Project 4 - Achiever Papers

“Using Earned Value Management for Project Managers” Course Project

Part One: Create an Action Plan for Effective Meetings

As you have seen in this module, it’s critical for project managers to plan, schedule, and run effective meetings, yet it’s not uncommon for team members and contributors to resist attending. You will now create an action plan to guide your efforts on the job so that you can plan to get the best value out of meetings and make sure they serve your projects well.

Answer the following questions, using as much space as you need.

Complete the grid below.
Implementing Project Control	Describe how you think you can use project meetings as one of your key implements of project control.
Key Business Problem(s)	Identify one problem regarding your project meetings that you hope to resolve. What is one goal that you need to achieve more effectively through meetings?
Strategies	Identify which strategy or strategies from this module you plan to use to improve your results.
Steps	What are the specific actions you will take to bring about better results in planning and executing meetings? Be as specific as you can in outlining how you will proceed.
Timeline	Identify a timeline for implementation. What will you do (or will you have your project team do) in the next month? Over the next quarter?
Measurement/Results	How are you going to measure your results or demonstrate that your efforts have had a positive impact? Outline your measurement strategies here.

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CEPM

04: Using Earned Value Management for Project Managers

College of Engineering, Cornell University

Part Two: Calculate Planned Cost, Actual Cost, and Earned Value

In this part of the course project, you will work with an existing budget from a completed project. You can choose any budget: one from your past work; one from another position; one that another project manager created, if you are not currently in a role in which you typically create budgets yourself; or one from a project outside of your current position. You may attach your budget at the end of this project if you choose.

Answer the following questions, using as much space as you need.

1. For this particular project, what were the total planned costs? Describe briefly the process used to arrive at a planned cost estimate.

2. What were the actual costs? If there was a variance, what do you think caused it? Explain briefly some of the key reasons you think there was a variance between planned costs and actual costs.

3. Examine this past project budget through the lens of resource scheduling and project duration. We know that cost variance has implications for the schedule and for the project’s time to completion. Were there signals in place that indicated to you that based on cost variance, the project schedule would be affected? Describe what you observed (or, alternately, what you wish you had observed).

4. Referring to the work that was done on any completed project: go back to your project schedule and choose a date midway through the project. What was the planned value at that point in time? Alternately, if you don’t have access to the data required to answer this, describe in your own words how you would go about computing planned value for any hypothetical project midway through completion and how doing so would help improve your practice of project management.

5. Refer to any current project underway and its budget. What is the earned value as of today? Alternately, if you don’t have access to the data required to answer this, describe in your own words how you would go about computing earned value for any hypothetical project midway through completion and how doing so would help improve your practice of project management.

Part Three: Forecast Project Cost

Answer the following questions, using as much space as you need.

Refer back to the sample project examined in module two and imagine that everything is executed perfectly. Imagine that you’re now in time period 17. Activity 4-5 is now complete as scheduled, and Activity 3-6 has also just completed, two periods ahead of schedule. Imagine that Resource A cost $6,000 for each period it was active on Activity 3-6: 5 periods, not the 7 periods at $5,000 per period expected. You are now ahead.

Using the methods presented in this module, answer the following questions.

1. What is the cost variance?

2. What is the new forecasted total cost at completion if you use Method 1?

3. What is the new forecasted total cost at completion if you use Method 2?

CEPM504: Using

Earned Value

Management for Project

Managers
What you’ll do

Identify strategies for computing planned cost, planned
value, and earned value
Examine strategies for conducting project meetings in a
way that they serve their purpose
Examine Schedule Performance Index and Cost
Performance Index so that you can use them to your
benefit
Forecast project cost using standard methods

Course Description

By calculating how much work has been
completed on your project as progress goes on, you can update
your forecasts regarding how much work is left to do and how long
it will actually take to finish. At the same time, by calculating how
much money you have already invested in your project, you can
forecast how much more money you will have to spend in order to

CEPM504: Using Earned Value Management for Project Managers
Cornell

University

finish it. However, to really understand whether a project has gone
off track, we need to connect these two elements, cost and the
amount of work completed, together. That is where earned value
comes in. Earned value helps you understand if the value of the
work completed is consistent with the funds expended. It also
gives you a mechanism to forecast what it might cost to complete
the project, given past performance. Hence, performing earned
value calculations puts you in a position to make informed
decisions as to corrective actions. In this course, from Linda K.
Nozick, Director and Professor of Civil and Environmental
Engineering at Cornell, you will learn about Earned Value (EV) and
how it can be productively used to control a project.

This course is designed for seasoned project managers who seek
an introduction to EVM to achieve better practical results for
implementing project controls, including financial controls and
schedule controls. The calculations presented here are meant for
any experienced project manager, including those who are not
engineers, to apply to any size project. Students in this course
must already have a foundational understanding of standard
project management tools and processes including project
networks, project budgets and schedules, and work breakdown
structures.

Linda K. Nozick

Professor and Director of Civil and
Environmental Engineering
College of Engineering, Cornell

CEPM504: Using Earned Value Management for Project Managers
Cornell University

University

Linda K. Nozick is Professor and Director of Civil and
Environmental Engineering at Cornell University. She is a past
Director of the College Program in Systems Engineering, a
program she co-founded. She has been the recipient of several
awards including a CAREER award from the National Science
Foundation and a Presidential Early Career Award for Scientists
and Engineers from President Clinton for “the development of
innovative solutions to problems associated with the transportation
of hazardous waste.” She has authored over 60 peer-reviewed
publications, many focused on transportation, the movement of
hazardous materials and the modeling of critical infrastructure
systems. She has been an associate editor for Naval Research
Logistics and a member of the editorial board of Transportation
Research Part A. She has served on two National Academy
Committees to advise the US Department of Energy on renewal of
their infrastructure. During the 1998-1999 academic year she was
a Visiting Associate Professor in the Operations Research
Department at the Naval Postgraduate School in Monterey,
California. Professor Nozick holds a B.S. in Systems Analysis and
Engineering from the George Washington University and a M.S.E
and Ph.D. in Systems Engineering from the University of
Pennsylvania.

CEPM504: Using Earned Value Management for Project Managers
Cornell University
© 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

Table of Contents

Meet Your Class

1. Meet Your Class

Module 1: Implement Project Controls through

Meetings

1. Module Introduction: Implement Project Controls through
Meetings

Watch: What Are Project Controls?

Watch: Project Meetings Done Right

Tool: Best Practices for Meetings

5. Getting Great Value from Meetings
6. Course Project, Part One: Implementing Project Controls

through Meetings
7. Module Wrap-up: Implement Project Controls through

Meetings

Module 2: Calculate Planned Cost, Actual Cost, and
Earned Value

1. Module Introduction: Calculate Planned Cost, Actual Cost,

and Earned Value
2.

