PM FPX 5333 Assessment 2 Earned Value Analysis Report

Student Name

Capella University

PM-FPX5333 Project Budgeting, Procurement, and Quality

Prof. Name:

Date

Introduction

NearlyFree.com is currently managing a project that has surpassed its initial budget of $25,000. The project is 43% complete, and the firm has acknowledged its shortcomings and sought our project management services. A detailed examination of the project’s financial statements reveals that the earned value is under-budgeted. The project’s objective is to develop and implement an automated web-based training system for new employees, aimed at reducing workload and minimizing the personnel resources needed for New Employee Orientation (NEO) training.

The project scope includes a 92-day timeline with an approved budget of $22,300. This report provides a review of the earned value technique, assesses the project’s success, and performs earned value calculations to facilitate an effective turnaround.

Earned Value Technique

Earned Value (EV) is a method used to monitor a project’s plan, actual work, and the value of work completed to determine if the project is on track. It indicates how much of the budget and time should have been utilized based on the amount of work completed. Project control is conducted against the cost baseline using the Earned Value technique, which involves calculating and reporting several variables based on actual progress.

Inputs:

Earned Value (EV) represents the actual progress of the task up to the date of analysis.
Planned Value (PV) is the planned expenditure of funds up to the date of analysis, derived from the project schedule.
Actual Cost (AC) is the actual expenditure of funds up to the date of analysis.

Calculations:

Cost Variance (CV) measures the amount the project is above or below budget at the point of analysis.
Cost Performance Index (CPI) indicates the project’s performance relative to the overall budget.
Schedule Variance (SV) measures how much the project is ahead or behind schedule.
Schedule Performance Index (SPI) assesses how close the project is to the schedule relative to the overall project size.

Earned Value (EV) / Budget Cost of Work Performed (BCWP)

Earned Value reflects the percentage of the total effort or resources expended, which can be measured in completed units or hours of labor. It is also known as the Budget Cost of Work Performed (BCWP). The current BCWP for NearlyFree.com’s project is $12,373.95.

Planned Value (PV) / Budget Cost of Work Schedule (BCWS)

Planned Value represents the approved value of work scheduled to be completed by a specific time. It is calculated before the work begins and serves as a baseline. This value outlines the expected extent of activities and costs. It is also referred to as the Budget Cost of Work Schedule (BCWS). The current BCWS for the project is $20,453.95.

Actual Cost (AC) / Actual Cost of Work Performed (ACWP)

Actual Cost refers to the recorded cost for work completed during a specified time. This cost reflects the actual expenditure versus the budget estimates and is also known as Actual Cost of Work Performed (ACWP). The current ACWP for the project is $16,373.95.

Schedule Variance (SV)

Schedule Variance indicates whether a project schedule is ahead or behind. The formula for calculating schedule variance is:

Schedule Variance = Earned Value (EV) – Planned Value (PV)
Schedule Variance = $12,373.95 – $20,453.95
Schedule Variance = -$8,080.00

A schedule variance of -$8,080 signifies that the project is behind schedule.

Cost Variance (CV)

Cost Variance compares the initial budget with actual expenditures. It helps track financial progress as the project moves forward. The formula for cost variance is:

Cost Variance = Earned Value (EV) – Actual Cost (AC)
Cost Variance = $12,373.95 – $16,373.95
Cost Variance = -$4,000.00

A cost variance of -$4,000 indicates that the project is under budget, with the ideal variance being zero or positive.

Schedule Performance Index (SPI)

The Schedule Performance Index measures how close the project is to its scheduled completion. The formula for calculating SPI is:

Schedule Performance Index = Earned Value (EV) / Planned Value (PV)
Schedule Performance Index = $12,373.95 / $20,453.95
Schedule Performance Index = 0.60

An SPI of 0.60 means the project is behind schedule, as an SPI less than 1 indicates a delay.

Cost Performance Index (CPI)

The Cost Performance Index measures the financial effectiveness and efficiency of a project. It represents the amount of completed work per unit of cost spent. The formula for CPI is:

Cost Performance Index = Earned Value (EV) / Actual Cost (AC)
Cost Performance Index = $12,373.95 / $16,373.95
Cost Performance Index = 0.76

A CPI of 0.76 indicates that the project is over budget. A CPI below 1 suggests that the project may face financial difficulties before completion.

Budget at Completion (BAC)

The Budget at Completion (BAC) represents the total budget established for the project. It reflects the original budget. The initial BAC for NearlyFree.com’s project is $22,300.

Estimate at Completion (EAC)

The Estimate at Completion (EAC) forecasts the final cost of the project based on its past performance. The formula for EAC is:

Estimate at Completion = Actual Cost (AC) + ((Budget at Completion (BAC) – Earned Value (EV)) / Cost Performance Index (CPI))
Estimate at Completion = $16,373.95 + (($22,300 – $12,373.95) / 0.76)
Estimate at Completion = $16,373.95 + $13,060.59
Estimate at Completion = $29,434.54

Budget Turnaround

Earned Value Analysis (EVA) is a standard method for assessing a project’s progress, forecasting its completion date and final cost, and analyzing variances in schedule and budget. It compares the planned work with actual performance to determine if the cost, schedule, and work completed align with the plan. EVA relies on the project’s earned value as work progresses.

The original EVA for NearlyFree.com’s NEO project indicates that it is more than 50% behind schedule, leading to budget overruns. A better-planned EVA would have provided a more accurate budget and completion schedule. The current EAC formula provides a revised cost estimate for the project.

Given the calculations, it is recommended that NearlyFree.com extend the project timeline. This extension will allow for more time to complete the project, leading to a higher earned value and reducing the percentage of incomplete work.

With the timeline extension, the project budget has increased from the original $22,300 to an estimated completion cost of $29,434.54, an increase of over $7,000. This budget and timeline adjustment is crucial for project success. Overruns can impact stakeholder trust, potentially affecting stock market performance and the firm’s ability to secure future funding. A more detailed project schedule could have potentially avoided these cost overruns.

References

Peng, B. (2018, April 10). The earned value method. Retrieved from https://www.projectengineer.net/the-earned-value-method/

Usmani, F. (2020, August 18). Planned value (PV), earned value (EV) & actual cost (AC) in project cost management. Retrieved from https://pmstudycircle.com/2012/05/planned-value-pv-earned-valueev-actual-cost-ac-analysis-in-project-cost-management-2/#:~:text=Planned%20Value%20is%20the%20approved,an%20activity%20or%20WBS%20component.%E2%80%9D

Haughey, D. (2020, July 26). What is earned value? Retrieved from https://www.projectsmart.co.uk/what-is-earned-value.php