67
Estimate to Complete (ETC):
Method #3
EAC = 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 #4
EAC = BAC / CPI
= $100,000 / 0.875
= $114,285
(Change Management for $14,285 funds
request)

41. Earned Value Scenario
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42. Budget Management
69
Module 6 Exercise
• Work 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.

43. Budget Management
Graphing Earned Value exercise
• Gantt chart baseline (report)
• EVM graph
• Task information
• Cost distribution
• EVM worksheets

44. Budget Management
Graphing Earned Value exercise
• Planned Value (PV) is always shown
in blue with circle nodes
• Actual Cost (AC) is always shown in
red with square nodes
• Earned Value (EV) is always shown in
green with triangle nodes

45. Budget Management
Graphing Earned Value exercise
• Work together as a team to calculate the
task cost (task budget) for each task
• Record these values on the worksheet
with the total (BAC) calculated
• Warning: Wait to plot on the EVM graph as
a class – we will use the Cost Distribution
Report

46. 1w 2w 3w 4w 5w 6w 7w 8w 9w 10w
$10K
$20K
$30K
$40K
$50K
$60K

47. Budget Management
Graphing Earned Value – week 1
• Task A started on time – 30% complete
• Task B started 2 days late – 30% complete
• Task C started 1 day late – 25% complete
• Tasks D, E, F, G, H, and J have not started
• Project Management is on-going
• Actual Costs reported for week 1 = $5000

48. 1w 2w 3w 4w 5w 6w 7w 8w 9w 10w
$10K
$20K
$30K
$40K
$50K
$60K

49. 1w 2w 3w 4w 5w 6w 7w 8w 9w 10w
$10K
$20K
$30K
$40K
$50K
$60K
Schedule
Variance
Cost
Variance