W7.1_SSG_Estimate Final Cost Using Earn Value considering CPI & 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

Figure 1. Level 1. Contract Value

Level 2- Budget for Each Facility

Overall Budget Value will be based on Facilities (Level 2, PBS View) and will be broken down in to “Well Cluster and Central Processing”, “Utilities Facility”.

Figure 2. Level 2. Product Breakdown / Facilities

Level 3- Activities weighting factor

Level 3 budget will be broken down in to phase level which Project Management, Engineering, Procurement, and Construction.

Figure 3. Level 3 Phasing of Project

 

Level 4- Activities weighting factor

Level 4 budget will be broken down in to activities level where the progress will be inputted directly.

Figure 4. Level 4 Project Activities

  

SELECTION OF CRITERIA

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

ü  Earn Value calculation is generated to sufficient detail.

ü  CPI & SPI cover all the progress element

ü  The equation used to estimate final cost is following:

ANALYSIS FOR THE ALTERNATIVES

As we can see in the table 1 above, we find that the overall variance using equation 1. Comes to  -25.7% (saving) while using equation 2. +43.7% (overrun).  This tells us that choosing the wrong equation will drive us to big different final cost estimate.

On table 2, we can see that that Facility of “Well Cluster and Central Processing” are overrun 15.75% by using equation 1, and 177% by using equation 2 while for utilities facility will be saving -56.84% and -56.53% using equation 1 and equation 2 respectively.

If we go deeper to lower level, we can see that some of the activities and some of them are overrun. In this case, we need to be focus on the item that tend to overrun and delay where     CPI <1,0 and SPI < 1.0 to mitigate the project.

For deeper analysis, it need more analysis which one is the best formula to which CPI & SPI.

SELECTION ON THE PREFERRED ALTERNATIVES

The preferred alternatives has been broken down in Figure 6.

 

PERFORMANCE MONITORING AND POST EVALUATION RESULT

If we analysis to Level 4, we can find which activities is tend to overrun and behind schedule. We need to monitor this closely and make significant mitigation i.e. increase effectiveness to recover the CPI.

REFERENCES

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

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

United States Government Accountability Office.(2012).GAO Schedule Assessment Guideline.Access October 8, 2013, from

http://www.gao.gov/products/GAO-12-120G

Ecosys.(2013).Progress Measurement. Access October 05, 2013 from

http://www.ecosys.net/solutions/progress-measurement/

KLM Technology Group.(2013).Progress Measurement Procedure.Access October 05, 2013 from

http://kolmetz.com/pdf/ess/PROJECT_STANDARDS_AND_SPECIFICATIONS_progress_measurement_procedure_Rev01%20web.pdf

Oil and Gas Engineering Guide.(2013).Effective Engineering Progress Monitoring.Access October 5, 2013 from

http://www.toblog.fr/en/baron/article/additions-for-the-next-edition/effective-engineering-progress-monitoring/blog.html

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1 Comment

Filed under Sutoyo S, Week 07

One response to “W7.1_SSG_Estimate Final Cost Using Earn Value considering CPI & SPI

  1. OK Pak Sutoyo, NOW you are showing a much better understanding with this posting. What you might want to Google on is Simpson’s Paradox. For those who plan on taking the DRMP it would be wise to know and understand what Simpson’s Paradox tells us about using the “wrong” or “inappropriate” level of data collection and analysis.

    Keep up the good work and I really don’t want to have to REJECT anymore of your postings. Take your time, do your research and show me that you know what you are confident you know what you are talking about rather trying to baffle me with bullshit!! 😉

    BR,
    Dr. PDG, Singapore’s Changi Airport.

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