PMP Terminologies

PMP Terminologies
Here are a few terms related to the Cost Knowledge area.
Control Account vs Work Package


Once the scope is divided in the form of WBS, work
packages and activity level, when it comes to tracking or monitoring and
controlling, it is very difficult to track the project at very high level or
at the lowest leve which is activity level. So to manage better we take a
point between the WBS and work package, which we call it as Control Account.
Control Account is a management control point where scope,
cost and schedule are integrated and compared to the earned value for the
performance measurement. Control Account are placed at the selected
management points in the WBS. Each Control Account is defined with a unique
code or an accounting number which can be used to link to the performing
account system.
Work Package is a deliverable which is obtained after
decomposing the WBS. Further if required work packages are divided into
activity level. The control account is having one or more work packages. The
following figure shows about the relation or the hierarchy in which each of
the components placed.




















































Cost Baseline vs Cost Budget (Budget)
During the
cost estimation the Project Manager will come with some figure and will add
contingency reserve which will become the Cost Baseline.
On top of
cost baseline based on the risk assessment management reserve will be added.
Then it becomes the Budget of the project. So the difference between the cost
baseline and the budget us called the Management reserve which we call it as
unknown unknown (unknown).
Earned Value Management(EVM)
Let’s catch
up with some of the terms as well as formula used to find out the project
progress in terms of earnings. The following table provides both the definition
and the formula.


Acronym


Term


Explanation




PV


Planned
Value


How much
worth of work we have planned or supposed to complete as on day?




EV


Earned
Value


How much
worth of work we have achieved as on day.




AC


Actual
Cost


Actual
cost spent to complete the work as on day.




BAC


Budget
At Completion


The
Budgeted amount for the total work(Total value of the project)




EAC


Estimate
At Completion


The
current estimate for the total project cost




ETC


Estimate
to Complete


From
this point, how much more the project
would cost to complete




VAC


Variance
at Completion


How much
over or under budget we expect to be at the end of the project.









Acronym


Formula


Explanation




Cost
Variance (CV)


EV-AC


Negative is over budget, positive is under budget.




Schedule
Variance (SV)


EV-PV


Negative is behind schedule, Positive is ahead of schedule.




Cost
Performance Index (CPI)


EV/AC


We are getting $_____ worth of work out of every $1 spent.




Schedule
Performance Index (SPI)


EV/PV


We are progressing at ________ percent of the rate originally planned.





Estimate
At Completion (EAC)


BAC/CPI


How much more do we expect the Project to cost




Estimate
to complete (ETC)


EAC-AC


How much more the Project would cost.




Variance
at Completion


BAC-EAC


How much
over or under budget we expect to be at the end of the Project.



For example,
let’s take a project worth $4M to be completed over a span of 4 months. And it
is assumed that the planned or the estimated work roadmap is linearly
distributed, in the sense at the end of 1st month, it is supposed to
complete 25% of work and the cost should be $1M, at the end of 2nd
month, 50% to be completed and spending should be $2M and so on. Let’s take the
progress data of this project at the end of 3rd month. Assume the
project is completed 60% of the work and spent about $3.5M. What is the
condition of project?
From the
above case, we can define following values:
Actual Cost(AC)=$3.5M,
Earned Value(EV) is 60% of $4M= $2.4M and Planned value(PV) is 75% of 4$M=$3M.
Now rest of
the calculations are simple.
CV=EV-AC=2.4-3.5=-1.1,
SV=EV-PV=2.4-3=-0.6, CPI=EV/AC=2.4/3.5=0.69 and SPI=EV/PV=2.4/3=0.8. What is
the meaning of this? The bottom line is project is in the bad condition because
of negative values in case of variance and the performance indices are below 1.
The project is over budget, behind the schedule by values of $1.1M and $0.6M
respectively. And for every $1 spent we are getting only 69 cents and the
project is progressing at the rate of 80% originally planned.