Tool: The Work Breakdown Structure Tutorial

Watch: The Project Budget

4. Top-Down or Bottom-Up?
5.

Watch: Understanding “Planned Cost”

Watch: Understanding “Actual Cost”

Watch: Using “Planned Value”

Watch: Determining “Earned Value”

9. Course Project, Part Two: Calculate Planned Cost, Actual

Cost, and Earned Value
10. Module Wrap-up: Calculate Planned Cost, Actual Cost, and

Earned Value

Module 3: Forecast Project Cost

Module Introduction: Forecast Project Cost

Watch: Understanding Schedule Variance

Watch: Understanding Cost Variance

4. Watch: Examine the Schedule Performance Index
5. Watch: Examine the the Cost Performance Index
6.

Watch: SPI and CPI: Why Do You Need Both?

Examine SPI and CPI

8. Watch: How Variances and Performances Indexes are Helpful
9. Watch: Forecasting Cost Method 1, Using Earned Value
10.

Watch: Forecasting Cost Method 2, Using CPI

11. Course Project, Part Three: Forecasting Project Cost
12.

Module Wrap-up: Forecast Project Cost

13.

Read: Thank You and Farewell

Meet Your Class
1. Meet Your Class

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Meet Your Class

Using the discussion below, please introduce yourself to the class.
We’re all eager to learn more about you. What do you hope to
learn from the course? What is your profession? Where are you
located? Please respond in a text format or as a video using the
film strip icon that is available when you click “Reply.”

(If posting a video response, we recommend that you do not use
your cell phone as most do not use Flash software which is
required to convert the recording.)

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CEPM504: Using Earned Value Management for Project Managers
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© 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

Module 1: Implement Project
Controls through Meetings

1. Module Introduction: Implement Project Controls through
Meetings
2. Watch: What Are Project Controls?
3. Watch: Project Meetings Done Right
4. Tool: Best Practices for Meetings
5. Getting Great Value from Meetings
6. Course Project, Part One: Implementing Project Controls
through Meetings
7. Module Wrap-up: Implement Project Controls through
Meetings
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CEPM504: Using Earned Value Management for Project Managers
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© 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

Module Introduction: Implement Project
Controls through Meetings

The success of any project depends, in large part,
on how well you can plan and monitor the work
throughout the project life cycle. When project
managers talk about “project controls,” they may

be referring to a broad range of tools, systems, or methodologies,
but all controls have one aim: to minimize the gaps between plans
and execution. In this module, you will examine how you can use
one tool, project meetings, to deliver better results. Project
meetings tend to be an area in which many project managers
struggle to get full team support and helpful participation. Why is
this so? What can you do to get better results?

Watch: What Are Project Controls?

As a project manager, a large part of your responsibility is not to sit
back passively and collect status reports, but to actively track
progress against goals, measure costs, monitor spending and
schedules, and identify when corrective measures are needed. All
of this has to be done on an iterative basis, and you’ll use tools to
do it.

Transcript

Project controls are a really important element of project
management. Project controls are actually all of the metrics,
processes and tools that we use to understand the current status
of a project, and we use it through the entire course of the project
to understand how it’s performing. These controls also let us
identify when corrective action is needed and what the magnitude
and type of corrective action that is necessary.

So as you can imagine from these definition, project controls are
actually very broad in scope. There are a lot of things that fall
under project controls. For instance, all the stuff on scheduling,
schedule tracking, schedule updating, everything we’ve talked
about related to risk management including identification,
assessment, and the design of interventions, along with everything
associated with cost estimation and controlling costs.

There are actually very few things that are actually outside the

scope of project control if you think carefully about it. Things like
communication management are not in the scope of project
controls. All the human elements that arise in project management,
those are really not in the scope of project controls. All the things
associated with quality control. Those are not within the scope of
project controls. But many, many important things are within that
scope. Actually, good project management and good project
control, as we know, begins at the very beginning of the project. At
the very beginning of the life cycle. You can’t have a project in
good control if you don’t understand the scope, for instance, of that
project.

So specifying the skill and doing that very carefully, is actually part
of having good project controls. Also understanding how you’re
going to deal with changes as they come up in the project. All the
issues associated with change management, this is part of project
controls. If we don’t know how to do that well, we’re clearly not
going to be able to be in much control of our projects. Also project
controls identify the establishment of milestones, and how we
manage working towards those milestones. Also, project controls
includes all the estimation and tracking elements, and updating of
the cost estimates. All of these things are really important to a well-
executed project over time. Notice that all of these elements of
project controls, they’re not just, you establish them once and you
walk away. They all require monitoring.

So you’re not just identifying the controls and putting them in
place, but you’re monitoring those controls and you’re using those
controls for corrective action to understand when you need

corrective action and what the magnitude of that corrective action
needs to look like. If you don’t have any monitoring, then you really
don’t have any control over the execution of your project. And the
same is true for budget. So budgetary controls. All this idea of you
establish a budget, you manage to that budget, you understand
when there are deviations from that budget, you update that
budget. All of those things are very important to establish in good
project controls.

Watch: Project Meetings Done Right

Project meetings are a necessity. Valuable information gets
shared. So why do so many team members resist or even resent
project meetings? Professor Nozick discusses how you, as a
project manager, can make sure that your meetings are actually
serving project goals and delivering value.

Transcript

The design and implementation of project controls will require
project meetings. The exercise of those controls will also require
meetings. Those meetings will be to collect data. They will be
required to address issues as they arise, so that you can—when
project controls show a signal of something not going right, that
corrective action, the right corrective action can be identified and
taken. So project meetings are going to wind up being a very
important element of the process. Some folks on your teams may
feel that the meetings are interfering with progress. This is not an
uncommon feeling in the project management domain.

So we need to think very carefully about how to conduct those
meetings so that that feeling doesn’t permeate the entire group.
How do we wind up with that sort of a feeling? Well if the meetings
aren’t scheduled and conducted properly, this idea of feeling like
they’re a waste of time can creep in. How does this start to happen
in more precise terms? Well, it happens usually very innocently.
You start having meetings and you don’t stop them when the

purpose of those meetings has been achieved, right? Or you
schedule a meeting in haste as a reaction to an issue and you
don’t think carefully through the goals of the meetings. So
meetings can certainly be necessary to address an issue that
crops up, there’s no doubt about that, it can be very important to
addressing an issue that crops up.

