When project execution begins, data collection is constantly taking place from work in progress. These data (Project Cost Accounting) collected from the relevant project controls systems are compared with the budget for performance measurement and assessment, and determination made if there are deviations from the original plans and budget. If there are no variations the project controls process continues with more performance measurements. If there are variations, corrections are made through the change control and approval process. Forecasts are then made with respect to estimates to and at completion.
Performance measurement baseline
During the project planning stages and processes, three project baselines are established, namely, the cost baseline, scope (technical) baseline and the schedule baseline. The scope and the technical baselines relate closely to the Work Breakdown Structure and describes the characteristics, mission, objectives and functional requirements of the project. The tasks, activities and work packages needed to realise the project scope via the WBS are linked to the Schedule Baseline reflecting all constraints. The Cost Baseline is derived from the summation of various cost estimates of all work packages along with other resources like labour, services, sub-contracts and materials. The integration of these baselines called the Performance Measurement Baseline with corresponding controls accounts makes up the time-phased budget for the project. The budget forms the basis with which the project’s goals can be achieved and its progress measured and monitored.
Progress and performance measurement
The progress and performance measurement and the project cost accounting (commitments and expenditures) form the basis for the project progress and performance assessment. During the course of project execution, workmen for different tasks have to report periodically the progress of work done and how far they have gone using reporting methods such as incremental milestones, supervisor opinion, units completed and cost ratio methods. These reports of work done must be captured in the various systems and must be consistent with the cost and control accounts. Control accounts are coded at different levels of the Work Breakdown Structure (WBS) for tasks and activities to produce project deliverables and milestones. This will indicate how far down the line the schedule has gone, the commitment and expenditure of funds and the use of resources. Having the ability to measure progress on work done, the next challenge is to develop a method to determine the overall percentage of all combined individual work packages of the entire project. The methodology used for this is called Earned Value Management and Analysis. The percentage progress of any part of the WBS at any point in time is the sum of the value of each control account in that WBS component that has been earned up to that point divided by the total value of the component of the WBS.
Earned Value = Percentage Completed x Budget for the Account
Progress and performance assessment
This process is used for comparing the actual project performance with the planned performance and identifying the variances from the project Performance Measurement Baseline (PMB). Risk factors as well as project opportunities are assessed at this stage. Identified risks, opportunities and variances are then analysed and the potential problems and effects on the project are addressed by the change management process. As mentioned earlier the methodology used in providing the project management team with a clear insight into the progress of the project is the Earned Value Management. Three different sets of metrics derived from the performance measurement baseline are used in the calculation of the earned value.
(a) The Budgeted Cost of Work Scheduled (BCWS) otherwise known as the Planned Value (PV) represents the estimated value of the work planned to be done.
(b) The Actual Cost of Work Performed (ACWP) also called the Actual Cost (AC) is the actual cost incurred for the work done. This set of data is collected during execution of a project.
(c) The Budgeted Cost of Work Performed (BCWP) known as Earned Value (EV) is the estimated cost of the work actually accomplished. These set of data are also collected during project execution.
These three basic values for measuring project performance together offer insight into the worth of the project to date.
The Cost Variance (CV) and the Schedule Variance (SV) are calculated as follows:
The Cost Variance (CV) is the difference between the Earned Value and the Actual Cost: CV = EV – AC
The Schedule Variance is the difference between the Earned Value and the Planned Value: SV = EV – PV
The Cost Performance Index (CPI) shows the cost efficiency of the project with respect to every dollar spent. It shows how the project costs are aligning to the budget. A CPI value of one (1) means the project is run according to what is in the budget. CPI values below one show there are cost overruns at that point in time in the life of the project while the CPI values over one show that the project is running efficiently and is under budget and better than expected than what is in the budget plan. The CPI is calculated as follows: CPI = EV/AC
The Schedule Performance Index (SPI) allows us to know how well we are doing with the project schedule. SPI values very close to one show that the project is close to being on schedule. SPI values above one show the project is ahead of schedule. The SPI is calculated as follows: SPI = EV/PV
A very important performance index – Estimate At Completion (EAC) is a hypothesis of what the total cost of the project will be at the end. The Scope Baseline comprising of the scope statement, the WBS and the WBS dictionary along with the Cost Baseline are used as the basis to know what the variances are from the initial estimates of project deliverables and what the actual costs are. The Estimate At Completion (EAC) is usually referred to as the “forecast” of what the project cost will be at completion at various times during the execution of the project. There are various ways to calculate Estimate At Completion (EAC) but the most universally accepted are:
(i) EAC = BAC/CPI
(ii) EAC = AC + (BAC – EV)…BAC less the EV is the ETC
Forecasting
Forecasting is the proactive evaluation of the results and variations obtained from the progress and performance assessment process. This (forecast) process compares the assessment figures with the original baseline figures in the project control plan with respect to the budget, schedule, resources and risks. It provides the mechanism with which all trends and deviations are brought together for efficient analysis. Adverse and negative trends are addressed through the change management process and corrective actions taken. Positive trends and opportunities are improved upon. Reports at approved intervals are prepared for senior management and sponsors for up to date insight of the project.
Conclusion
One of the basic objectives in the execution of a project is to finish and deliver on budget and on time. An efficient and effective project controls system goes a long way in realising this goal. Projects without a good monitoring and control system is surely going to have serious budget over-runs and schedule slippages. If you want an insight into how well your project is faring at any time during its lifecycle, adequate and proper project controls is the answer.
Ayodele Akingbade
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