# W7_SSG_Estimate Final Cost Using Earn Value considering SPI

PROBLEM DEFINITION

After we sign the project contract, we start doing the job. While project is in progress, we need to forecast final cost of the project.

DEVELOPMENT OF FEASIBLE ALTERNATIVES

In order to be able to forecast the final cost, there are some factors to be considered, i.e. Plan value, Earn Value, actual cost, Cost performance Index, and Schedule Performance Index. We will develop final forecast cost by considering above variable.

DEVELOPMENT OF OUTCOMES FOR EACH ALTERNATIVE

As plan value directly related to progress, the breakdown of the plan value, earn value, an actual cost, CPI, and SPI is referring to progress breakdown structure, i.e. Product Breakdown Structure (PBS) of Norzok Z-014.

Level 1- Budget Value of Project

Overall Budget Value will be on Top Level (Level 1, PBS View) and will be broken down in to following value:

Figure 1. Level 1 Project Budget of Project (PBS view)

Level 2- Activities weighting factor

Level 2 budget will be broken down in to phase level (SAB –point of view) with it’s value :

Figure 2. Level 2 Weight Factor (point PBS point of view)

SELECTION OF CRITERIA

There are some criterion to be an acceptable progress measurement. Some of them are:

Earn Value calculation is generated to sufficient detail.

ü     CPI & SPI cover all the progress element

ü       CPI&SPI calculation is based on account that progress > 25 %.

ü       The equation used to estimate final cost is following:

Equation 1

IAC = AC + ((BAC-EV)/((80%xCPI)+(20%xSPI)))

Equation 2

IAC = AC + ((BAC-EV)/(CPIxSPI)))

Where:

IAC = Independent Estimate at Completion

AC = Actual Cumulative Cost

BAC = Budgeted at Completion

EV = Earned Value

SPI = Schedule Performance Index

CPI = Schedule Performance Index

ANALYSIS FOR THE ALTERNATIVES

Below is the Estimate final value by considering CPI and SPI using equation 1 and equation 2 above as of October 5, 2013 on level 0 (Product Breakdown Structure).

Figure 3. Project Level Estimate Final Cost (PBS view)

For the monitoring and forecasting purpose, below is the project status as per October 5, 2013.

Figure 4. Project Status as per October 5, 2013

SELECTION ON THE PREFERRED ALTERNATIVES

Below are selected alternative for Onshore Gas Production & Pipeline Projects forecasting cost result:

Figure 5, Cost Forecast using Earn value considering SPI

PERFORMANCE MONITORING AND POST EVALUATION RESULT

Based on the status above that project SPI 0,84 < 1,0, the project is delay and CPI 0,79<1 means the project is tend to overrun.  Based equation 2, forecast final cost will be overrun 44.8% and based on equation 1, forecast final cost will be overrun 27,87%.

REFERENCES

Gary C. Humphreys.(2011).Project Management using Earn value 2nd Edition. Humphreys & Associate Management Consultant.

Norsok Standard.(2012).Standard Cost Coding System. Access October 04, 2013 from

http://www.standard.no/PageFiles/22773/Z-014%20Edition%202%20May%202012.pdf

Ecosys.(2013).Earn Value Management. Access October 05, 2013 from

http://www.ecosys.net/solutions/earned-value-management/

Paradip Mehta.(2013).Applying Earn Value on Both Small and Large Projects.Access October 05, 2013 from

The University of New Mexico.(2006). Brief Introduction to Earned Value Management (EVM).Access October 05, 2013 from

http://www.ece.vt.edu/swe/lwa/memo/lwa0066.pdf

Department Energy of United States.(2013). Earn Value Management Tutorial.Access October 05, 2013 from

http://www.srs.gov/general/EFCOG/04Training/DOETutorials/Module2WBS.pdf

Eleanor Haupt.(2013). Basic of Earn Value Management.Access October 05, 2013 from

http://www.projectmanager.org/pdfarchives/2006_conf/Basics_of_EVM_PartII-Eleanor_Haupt.pdf

Filed under Sutoyo S, Week 07

### 2 responses to “W7_SSG_Estimate Final Cost Using Earn Value considering SPI”

1. Better check this formula out……. Where did you see anyplace where the COST is being predicted by the SPI alone?

What CAN you use the SPI alone to predict? HINT: Google on “Earned Time”)

You need to go back and study the Gold Card formula and then answer the questions in Humphrey’s…..

BR,
Dr. PDG, Jakarta

• Sutoyo Saragih

Pak Paul,
In this excercise, it’s not SPI alone to be considered to predict EAC but also the CPI.
In the equation 1. You can see that EAC is a function of AC, BAC, EV, 80% of CPI, and 20% of SPI. While in the Equation2, IEAC is a function of AC, BAC, EV, and “CPI x SPI”. So both equation is considering SPI & CPI to predict the EAC.
CMIIW.

Sutoyo