But before the meeting occurs, it’s really important to understand
what are the goals of that meeting, be able to communicate that
goal carefully to everybody so they can understand i, and then
there needs to be a plan in place as to how that meeting will be
conducted so those goals are achieved, okay? And another way
meetings can turn out to feel like they’re a waste of time is when
they’re much too long. So you’ve got to think carefully about how
long a meeting should be to achieve its intended purpose. So, in
fact, all meetings regardless of the motivation, they need to have a
clearly established purpose, and that purpose has to be able to be
understood by all of the attendees. That will include meetings for
which the sole purpose is just to collect data.

Implementing and using project controls, will require the collection
of data. So you’re going to wind up having meetings with
individuals, or collections of individuals, so you can continue to
update those controls to understand what those metrics look like.
Also, project meetings are going to wind up being necessary to
keep people informed so that they can actually work as a team.
That is one of the main mechanisms to coordinate activity. Also, to
clarify scope. As projects go on, there may be questions about is
this inside or outside of the scope? And so, there’ll be meetings

that only to disseminate decisions to people, so they can
understand them and they can ask questions.

So, meetings have very important purposes, and they need to
occur, but they need to occur in such a way that people feel that
they’re a value to their time, that they’re useful. And also we do
have to pay a little bit of attention to the social dynamic of our
project. We don’t really think of it in these terms, but meetings
actually do lead to a social dynamic on a project. And that social
dynamic is also important to productivity, so that your team really
functions as a team. And this aspects of meetings is actually
particularly important when you talk about younger people to the
team, newer members of the team. And also for folks working on
parts of the project that maybe more solitary in nature. These
meetings are one of the main ways of social interacting with
people. And when you interact more with people in both a social
and a technical level the work turns out to be more effective,
conducted more effectively.

Tool: Best Practices for Meetings

Use the Best Practices for
Meetings tool

In order to implement project controls effectively, you need to be
able host project meetings that serve their intended purpose. Use
the list of best practices here to guide your efforts and make sure
your project meetings are delivering value for the project and the
team members. This will help avoid wasted effort and the
perception that project meetings are a waste of valuable time.

https://s3.amazonaws.com/ecornell/content/CEPM/CEPM504/CEPM504_tool-best-practices-for-meetings

Getting Great Value from Meetings
Discussion topic:

It’s not uncommon for team members to complain that project
meetings are a waste of time. What do you do to make sure that
your project meetings serve their intended purpose? Create a post
in which you share your best tip or strategy for getting great value
from project meetings.

Instructions:

Click Reply to post a comment or reply to another comment.
Please consider that this is a professional forum; courtesy and
professional language and tone are expected. Before posting,
please review eCornell’s policy regarding plagiarism (the
presentation of someone else’s work as your own without source
credit).

https://s3.amazonaws.com/ecornell/global/eCornellPlagiarismPolicy

Course Project, Part One: Implementing Project
Controls through Meetings

As you have seen, running effective project meetings is critical to
achieving the goals that your organization has set. In this part of
the course project, you will create an action plan to guide your
efforts on the job as you plan, host, and run project meetings with
your team and stakeholders. Completion of this project is a course
requirement.

Instructions:

Download the “Using Earned Value Management for Project
Managers” course project.
Complete Part One.
Save your work.
You will not submit your work now. You will submit your completed
project at the end of the course for instructor review and credit.

Before you begin:

Review the grading rubric for this assignment. Please
review eCornell’s policy regarding plagiarism.

https://s3.amazonaws.com/ecornell/content/CEPM/CEPM504/CEPM504_course-project x

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Module Wrap-up: Implement Project Controls
through Meetings

As you have seen, the success of any size project is dependent on
how well you can plan and monitor the work throughout the project
life cycle. There are many routes to implementing strong project
controls, including network scheduling and Gantt charts, among
other tools and techniques, but all controls have one aim: to
minimize the gaps between plans and execution. In this module,
you examined how you can use one tool, project meetings, to
deliver better results. Project meetings tend to be an area in which
many project managers struggle to get full team support and
helpful participation. A one-size-fits-all approach will not work here.
You have to find a way to be successful within the context of your
project, your team, and your organization. You have now created
an individualized action plan to guide your efforts in this regard.

Module 2: Calculate Planned
Cost, Actual Cost, and Earned

Value
1. Module Introduction: Calculate Planned Cost, Actual Cost,

and Earned Value
2. Tool: The Work Breakdown Structure Tutorial
3. Watch: The Project Budget
4. Top-Down or Bottom-Up?
5. Watch: Understanding “Planned Cost”
6. Watch: Understanding “Actual Cost”
7. Watch: Using “Planned Value”
8. Watch: Determining “Earned Value”
9. Course Project, Part Two: Calculate Planned Cost, Actual

Cost, and Earned Value
10. Module Wrap-up: Calculate Planned Cost, Actual Cost, and

Earned Value
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CEPM504: Using Earned Value Management for Project Managers
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© 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

Module Introduction: Calculate Planned Cost,
Actual Cost, and Earned Value

You have seen the ways in which you can
implement better project controls just through
handling routine meetings with the project team
and stakeholders more effectively. Now you will

examine the ways in which you can monitor and control progress
through the project life cycle by comparing your plans to actual
work accomplished and monitoring for variances. You will define
“earned value,” and look at the ways that you can calculate
planned cost, actual cost, and earned value, and then practice
using this information to your benefit as you make project
decisions.

Tool: The Work Breakdown Structure Tutorial

The Work Breakdown Structure
Tutorial may refresh your memory

To complete this course, it will be important for you to have
familiarity with creating a work breakdown structure, which is a
standard project management tool. As a seasoned project
manager, you are probably already very familiar with work
breakdown structures. In the event that you have not worked with
them recently, Professor Nozick has prepared this tutorial to
refresh your memory about their purpose and creation. If you
frequently work with work breakdown structures, you may not need
this refresher.

https://s3.amazonaws.com/ecornell/content/CEPM/CEPM504/CEPM504_tool-work-breakdown-structure-tutorial

Watch: The Project Budget

There’s more than one way to develop a project budget, as
Professor Nozick explains. Done correctly, a project budget starts
at the very beginning of the life cycle of the project, when you
identify the number and type of tasks to be done, and the skilled
people, materials, and facilities needed. All of these inputs help
you develop your project budget.

Graphic adapted from “Designing to Reduce Construction Costs,” Paulson, Boyd; ASCE
San Diego conference; April, 1976.

Transcript

So, the project budget reflects the magnitude and the timing of the
work to be done over the course of the project. If you look at this
graph here you can see that a cost curve generally has kind of an
S-shaped focus to it. At the very beginning, you spend relatively
slowly on a project, then as it really reaches its full stride, you wind
up spending quite rapidly on the project. This figure also is meant
to remind you that over time the influence, the decisions made at
the early part of the project have a very large influence on how the
project will turn out in the end, how the execution will occur. So if
you look at the other curve that’s on this graph this is just a
reminder that says, those early decisions, you make a number of
decisions that really hem you in for the future of the execution of
the project. If those decisions are good, you’re on a really good
trajectory. If those decisions are not quite as good, you might not

be on quite as good on trajectory.

