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 undertaking a project that has surpassed its initial budget of $25,000. The project, currently at 43% completion, has acknowledged its shortcomings and sought our assistance for project management services. A comprehensive analysis of the project’s financial statement reveals a discrepancy related to earned value being under-budgeted. The objective of NearlyFree.com’s project is to develop and launch an automated web-based training system for new employees, aiming to reduce workload and minimize personnel resources required for new employee orientation (NEO) training.

The project’s current scope outlines a 92-day timeline and an approved budget of $22,300. This analysis report encompasses a review of the earned value technique, project success evaluation, and earned value calculations to facilitate an effective turnaround of the project.

Earned Value Technique

Earned Value is an approach that involves monitoring the project plan, actual work, and completed value to assess if the project is on track. It illustrates how much of the budget and time should have been spent, considering the work completed so far. Project control is conducted against the cost baseline using the Earned Value technique. This involves determining variables from actual progress on project tasks and calculating additional variables to report progress.

Inputs:

• Earned Value (EV): Actual progress of the task up to the date of analysis.
• Planned Value (PV): Planned expenditure of funds up to the date of analysis, extracted from the project schedule.
• Actual Cost (AC): Actual expenditure of funds up to the date of analysis.

Calculations:

1. Cost Variance: Project’s deviation from the budget at the analysis point. [ \text{Cost Variance} = \text{Earned Value (EV)} – \text{Actual Cost (AC)} ]
2. Cost Performance Index: Project’s deviation from the budget relative to the overall size. [ \text{Cost Performance Index} = \frac{\text{Earned Value (EV)}}{\text{Actual Cost (AC)}} ]
3. Schedule Variance: Project’s deviation from the schedule at the analysis point. [ \text{Schedule Variance} = \text{Earned Value (EV)} – \text{Planned Value (PV)} ]
4. Schedule Performance Index: Project’s deviation from the schedule relative to the overall size. [ \text{Schedule Performance Index} = \frac{\text{Earned Value (EV)}}{\text{Planned Value (PV)}} ]

Key Metrics:

• Budget Cost of Work Performed (BCWP): NearlyFree.com’s current project BCWP is $12,373.95.
• Budget Cost of Work Schedule (BCWS): NearlyFree.com’s current project BCWS is $20,453.95.
• Actual Cost of Work Performed (ACWP): NearlyFree.com’s current project ACWP is $16,373.95.

Schedule Variance (SV)

Schedule variance is an indicator of whether a project schedule is ahead or behind at the analysis point. The formula for calculating the schedule variance is: [ \text{Schedule Variance} = \text{Earned Value (EV)} – \text{Planned Value (PV)} ] [ \text{Schedule Variance} = $12,373.95 – $20,453.95 ] [ \text{Schedule Variance} = -$8,080.00 ] With a schedule variance of -$8,080, it indicates that the project is behind schedule.

Cost Variance (CV)

Cost variance compares the budget set before the project started with what was actually spent. The formula for cost variance is: [ \text{Cost Variance} = \text{Earned Value (EV)} – \text{Actual Cost (AC)} ] [ \text{Cost Variance} = $12,373.95 – $16,373.95 ] Cost variance for this project = -$4,000.00 With a cost variance of -$4,000, the project is currently under budget; the ideal variance should be greater than or equal to zero.

Schedule Performance Index (SPI)

The schedule performance index is a measure of how close the project is to being completed compared to the schedule. The formula for calculating the schedule performance index is: [ \text{Schedule Performance Index} = \frac{\text{Earned Value (EV)}}{\text{Planned Value (PV)}} ] [ \text{Schedule Performance Index} = \frac{$12,373.95}{$20,453.95} ] [ \text{Schedule Performance Index} = 0.60 ] With the schedule performance index of 0.60, it means the project is running behind schedule. If the schedule performance index is less than 1, the project is behind schedule.

Cost Performance Index (CPI)

The cost performance index (CPI) is a measure of the financial effectiveness and efficiency of a project. It represents the amount of completed work for every unit of cost spent. The formula for the cost performance index is: [ \text{Cost Performance Index} = \frac{\text{Earned Value (EV)}}{\text{Actual Cost (AC)}} ] [ \text{Cost Performance Index} = \frac{$12,373.95}{$16,373.95} ] [ \text{Cost Performance Index} = 0.76 ] With a cost performance index of 0.76, the project is over budget. A CPI of less than 1 means the project is at risk of running out of money before completion.

Budget at Completion (BAC)

The Budget at Completion (BAC) refers to the sum of all budget values established for the work to be performed on a project. NearlyFree.com’s initial project budget is $22,300. [ \text{Budget at Completion} = $22,300 ]

Estimate at Completion

The Estimate at Completion (EAC) is the estimate of the final project cost given the past performance of the project. The formula for calculating the estimate at completion is: [ \text{Estimate at Completion} = \text{Actual Cost (AC)} + \left(\frac{\text{Budget at Completion (BAC) – Earned Value (EV)}}{\text{Cost Performance Index (CPI)}}\right) ] [ \text{Estimate at Completion} = $16,373.95 + \left(\frac{$22,300 – $12,373.95}{0.76}\right) ] [ \text{Estimate at Completion} = $16,373.95 + $13,060.59 ] [ \text{Estimate at Completion} = $29,434.54 ]

Budget Turnaround

Earned Value Analysis (EVA) is an industry standard method for measuring a project’s progress, forecasting its completion date and final cost, and analyzing variances in the schedule and budget. NearlyFree.com’s original EVA for the NEO project falls more than 50% short of the project completion schedule, leading to a budget overrun. A better planned EVA would have provided a more realistic budget and schedule. The recommended action for NearlyFree.com’s New Employee Orientation project is to extend its timeline, allowing for a higher earned value and reducing the percentage of work already completed.

Since the project is extending its timeline, the projectbudget has increased from the original projection of $22,300 to an estimate at completion of $29,434.54. This increase in both budget and timeline is critical for the project’s success, as a project running over budget or timeline can impact stakeholder trust, stock market shares, and the firm’s bottom line. A more detailed project work schedule could have potentially provided a more realistic timeline, minimizing the likelihood of cost overruns.

References

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

Usmani, F. (Aug 18th, 2020). 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. (Jul 26th, 2020). What is earned value. Retrieved from https://www.projectsmart.co.uk/what-is-earned-value.php

Cullen, S. (Aug 2nd, 2016). Earned value analysis. Retrieved from https://www.wbdg.org/resources/earned-value-analysis#:~:text=Earned%20Value%20Analysis%20(EVA)%20is,budget%20as%20the%20project%20proceeds.%20is,budget%20as%20the%20project%20proceeds.)

PM FPX 5333 Assessment 2 Earned Value Analysis Report