Project metrics: earned value management with a 6-function calculator, part 2

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Last time, we focused on how to get the basic project metrics without so much as a basic calculator. On the second part of this post, we’ll focus on estimates.

Estimates seem even trickier than variances and indexes. Because a lot of the original estimating process is fuzzy, it’s easy to assume figures like Estimate to Complete and Estimate at Completion would be hard to understand and hard to believe that – Gasp! – they can be computed with a pen and paper.

Just like last time, we’ll work with a  6-month fictional project with a 50 000$ budget. In order to compute Estimate to Complete and Estimate at Completion, we need the following figures:

  • Budget at Completion is your project’s total budget. This is (usually) decided when the project is approved
    • With our project example, the Budget at Completion is 50 000$.
  • Earned Value is how much you’ve really accomplished in the project.
    • Working with our 6-month project. Let’s pretend that you’re
      only 40% done with the project. That portion of your project budget is
      the Earned Value.
  • Actual Cost is how much you’ve spent on your project.
    • Still with the 6-month project, let’s say you’ve spent 60% of your
      budget already. That portion of your project budget is your Actual Cost.

Now, let’s recap our figures.

  • 50 000$ is your Budget at Completion.
  • 40% of 50 000$ is 20 000$. This is your Earned Value.
  • 60% of 50 000$ is 30 000$. This is your Actual Cost.

Estimate to Complete: what’s left to do in your project?

The Estimate to Complete is the remaining work to be done on the project. In order to know how much is left to do, we’ll need to know what’s been accomplished – this is the Earned Value.

  • Budget at Completion – Earned Value = Estimate to Complete
  • Contrary to the previous project metrics, this is just a number. It tells us how much is left to do on the project.
  • For our example: 50K – 20K = 30K.

There is another method to compute Estimate to Complete. You can account for higher costs using a typical variance. An example of a typical variance would be if the speed of work was overestimated, and it takes longer to do the work than expected. When you are in a situation like this, you can apply that variation to the rest of the project, and thus have a better Estimate to Complete to work with.

  • Estimate to complete / Cost Performance Index = Estimate to Complete with typical variance
  • Since we already computed the Cost Performance Index in the last post, we’ll use it here.
  • For our example:  30K / 0.666 = 45.05K

That makes a BIG difference in how much it’s going to cost to finish to project, don’t you think?

Estimate at Completion: how much is it going to cost?

Essentially, the Estimate to Complete figure is just a number. We don’t know if it’s good or bad, until we can figure how much the whole project is going to cost. This is the Estimate at Completion.

This is also a very easy number to compute. You simply add what you’ve spent already (Actual Cost) and what you think it will cost to finish the project (Estimate to Complete).

  • Actual Cost + Estimate to Complete = Estimate at Completion
  • For our example (let’s use the typical variance): 30K + 45.-5K = 75.05K

Variance at Completion: how off target are you?

The last thing we want to know now, is are we over budget, and if so, by how much? This is another simple computation that gives us the Variance at Completion, the difference between the original budget and the forecast cost.

  • Budget at Completion – Estimate at Completion = Variance at completion
  • Just like the Schedule Variance and the Cost Variance we worked with last time, if you’re under budget, you’ll have a positive number. If you’re over budget, you’ll see a negative number.
  • For our example: 50K – 75.05K = -25.05K

The -25.05K tells us we are 25 000$ over budget. For a 50 000$ project, we could say your project is in trouble.

Was that so hard? I don’t think so.

For all of you who are worried about passing the PMP exam because of the math skills required, you’ve just read 80% of the math you are expected to use in the PMP exam. As long as you understand these formulas, you have nothing to worry about.

Here is a spreadsheet with all those nifty formulas.

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