So how do we develop a project budget? Because a lot of this
module is all about controls, project controls. And financial controls
and schedule controls are really important elements to that. So
let’s talk for a few moments about developing the

project budget.

Actually the developing of the project budget starts at the very
beginning of the lifecycle of the project, when you start to develop
that work breakdown structure. Remember back to when we
described the work breakdown structure. That leads to the
identification of the tasks in the project.

When you identify each of the tasks, you’re identifying the amount
of work that needs to be done. You’re also including in that
identification what kinds of people, and the number of them that
will be needed to do it. What materials you will need to do it, as
well as what facilities will be necessary. Maybe what
subcontractors will be required. So this will actually provide quite a
lot of input to what the budget is going to look like. We take those
tasks and we translate those into a resource-feasible schedule
over time. Once we have that resource-feasible schedule we can
now estimate what the planned budget is going to be, or the
budget at completion. How much it will cost to do the entire project.

This is called bottom-up budgeting. There’s a another idea that
had developed a budget for a project it’s more of a top down
structure. And this sort of a structure assumes that the managers
actually know how much the project should cost and then they
allocate money downwards to each of the tasks. So those are the
two kind of competing ideas of how you can think of building up a

project budget.
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Cornell University
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Top-Down or Bottom-Up?
Discussion topic:

Professor Nozick discussed two methods of deriving a project
budget: “top-down” and “bottom-up.” Which of these do you
prefer?

Create a post in which you make a case for the method you use
more frequently, and explain what you see as the benefits of using
that method.

Instructions:
Click Reply to post a comment or reply to another comment.
Please consider that this is a professional forum; courtesy and
professional language and tone are expected. Before posting,
please review eCornell’s policy regarding plagiarism (the
presentation of someone else’s work as your own without source
credit).
Back to Table of Contents
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Cornell University
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Watch: Understanding “Planned Cost”

Using your work breakdown structure, you can develop planned
costs for your project. These may end up being different than the
actual costs that will be incurred. Professor Nozick will explain how
to develop planned costs and why they may vary from the actual.

Transcript

Realized cost or actual cost are the funds spent doing the actual
work. Before we execute the project, we develop what we call
planned costs. It’s what we expect to spend based on the work
breakdown structure, and the resulting project, resource constraint
project schedule. Why are actual costs and the planned costs
different sometimes? They’re often different, because oftentimes
there’s a task, or many tasks, that don’t come in exactly as we
anticipated for costs. For instance, on a particular task, additional
staff may become necessary, because the work is harder than we
anticipated. Or we need some extra material, because there’s
more waste in the process than we anticipated. On the other side,
it could be that the work turns out to be easier on a particular task.
And so less staff and less time is needed, and in fact the task
costs less. The planned cost for that task are actually higher than
the actual cost turns out to be.

Lets go through the idea of how to develop planned costs for a
project, through using this example. So, in this example we have
six activities and we have two resources available, one of type A

and one of type B, and they are available through the entire course
of the project, however, long that may turn out to be. So, when we
look at the project network there is an activity between, which is
drawn in the activity network that connects node one with node
two. That activity takes nine time periods to execute. It takes one
unit of resource A the entire time it’s active. Similarly the activity
that’s represented by the arc that connects node two with node
three, that takes three time periods to execute and it takes one unit
of resource B over each of those three periods. Using the project
network and our resource constraints, that is we only have one unit
of resource A and one unit of resource B available continuously
throughout the entire project, we can develop the resource loaded
schedule, and this will tell us how long the project will take to
execute. It also tells us what the critical sequence of activities are.

So in this case it turns out that the activity from node one to node
two, from node two to node three, from node three to node six, and
from node five to node six, that’s the critical sequence. Notice it’s
not just a critical path, it’s actually a critical sequence of activities
because we have resource constraints. The longest path through
the project is not sufficient to describe how long the project will in
fact take to do. Now we need to associate with each of the
resources a cost, because we now know when each resource will
be active, and for how long. And we’re going to make the
assumption that when the resource is not working on this activity,
this project, they will be doing something else and therefore no
cost is billed to the project.

Okay. So suppose resource A cost $5000 per period of use and

resource B cost $3000 per period of resource use. In the first time
period, we have one activity which is active, that is the activity from
one to two, because the activity from one to four can’t start
because we only have one unit of resource A available. And we’re
going to assign it to the task that connects nodes one and node
two. And that will cost us $5000 per time period. So in the first time
period, the second time period, all the way through to the ninth
time period, We’re going to spend $5000 per period. And you can
see by the table that we can just add up across the time periods all
of the costs, and we can figure out what the budget at completion
will be. In this case, it’s $159,000 to complete this project. And you
can create a graph of that cumulative dollar spent, and that’s your
planned cost over time. And that’s an important element for project
controls. That’s going to be the amount of money you’ll expect to
spend in that spending profile over time.

Watch: Understanding “Actual Cost”

The planned costs were based on the work breakdown structure.
The realized costs or actual costs are the funds spent doing the
actual work. Why not just track spending? Why do you need to
forecast a planned cost and compare it to the actual cost?
Professor Nozick explains.

Transcript

So at the beginning of the project, once the work breakdown
structure has been completed, and a resource constraint project
schedule has been identified, we now know we can estimate the
cost of the project over its duration. A full spend plan. That’s the
planned cost of the project. And let’s go back to our example we
had a moment ago, there are six activities. We have two
resources, type A and type B, we have one unit of each, across,
available to us whenever we need them. But we only pay for them
whenever we’re using them across the planning horizon. From that
project network and our resource constraints we can create the
resource loaded schedule, and we can identify the planned costs.
Now, actual costs, as the project proceeds the actual costs may
not be exactly the planned costs. They may be different.

So let’s go through an example of this and look at what happens
when they are different, or what can happen. So suppose we’re in
the execution of the project and the time period is 17. And we’re on
a particular step in the task that connects node three with node six.

and it turns out that that step is substantially harder than we
thought. In fact, it’s so hard that now we’re at the end of time
period 22 and that activity is just completed. Task three to six is,
the activity that connects nodes three with six is finished, but it’s
now time period 22, that’s not what we were thinking. So now we
have to update our schedule, and in fact our project schedule goes
from thinking that we’re going to be at 27 time periods to finish,
now we’re actually at 32. We’ve had to slide out our schedule,
because something came up, it was harder than we thought. So
guess what? Our anticipated cost and our actual cost are not going
to line up.

