Project managers meet the project cost objective when the total amount money spent at the end of the project is under budget. Project budget is a big constraint since the project is authorized and it should only be changed using formal change control procedures.
To get the project finished under budget, we need to measure cost performance on each review date. Earned Value Management (EVM) is the ANSI 748 standard method to measure the project cost performance objectively. According to EVM standard, as of each status date, three measures are enough to analyze the project cost performance:
EVM provides two kinds of metrics: Lagging indicators to measure cumulated variations up to status date; and leading indicators to forecast final cost at project closing. This information helps steering committee make decisions and request preventive or corrective actions. Measure and adjust periodically is the key to finish the project on budget.
Let’s check a real example of a project with an initial budget of €750k. Project cost is controlled using only 3 work packages:
Let’s move to the review meeting after 80 days since the project was started. Work performance data shows this information regarding scope and schedule:
However, cost performance measures tell us that cost performance to date is not acceptable. These charts show the project cost performance after 80 days of execution:
In the middle of the project, checking cost performance data –Planned Value = €466.8k, Actual Cost = €333,6k and Earned Value= €233.4k– we can say that cost performance so far is not good:
This trend chart shows how over cost has evolved to reach €100.2k:
Schedule variance time has decreased up to 36 days of delay:
Root analysis found that client was asking for more requirements without accepting deliverables. Following the escalating process, a meeting was called to extend scope, schedule (+2 months) and cost (+€50k). Budget at Completion –BAC– was increased from €750k to €800k. Project cost was rebaselined:
Finally, EVM charts show that the project finished with an over cost of €55K, very high for sure, but not so high as estimated in the previous report of €322k. In fact, charts show the positive change after rebaseline.
Professional project managers can control project performance effectively with PMPeople.