# W9_SSG_Estimate Final Cost Using Earn Value – Most Likely

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 criterions to be an acceptable progress measurement. Some of them are:

ü  Earn Value calculation is generated to sufficient detail.

ü  All CPI elemet cover all the progress element

ü  CPI 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)))

Equation 3

IAC = ((AC-EV)/((EV/AC)))

Equation 4

IAC = AC + (EACmax + 2 EAC med + EAC min)/4

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

EAC max = maksimum EAC of equation 1,2 or 3

EAC min = minimum EAC of equation 1,2 or 3

EAC med = median EAC of equation 1,2 or 3

EAC (most Likely) = EAC mostlikely of equation 4

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 of equation 1,2,3 (PBS view)

Figure 4. EAC (mostlikely) of Estimate Final Cost of equation 1,2,3 (PBS view)

For the monitoring and forecasting purpose, below is the project status as per October 5, 2013 using EAC (most likely) method.

Figure 5. Project Status as per October 5, 2013 (most likely)

SELECTION ON THE PREFERRED ALTERNATIVES

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

Figure 6, Cost Forecast using Earn value (most likely)

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. Final cost estimate overrun US 32,6K / 32.6%.

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 09

### 2 responses to “W9_SSG_Estimate Final Cost Using Earn Value – Most Likely”

1. EXCELLENT case study Pak Sutoyo and you did a great job on your analysis but I deducted one star from what otherwise a 5 star posting because you are using the PMI conventions (AC, EV, and PV) instead of the “official” ACWP, BCWP and BCWS acronyms. Why is this important? Because on your AACE exams, you are almost surely going to see the “official” acronyms and not the PMI ones. So better you get in the habit of using those NOW in preparation for the exam and you can always revert back to the PMI acronyms after you pass your AACE exams.

The other reason I deducted some points is because some of your citations were not done correctly. Suggest you review the OWL@Purdue https://owl.english.purdue.edu/owl/resource/560/01/ and you will see that the correct APA formatting is LAST NAME, First Initial…… Look at how you cited Humphrey’s, Mehta and Haupt….. All three of them were done wrong.

Why am I being so particular? Because when you write your paper, part of the grading rubric is whether you used APA formatting correctly and I don’t want to see you taking the risk of losing points for something as foolish as not doing the formatting correctly.

Make sense?

BR,
Dr. PDG, Jakarta

• Sutoyo Saragih

Thanks Pak Paul..especially for being Particular, that what I exactly looking for Pak.