So if we think about what our budget looked like as of time period
22, and what our actual costs turned out to be as of time period 22,
we can graph that. We can look at the difference. And we’re now
tracking costs. We have planned costs, we have actual costs. As
of 22 the costs actually look the same, planned and actual. But we
know something’s wrong, because we know that activity took
longer than we thought, but it’s not showing up because we’ve
elongated the activity. We’ve simply slid out another activity that on
per period basis cost the same amount as this one. So in terms of
actual cost, we’re still tracking planned, but we’re off. And you can
see we’re going to spend more in the end.

So I haven’t updated planned cost in this graph, but you can see
we’re still tracking planned. So there’s no signal. This is a problem.
Why is there no signal? It’s because of how the project schedule
looks. Okay, we haven’t really integrated the fact that our project
schedule has slipped with our cost estimation. And that’s an

important comment, okay, and that’s really where this whole area
of earned value comes in, and planned value. And that’s what we’ll
talk about over the next sequence of modules, is how to address
that shortcoming. so that when we do project controls we can
understand that in fact we are behind when we are behind.

Watch: Using “Planned Value”

We’ve now looked at forecasting project costs and comparing what
was expected to what it actually cost to complete the project, or
part of the project. By completing tasks on the project network,
you’re also creating value. Professor Nozick discusses what we
mean by value in this context, and how it informs project
management work.

Transcript

So over the course of the project, we’re not just incurring costs,
we’re completing work. In fact, we’re creating value, okay, we’re
earning value. So over the course of the project we will create
earned value. Before the project starts we’ll create a plan for how
we’re going to earn that value over time. So the earned value or
planned value, planned value is actually the escalation in the value
of the work you’ve completed over the course of the project. And
this is computable using the project schedule. The planned value
of the project over time, can be computed using the project
schedule, and it’s really analogous to the planned costs. Because
the value should rise as the costs rise. And in fact it becomes the
authorized budget.

So, if you go back to our example with our project network, and our
resource loaded project network through our project schedule, and
go back and look at value by task. Originally we talked in terms of
cost by task. So if you think about that first activity, the one that

connects node one with node two, that takes nine periods to do,
and takes a unit of resource A during each period that it’s active.
Over the course of each of those nine periods, we’re going to get
$5,000 worth of value out of executing that activity. It’s also going
to be the cost to execute that activity. So if we do it all perfectly on
time, by the end of that activity we will have incurred the full project
task cost. If it happens perfectly on time, we’ll also have incurred
exactly the same in project value.

So, we can now plan the value by each activity that gets done, and
then we can create that plan value over the course of the entire
project. And at least do an estimate that the planned value for the
project is $159,000, just like the planned cost, and it has the
escalation over time that’s parallel to the planned costs. But now
we can track the actual performance in cost terms and in schedule
terms. In cost terms, using planned cost versus actual. And in
schedule, planned value versus earned value. How much we really
do earn in each period.

Watch: Determining “Earned Value”

When the team completes work against the project plan, that’s
earning value for the organization. Now you will examine what is
meant by “earned value,” and how you can calculate earned value
on your projects. This will be an important part of monitoring and
control.

Transcript

So earned value is the estimated value of all the work that’s been
completed. As the project is executed, work gets done and costs
are incurred. So the project that we’re in the midst of completing,
there’s value associated with the work we’ve already done, or the
earned value. And then there’s also the actual costs that have
been incurred. So let’s go back to our example. We have our sixth
activity example, and we also have our project network. Our
resource constrained project schedule comes out of that, because
remember again, we have one unit of A available all the time And
one unit of B.

So suppose we’re executing this project. We’re stepping right
along, and now it’s November 30, 2016. We have finished activity
one to two, and we have finished activity one to four. And we’re in
the process of trying to complete activity two to three. And all was
going fine. Our planned value and our earned value, our cost,
they’re right in line. Everything is going as expected. Uh-oh, it’s
December 1st, the very beginning of December. And we find out

we made a mistake. And the process of executing activity two,
three. We weren’t finished with it yet, we had done two of the
periods, we thought, two months of it, but it looks like we’re going
to need to redo it. So that means we’re now going to have a
variance from what we planned on.

Okay, we’re going to need to update our resource constrained
project schedule. So it looks like activity 2-3 is going to take
another three months. So we have two months of schedule slip.
We had done two months but the work there is going to need to be
reworked completely for one reason or another, and now we’re
going to need three more months. So now our project is not going
to finish when we though it will. It’s going to slip by two months.
Well now our earned value as of December 1st is not our planned
value, because we’ve lost effectively, $6,000 of value, right?
Because we have to redo that piece of work.

Okay, our actual costs are now above our earned value. And you
might notice in this figure, I’ve also just forecasted out as if the rest
of the project will continue the way we anticipated from where we
are December 1st. There will be a number of different ways to
think about how to forecast future costs, and we’ll talk about them
a little bit later. But this is one mechanism to do it. To assume it will
execute as we anticipate it in the original schedule, just shifted by
two months.

Course Project, Part Two: Calculate Planned
Cost, Actual Cost, and Earned Value

In this part of the course project, you will work with an actual
budget and practice working with planned cost, actual cost, and
earned value. As you have seen in this module, these
measurements will help you make sure that your project is
performing to expectations (or implement corrective measures if
it’s not).

Completion of this project is a course requirement.

Instructions:

If you have not done so already, download the “Using Earned
Value Management for Project Managers” course project, if you
have not already done so.
Complete Part Two.
Save your work.
You will not submit your work now. You will submit your completed
project at the end of the course for instructor review and credit.

Before you begin:
Review the grading rubric for this assignment. Please
review eCornell’s policy regarding plagiarism.
CEPM504: Using Earned Value Management for Project Managers
Cornell University
© 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

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Module Wrap-up: Calculate Planned Cost,
Actual Cost, and Earned Value

Budgets, schedules, status, milestones: all of these are part of the
standard toolkit of project managers. Now you have examined
some of the ways in which you can implement better project
controls by comparing your plans to actual work accomplished and
monitoring for variances. You have define “earned value,” and you
have explored how to calculate planned cost, actual cost, and
earned value. You have also practiced using this information to
your benefit to inform better project-mangement decisions.

