Schedule and Cost Performance Index in Earned Value Management

Introduction

In project management, EVM is a very important debatable topic. It is a process that is used to enumerate the progress of the project according to schedule and cost. It is used to compare the rate of planned progress with the actual rate of progress obtained and the amount of money consumed. Earned value management has changed the traditional point of vision to track the difference between the rate of planned and actual progress. EVM talks about the comparison between planned, earned, and actual progress.

Earned Value Management in P6

It is very difficult and challenging to schedule a yearly budget that measures the work plan with the cost amount needed to complete the project. It is more difficult to complete the project according to the estimated cost and time. Primavera p6 EVM is management software that gives a solution to collect the estimated cost, and time required to complete the project.

It is a fact that earned value management is very important for the success of a project but there is a need to apply primavera p6 earned value management to boost up the confidence and level of performance. It is a proven solution that provides all kinds of information about net cost, time duration, and rate of additional burdens, and also indicates an alarming situation without causing much trouble. It also tracks the conflicts between the execution process of the project and the budgeted amount.

Schedule Performance Index

SPI is a measuring index used to figure out the project’s completion time and compare this time with the schedule. SPI can find out by calculating the results after dividing the planned progress and the project’s earned progress. The formula used to calculate SPI is SPI = EV / PV. It is a vital component of earned value management.

If we take an example to understand SPI,

The cost budget of a project is $200,000.

According to the planned schedule, within one month, the project’s rate of completion should be 20%. A 20% completion rate of the project is a planned value. The project must be 20% completed after one month. The budget that will be used for 20% of the project is $200,000 x 20 / 100 = $40,000.

But the actual completion rate of the project was 15% after one month. The budget used for 15% progress of the project is $200,000 x 15 / 100 = $30,000.

Schedule Performance Index (SPI) = Earned value / planned value = 30,000 / 40,000 = 0.75

According to this calculation, the team working on the project is completing only 0.75 hours. It shows that the project is not running according to the calculation of the schedule.

Use of the formula of SPI

The formula of SPI shows 3 results according to the performance rate of the project. If the actual calculated value of the project’s performance is greater than 1, it indicates that the projection is running better than the schedule. If the actual value is 1, it indicates that the project is running exactly according to schedule. But if the value is lower than one, it shows that the performance rate is not going well. This is the basic rule to indicate the performance rate. This rule will assist you to check the progress of the project. It is also very important to know that if the duration of the project crosses the planned date, then the project will also need extra costs to complete the work. Another way to lower the cost is to reduce the scope of the project. The project will also be finished in time but it will affect the net progress.

During the calculation of the schedule performance index, all tasks of the project must be included. If someone considers only the complex path and leaves other tasks then the results will be inaccurate.

Advantages of SPI

• It helps to analyze the work efficiency of the project.
• It helps to measure the performance rate of the running project.
• It helps by showing alarming signs if the project is going too slowly.
• It measures the completed work of the project and also indicates the current condition of the project.
• It also calculates the duration of the project and reveals early if the project can beat, meet, or miss the planned date. It provides all information about the time duration of the project.
• It also helps to estimate the total amount of cost.

Cost Performance Index (CPI)

Before starting a project, it is necessary to make a budget plan for efficient and better results. The budget plan covers all the costs that are going to consume during the project. Before starting a project, the project manager and contractor must make a plan according to the budget. Many indicators are now developed to check the progress of the project. It also indicates threats or negative impressions if found during the execution of the project. The cost performance index is one of those indicators that helps to measure the project’s financial and cost-efficiency. It is used as a cost indicator. It is a major part of a technique that is used for the analysis of variance. CPI is used for the comparison between the actual cost used for a project and the value earned by a project. The parameters that are needed for the calculation of CPI are actual cost and earned value.

The basic formula that is used to find out the cost performance index is;

CPI = EV / AC

Earned Value (EV)

Earned value is also familiar with another name “budgeted cost of work performed (BCWP). It is the value that is found after the completion of the project. It can be measured by the budget of the project. EV = actual percentage of completed project x actual task of the budget.

If the completed ratio of a project is 80% and the budget of the project is $5500 then the earned value will be 80% x $5500 = 440,000

Actual Cost (AC)

It is the amount of cost that is estimated by the project planner to use in a project. It is necessary for better results to have a base of a single cost for actual and budget costs. The simplest formula that is used to calculate the actual cost is, AC = indirect cost + direct cost

A person must have the following rules in mind to find out the metrics of the cost performance index.

If the value of the cost performance index is upper than 1, it indicates that the project is working under the limits of budget and this condition of the project is best. If the CPI value is equal to 1, it means that the project is running according to the budget which is good for the progress rate. The task is not working according to the budget if the CP index is lower than 1. This condition is threatened and it will need extra cost to complete the project.

Advantages of the Cost Performance Index (CPI)

• CPI is a fundamental and important component of earned value management.
• Managers and planners of many projects effectively take this tool for the progressive completion of a project within the budget.
• CPI helps to tell the efficiency of cost for completed work.
• During the execution of the project, this technique tells about the project cost.
• It helps to find if the project is going over the budgeted cost and give signals of warning.
• It is flexible and its metrics help to solve the financial problems if found during the process.

Contact Leopard Project Controls for CPM Scheduling Services.