Project Management Performance Measurement and Closure

Project Performance Measurement and Closure

Budgets and time are essential quantitative measures used to assess performance. Measuring performance against budget is not as easy as a qualitative measurement which can be quickly done by actual use or on-site inspection. It is more complex. To facilitate effective project performance measurement, variance and Cost Performance Index are recommended. Therefore, the earned value (EV) is crucial since it provides a realistic performance estimate against a time0phased budget. Hence, many companies and projects use variance analysis differently.

Variance analysis shows the variation between the planned and the actual outcome or behavior of a project by establishing the difference between the actual performance and the baseline. It’s also essential in maintaining control over a project (Carr, 1993). Three values are involved when using these parameters, namely, the scheduled work’s planned cost (PV), the completed work’s actual cost (AC), and the completed work’s budget cost (EV). Thus, this paper will analyze how the variance metrics, namely, Cost Variance (CV) and Schedule Variance (SV), and the Cost Performance Index (CPI) metric operate in assessing project performance and closure.

Schedule Variance (SV)

Schedule Variance is a tool to measure the variation between the planned value (PV) and the earned value (EV). It is a general assessment of all the packages of the work or tasks in the project. This metric combines noncritical and critical activities in the value’s calculation. Also, it is expressed in monetary units, mainly in dollars. Therefore, this tool measures the degree to which the project is behind or ahead of schedule (Carr, 1993). Hence, it is calculated by the formula,

SV=EV-PV

This formula expresses the schedule variance based on cost. This indicates the cost of the work that’s not complete in alignment with the initial schedule or the completed work’s cost. Hence, a positive SV value shows the project is going as planned or ahead of schedule. On the contrary, a negative SV shows that the project is lagging or behind schedule. It is a very effective tool for showing the project’s direction, provided that at least 20% of the project is already complete.

Cost Variance

This is another metric used to assess the performance of a project. This metric is used to determine if the already accomplished work costs less or more than the initially planned cost within the project’s duration. If materials and labor were not separated, the CV should be carefully analyzed to segregate the cause to either or both. Thus, this metric evaluates the project’s financial performance. Ideal cost variance is arrived at when the ACWP is equal to the BCWP. CV can be either negative or positive. This is based on how close the mentioned values are. This tool is also crucial since it helps the project managers and owners to keep track of the finances injected into the project as the project goes on. This metric is calculated using the following formula (Carr, 1993).

CV=EV-AC

Cost Performance Index

This metric or tool is used to measure the degree of closeness of the actual work completed to the cost incurred at a specific point in a project. In most cases, practitioners prefer using the cost or schedule indexes instead of the absolute values of the CV and the SV. Indexes are mainly preferred because they are considered highly efficient compared to the absolute values of the two metrics. This is where the CPI comes into play. When the index is graphed, the project’s life cycle result can be beneficial and illuminating since it easily identifies the deliverables in the whole project (Christensen & Heise, 1993). Thus, it is calculated by the following formula,

CPI=EV/AC

Hence, a CPI value of 1.00 demonstrates that the project’s progress is as planned and on cost. A CPI value of <1.00 demonstrates that the project’s progress is already the planned cost, or over cost, and a value of >1.00 shows an under cost. This index is the most used and accepted since it has undergone various testing and proved to be the most reliable, stable, and accurate, mainly when used in a project at least 20 percent complete. It is crucial because it provides early warning signs regarding the project’s cost, which allows for appropriate and timely adjustments. For instance, assuming that a project’s EV is 160 and the AC is 230, the CPI would be as follows; (Christensen & Heise, 1993).

CPI=EV/AC

CPI=160/230

CPI=0.696, OR 0.70

The CPI value, in this case, indicates that $70 worth of the project work is complete or done for every $1.00 spent. This is an unfavorable condition since it shows an over cost.

Demonstration

The following data will demonstrate the above metrics and what they mean for a particular project. The above formulas are applied to the tools. Cost variance is given as (EV-AC), schedule variance as (EV-PV), and cost performance index as (EV/AC). Data obtained will be used as feedback and interpreted to indicate the actual situation regarding the project.

Earned Value Figures

PV EV AC SV CV

598,340 576,164 606,900 -22,176 -30,736

Based on this data, the SV value is negative. This shows that the work completed is behind the project schedule. The CV is also negative, showing that the work completed to date is over the project’s initial budget. A positive indicator would be if the values were zero, meaning it would be on schedule and the budgeted cost, respectively, or a positive value to indicate the project is ahead of schedule and under the budgeted cost.