Module 3: Forecast Project Cost
1. Module Introduction: Forecast Project Cost
2. Watch: Understanding Schedule Variance
3. Watch: Understanding Cost Variance
4. Watch: Examine the Schedule Performance Index
5. Watch: Examine the the Cost Performance Index
6. Watch: SPI and CPI: Why Do You Need Both?
7. Examine SPI and CPI
8. Watch: How Variances and Performances Indexes are Helpful
9. Watch: Forecasting Cost Method 1, Using Earned Value
10. Watch: Forecasting Cost Method 2, Using CPI
11. Course Project, Part Three: Forecasting Project Cost
12. Module Wrap-up: Forecast Project Cost
13. Read: Thank You and Farewell

Module Introduction: Forecast Project Cost

You have examined how to assess the
performance of the project at a given point in time.
That’s not all there is to project control. You will
also need to be able to say something about how

you think the cost will evolve over the rest of the project. You’re
gathering information as the project executes. Because the project
team is doing activities and the organization is paying for them,
you are earning value. That information is useful in making
estimates of what it will take to go from the moment where you are
right now in a project execution all the way to the end. So, suppose
you’re in a specific point in the project execution, and you now
need an updated forecast to final costs. How do you make that
forecast? You have actual cost that you’ve incurred from the
beginning of the project until now, but how do you go about
constructing the forecast, which will take those actual costs and
then marry them in some way with what your estimate is of what’s
coming to get a final budget at completion or a final cost at the
end? There are many options available. In this module, you will
examine different ways of forecasting cost.

Watch: Understanding Schedule Variance

By comparing how much work you had planned to get done versus
how much has actually been accomplished, you can derive a very
helpful measure of performance and efficiency.

Try it: As of today, your project’s earned value is
$250,000 and the planned earned value is $300,000.

Transcript

Schedule variance is a very useful way to understand how we are
performing in terms of accomplishing work, compared to what we
plan to accomplish. So, schedule variance is the difference
between earned value and planned earned value, as what we
have actually achieved, versus what we planned on achieving. So
it’s a straight forward way to compare progress with the plan. So
it’s useful to notice that if we use the formula schedule variance
equals earned value minus planned earned value, that value can
either be positive, negative, or zero. If it’s positive it means we’ve
done more work, our earned value is higher than what we planned
to have earned. We’re ahead, we’re ahead of schedule. If it’s
negative it means we’ve learned less than we expected to at this
point in the project, or we’re behind schedule. And if it’s zero we’re
exactly on schedule.

So let’s go to back to our example and let’s do a computation of

schedule variance. So in our example, we were part way through
doing that one activity, one to four, and we, no sorry, two to three,
and we realized that we were going to have to redo two months
worth of work. Okay, and we created a new schedule. So at this
moment, it’s December 1st. Our planned value at this point was
$61,000. We expected to have finished two activities, and be two
months into the next one. But in fact we lost two months of work
which costs us $6,000. Our actual earned value was only $55,000.
Our planned value was $61,000. So 55,000 minus 61,000 is
negative 6,000. Our schedule variance is negative 6,000. We’re
behind schedule and this tells us by how much.

What does this mean? Are you on schedule?

The difference between earned value ($250,000) and planned
earned value ($300,000) is -$50,000.

It’s negative, so you have earned less than you anticipated
earning. You are behind schedule.

Watch: Understanding Cost Variance

As Professor Nozick explains here, you can calculate the
difference between the costs you have actually incurred on the
project versus the amount you had planned on incurring. You can
measure that difference and attach a dollar value to it. Doing so
will help you control costs and scope, and you can see why: if the
variance between planned and actual becomes significant, you
may decide you need to implement corrective actions.

As you have seen, schedule and cost variance taken together are
very useful measures of project progress. They give you insight
into when corrected actions are needed. If both are positive or
zero, your project is on track. If either or both are negative, there
may be a need for corrective action. Of course, it’s going to
depend on how negative they are, how big the differences are, in
order to gauge the magnitude of the corrective action that’s going
to be necessary. But they provide a very coherent way to
understand how you’re performing with respect to schedule and
how you’re performing with respect to costs.

Transcript

So in parallel to schedule variance, we can also compute a cost
variance. So cost variance compares actual cost to planned cost.
So what we compute cost variance as earned value minus actual

cost. So earned value is how much work we’ve actually achieved,
and actual cost is what it cost us to do it. If this turns out to be a
positive value, we’re under budget because we’ve done more work
or we’ve accomplished more than we spent. If it’s negative, it
means we’re over budget. It’s costing us more to do the work we
anticipated to do. And 0 means that we’re exactly on budget. So if
we go back to our old example, and activity 2-3 will take another
three months, we have a two month schedule slip.

In terms of cost variance we’re also $6,000 off. Our earned value
is $55,000, our actual cost is $61,000. Our cost variance is
$55,000 minus $61,000, or minus $6,000. Because it cost us, now
why are they identical. In this case they’re identical because that
two, those two months we had to throw out of that activity 2-3, they
actually came in exactly on budget for those two months. So our
actual cost and what we need to do to where we are in our project,
the cost variance and the schedule variance are identical. For that
reason. If it cost us extra money to do those two months that we
had to toss away, they wouldn’t be the same.

So as an example, suppose that in October 2016 and in a
November 2016, it took us $10,000 to do those two months of
activity that connects nodes two and three. What happens then?
What’s the calculation look like then? Well then as of December 1,
we still have a value of $55,000 no change. But our cost would
actually be 65,000 our actual cost as opposed to the 61,000. The
61,000 assumed that it cost us $3,000 a month for that resource B,
but in this case if it costs us 10,000 total, it’s actually costing us
$5,000 a month. It’s an extra $4,000. Our actual costs are

$65,000. So in that case, you compute cost variance as $55,000
minus $65,000. And our cost variance is $10,000. It’s now lager
than our scheduled variance.

Try it: As of today, your project’s earned value is
$50,000 and the actual cost is $127,312.

What does this mean? Are you within budget?

The difference between earned value ($50,000) and actual costs
incurred ($127,312) is -$77,312.

It’s negative, so it’s costing you more to do the work than you
anticipated. You are over budget.

Watch: Examine the Schedule Performance
Index

Now Professor Nozick will lead you on an exploration of the
schedule performance index, which allows you to calculate
schedule efficiency by measuring earned value over planned value
at any given point in time.

Transcript

Let’s talk a little bit about schedule and cost performance indexes.
Both of this indexes convey information about the level of
efficiency in the execution of the project. The schedule
performance index does so in terms of schedule, or is a measure
of schedule efficiency. The cost performances index does so in
terms of cost, so it’s a measure of cost efficiency. Let’s start with
the schedule performance index. So the schedule performance
index is actually earned value over planned value. Okay, and
notice we will measure that at a specific point in time. So over the
course of the project, you can always compute the schedule
performance index.

Okay, you’ll notice that ratio could be greater than one, less than
one or exactly one. If it’s exactly one, what you’ve earned in terms
of value at this point in the project, is what you’ve planned to have
earned as of this point in the project. And so you’re exactly on
schedule. If earned value is higher than what you’ve planned to

earn by this point in the project, you’re actually ahead of schedule.
And if earned, and the value is then greater than one of SPI. If
earned value is less than planned value, SPI is less than one, and
you’re behind schedule.

