Question

You got a contract to produce 1000 widgets for the US government. Your initial budget indicated you would produce 200 widgets a week at a cost of $10/widget. You are required to use the Earned Value Method for progress reports. After 1 week you produced 250 widgets at an actual cost of $2300. What Cost Variance, Schedule Variance and Estimate at Completion will you report?

Answer 1

Actual cost = $2300

Earned value (EV) = 250 * $10 = $2500

Planned value (PV) = 200*10= $2000

SV = EV – PV = 2500 - 2000 = $500

CV = EV - AC = 2500 - 2300 = $200

SPI = EV/PV = 2500 / 2000 = 1.25

CPI = EV / AC = 2500/2300 = 1.09

There are three different methods to arrive at Estimate at completion

Method 1 - If CPI would remain same, (Budget at Completion) / (Cost Performance Index)

EAC = (1000 * 10) / 1.09 = 9174

Method 2 - If the deviation in week 1 was one off case

EAC = Budget at completion + Actual cost - EV = 10000 + 2300 - 2500 = $9800

Method 3 - If all the parameters of Cost and Schedule will continue for coming weeks

EAC = AC + (BAC – EV) / (CPI * SPI) = 2300 + (10000 - 2500) / (1.09*1.25) = $7804.5

We should report EAC of method 2 as productivity in Week 1 could be one off case and project will continue as normal for coming weeks.