Question

A project to build a new taxiway at Culpepper Airport is 5 days behind at day 65. It had a planned cost of $735,000 for this point in time, but the actual cost is only $550,000. Estimate the variances and what do they say about the health of the project? Re-estimate if the actual cost to date had been $750,000.

Answer 1

Planned Value for 65 day time = $735000

Actual Cost incurred = $550000

Earned Value = Budgeted cost per day * Work days completed

Earned Value = 735000/65*60 = $678461 (rounded off to nearest dollar)

Cost Variance = Earned Value - Actual cost

Cost Variance = $678461 - $550000 = $128461

Schedule Variance = Earned Value - Planned Value

Schedule Variance = $678461 - $735000 = -$56539

Since the cost variance of the project is positive, this means the project is within the budget and sine the schedule variance is negative, this means the project is behind schedule.

If the actual cost incurred is $750000. then,

No change in schedule variance. But cost variance will change which are as follow:

Cost Variance = $678461 - $750000 = -$71539

Now negative cost variance shows the project is over-budget.