So let’s go back to our favorite example. Let’s go back to our
December 1st of 2016 when you noticed all of activity 2-3 needs to
be redone. So two months of work is not going to be useful. We
can then compute the schedule performance index. Remember,
we already computed the schedule variance. If we assume that
those two months of activity 2-3 cost us $6,0000, 3,000 a month.
What we spent is then $61,000. We would have planned to spend
by that point in time on the project $61,000 but we haven’t earned
61,000 in value. We’ve only earned 55,000 because that activity
those two months has not created value for us.

So the schedule variance is $6,000 and it’s negative. And the
schedule performance index is actually 55,000, the earned value
divided by the planned value which is 61,000. So it’s about .9. And
we’re behind schedule, notice both the variance calculations is
negative and the schedule performance index is less than one,
indicating that we’re behind schedule.

Watch: Examine the the Cost Performance
Index

So now you will examine more closely the cost performance index.
This asks you to examine the ratio between earned value and
actual costs, and what conclusions about project performance and
efficiency you can draw from that. Professor Nozick explains more.

Transcript

Now let’s talk a little bit about the cost performance index. This is
parallel to the schedule performance index we just spoke about.
But for the cost performance index, the focus is on the ratio
between earned value and actual costs. When this ratio is greater
than one, we’re actually under budget, we’ve done more work than
what it costs us to do the work. Okay, more work has happened
than we had anticipated and then work turned out to be cheaper.
Less than one implies that in fact the project is earning less than
the costs are incurred. So we’re going to be over budget. And
equal to one means we’re right on track. Our earning and spending
is right in line exactly with the plan.

So let’s do an example of cost performance index. Let’s go back to
our example and it’s now December 1st, 2016, and we’ve gotten
the bad news that that activity 2-3 needs to be redone. And it gets
worse, in fact, we look at the actuals for costs, and it turns out that
in October of 2016 and November of 2016, a total of $10,000 was

spent on task two to three, instead of the 6000 we had planned. So
as of December 1, 2016, we’ve earned 55,000 our actual cost is
65,000. Our cost variance is negative 10,000. We’re over budget.
Our scheduled variance is still the negative $6000. Our cost
performance index is 55,000 divided by 65,000 or 0.846. We’re
over budget, and we can see that both from the variance
calculation and from the cost performance index calculation.

Watch: SPI and CPI: Why Do You Need Both?

The schedule performance index and the cost performance index
are both helpful. They serve different purposes and complement
each other, as Professor Nozick explains.

Transcript

So you might be curious now, why do we need to have both
variances and indexes? So we talked about a cost variance and a
schedule variance. We talked about a schedule performance index
and a cost performance index. Can we just have one and not the
other? Well they serve different purposes and they’re
complimentary. So the variances give in dollar value whether or
not you’re above or behind schedule, okay? Or whether you’re
doing well or you have deficiencies, cost or schedule. Indexes also
indicate the status of a project, but one of the nice parts of an
index is it’s normalized. So over the course of the project, the
dollar value magnitudes may mean more or less for the variance
calculations. When you move across the project, in normalized
terms, those values don’t grow over time. They’re still supposed to
be a little bit above one, above one, beneath one, zero as opposed
to growing in different kinds of scales for the variance calculations.

The same as if you go across projects and you want to compare
performance across projects. The projects might have very
different scopes, very different scales, so the variances are
somehow hard to compare, but the performance indexes are not

as hard to compare because they’re normalized. Also it’s a little
easier to understand how to use the performance indexes when
you want to forecast future cost. Because when we start doing the
project, we have a budget at completion, we have what we expect
to spend on the project. As we go through the project, we gather
information on the execution of the project and we may need to
update that forecast, update that estimate, creating a new forecast
of costs. And the performance index is one piece of data we can
use those kinds of measures to update that budget at completion
value.

Examine SPI and CPI

Answer the following questions to check your understanding of the
concepts presented in this module.

You must achieve a score of 100% on this quiz to complete
the course. You may take it as many times as needed to
achieve that score.

Watch: How Variances and Performances
Indexes are Helpful

Part of your project-management effort involves being able to
make good predictions about costs going forward. You need to be
able to predict with some accuracy how much more it will cost to
complete the project, as Professor Nozick explains.

Transcript

So we’ve talked quite a bit about how to assess the performance
of the project at a given point in time. That’s not all there is to
project control. We’ll also need to be able to say something about
how we think the cost will evolve over the rest of the project. We’re
gathering information as the project executes, because we’re
doing activities, we’re paying for them, we are earning value. That
information is useful in making estimates of what it will take to go
from the moment we are right now in a project execution all the
way to the end. So, suppose we’re in a specific point in the project
execution, and we now need an updated forecast to final costs.
How do we make that forecast? We have actual cost that we’ve
incurred from the beginning of the project until now, we should be
using it.

So how do we go about constructing the forecast, which will take
those actual costs and then marry them in some way with what our
estimate of what’s coming, to get a final budget at completion or a

final cost at the end. So there’s some choices about how to do it.
In fact, there are many choices about how to do it. I’m just going to
give some illustrative ones, so we’ll go through three ways of doing
it. All of them have pluses and minuses. The first one we’ll talk
about is, suppose we assume that the rest of the work will be
executed exactly as we planned in the original plan. All we really
have to do then is to integrate the actual cost we’ve incurred up till
now.

Another mechanism to create a forecast would be to use CPI, the
cost performance index, to somehow scale the cost of the
remaining work, based on the cost efficiency, we have been able
to achieve up to this point in time in the project. We could also
integrate into that estimate the scheduled performance index… and
the cost performance index, to also scale the remaining costs, and
that’s the basis of the third method. But if you look out in the
literature, you’ll find there’s a number of ways to build these
forecasts, and I’m just going to talk about three of them.

Watch: Forecasting Cost Method 1, Using
Earned Value

The first method you will examine uses earned value. Suppose
you assume that the rest of the work will be executed exactly as
you had planned in the original plan. All you really have to do to
forecast cost is to integrate the actual cost you’ve incurred up until
now.

Note to students: Professor Nozick misspoke at 2:04. She said we
“spent 55,000.” Actually, we spent 61,000 but only produced
55,000 of value. The calculations are correct.

Transcript

So, let’s do an example of forecasting cost. We’re at some point in
the execution of a project. We have actual cost and now we need
to make an updated estimate for how much it’s going to cost to
complete the project. One mechanism to do that is to assume that
all the remaining activities will be done consistent with the baseline
schedule, and the baseline costs. All we really have to do then is
to integrate the actual costs for the part of the project that’s already
done, to the estimate for the remaining activities.

So let’s do that in the context of our six activity example. We had a
project network with six activities. We had a resource loaded
schedule. We thought we would finish as of the end of April 2018.

As of November 30th, 2016 we were humming along. Two
activities were complete and we were two months into activity 2-3.
And then we noticed on December 1st we had a problem, and all
of that activity 2-3 needed to be redone. So we had to update our
project schedule and in fact it meant that we would have two
months of schedule slip, we’d finish in June of 2018 instead of
April. And we now have actual costs. The actual costs take us
through December 1st. We spent $61,000. We did activities 1-2
and 1-4. We had started 2-3 and had to eliminate all of that work.

So by December 1st, 2016 we spent $61,000. We had only
$55,000 of earned value at that point in time because only the two
activities, the work was done to the specification necessary. At the
beginning of the project, we thought the entire project would cost
us $159,000. What we have left is $104,000 worth of work
remaining. We’ve spent 55,000, so our final estimate is $165,000,
and we have a $6,000 cost variance at the end. So that’s our new
forecast for the cost of this project. It went up from 159,000 to
165,000, that’s the result of having to redo the first two months of
activity 2-3. And we had already spent $6,000 for the work, but we
need to do it again. And the spend plan is going to go longer this
time. It’s going to go out to the end of the project which is now two
months longer.

So let’s talk a little bit about this sort of a method. What are the
assumptions behind it? So when can you take the actual cost
you’ve already incurred and simply then use the baseline cost for
all the remaining activity that you haven’t done? Well this is a very
reasonable thing, if you feel like the thing that delayed the past

work was really confined to that work only. If you think it’s going to
bubble through to new activities that you haven’t done, well then
you’re going to need to inflate up those costs in one way or
another if it’s actually a delay.

In our example, it’s a cost overrun, and it’s also a delay. It could be
that you’re ahead of schedule and, in fact, it’s cost you less than
you expect, and your new budget at completion is lower. If you’re
going to use the old cost, it means that you don’t believe what
happened to help you at the beginning is going to continue to
persist through the rest of the project. As long as you believe that’s
true, this is a very logical method to use to integrate, to create a
forecast.

Watch: Forecasting Cost Method 2, Using CPI

Another mechanism to create a forecast would be to use the cost
performance index to somehow scale the cost of the remaining
work, based on the cost efficiency, you have been able to achieve
up to this point in time in the project. You could also integrate into
that estimate the scheduled performance index.

Transcript

So in the previous discussion of how to estimate costs, we simply
took remaining cost on the project. We took the old schedule, the
planned schedule for the activities that hadn’t been done and
simply grabbed their costs. We added that to the actual cost to
create the budget at completion, what we expect the entire project
to cost us. We didn’t translate any impacts that actual cost turned
out to be from what we planned them to be into impacts on later
activity costs. We did that under the assumption that whatever
happened in the beginning to make the cost higher or lower than
what we expected, was really confined to that part of the project
and wouldn’t leak over to the new parts of the project, the ones we
haven’t done yet. You could make an alternative argument in many
cases, that in fact whatever has happened in the past is reflective
of the future.

So whatever inefficiencies we had with respect to cost previously
will haunt us for the rest of the project or whatever breaks we had
with respect to costs will actually will see more benefits later on of

that same character. So if we believe that that is actually true, we
can use the cost performance index to scale the cost of the
remaining work. And use that to estimate the cost of the future
work that we haven’t done yet. We wed that to the actual cost
we’ve already incurred, we now have a forecast for future cost, or
for total cost of the project. So just to remind you, CPI or Cost
Performance Index is earned value divided by actual cost. So if we
were to use this method, we could take the entire planned cost of
the project and divide by our CPI, and that would give us an
estimate of the final cost for the project.

Okay, that amounts to taking planned cost, multiplying by actual
cost, and then dividing by earned value. Again, this is going to
assume that whatever cost based efficiency we’ve been
experiencing in the past we’ll experience in the future. So if we go
back to our old example, we had $159,000 project, that’s what we
expected it to cost us. As of December 1, 2016 We had spent
$61,000, we had gotten $55,000 in value. We had a CPI of .902
approximately. So if you take 159,000 and divide it by .0902 You
get about $176,270. This amounts to us forecasting that there will
be a cost overrun in the vicinity of $17,000. That just takes the
efficiency we’ve seen to date, in terms of our project, and in terms
of cost, and projects the same one into the future. So as long as
you believe past performance is reflective of future performance,
this is a very logical way to do it, but it’s focused on cost overrun,
or cost performance, cost efficiency. We haven’t integrated
anything about schedule efficiency in here.

Course Project, Part Three: Forecasting Project
Cost

Now you will use the methods presented in this module to practice
forecasting cost. This is a critical part of earned value
management. Having the ability to forecast cost effectively will help
you deliver better results for your organization on your projects.

Completion of this project is a course requirement.
Instructions:

If you have not already done so, download the “Using Earned
Value Management for Project Managers” course project.
Complete Part Three.
Save your work.
Review your completed course project, then click the Submit
Assignment button on this page to attach your course project
document and send it to your instructor for evaluation and credit.

Before you begin:
Review the grading rubric for this assignment. Please
review eCornell’s policy regarding plagiarism.
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Cornell University
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Module Wrap-up: Forecast Project Cost

Project control involves more than just monitoring efforts and
tracking costs on an ongoing basis. You also need to be able to
gather critical information throughout execution so that you can
accurately predict costs going forward. You’ll use earned value to
help make those predictions. You have now explored how to
create an updated forecast of final costs. Constructing the forecast
will take the actual project costs and marry them in some way with
your estimate of what’s coming to get a final budget at completion
or a final cost at the end. There are many options available to
project managers to create these estimates of final costs, and in
this module, you examined some of them.

Linda K. Nozick
Professor and Director

Civil and Environmental Engineering
Cornell University

Congratulations on completing “Using Earned Value
Management for Project Managers.” I hope you now feel more
comfortable using different methods to forecast cost, calculate
earned value and both the schedule and cost performance
index, and use these tools to help implement better project
controls.

I hope you are in a better position to use effective tools and
strategies to serve your projects and your organization.

From all of us at Cornell University and eCornell, thank you for
participating in this course.

Read: Thank You and Farewell
CEPM504: Using Earned Value Management for Project Managers
Cornell University
© 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

Sincerely,

Linda K. Nozick
Back to Table of Contents
CEPM504: Using Earned Value Management for Project Managers
Cornell University
© 2017 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

Table Of Contents
Meet Your Class
Module 1: Implement Project Controls through Meetings
Module 2: Calculate Planned Cost, Actual Cost, and Earned Value
Module 3: Forecast Project Cost

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