Section 4

Knowledge Exam preparation Course

Real Exam Course Simulations

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 Section 4
Progress and Control

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 SECTION 4 – Progress and Control
Chapter 14 – Earned Value Overview
Chapter 15 – Performance and Productivity Management

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  Control Costs
The cost baseline is the approved version of the time-phased project budget,
excluding any management reserves. (S- Curve)

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  Earned Value Management
• Planned value. Planned value (PV) OR (bcws) is the authorized budget assigned to
scheduled work
• Earned value. Earned value (EV) or (BCWP) is a measure of work performed expressed
in terms of the budget authorized for that work. (BC WP = Budget X % Progress)
• Actual cost. Actual cost (AC) or (ACWP) is the realized cost incurred for the work
performed on an activity during a specific time period.

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 S

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 FENCE # 1
You have to construct a fence. You as project manager planned works to be done
:
- one day construction duration for each side
- Relationship between activities in FS relationship
- Budget cost is 1000$ per one side
- BAC = Budget At Completion = 4000$

After 3 days you have been asked to submit a control report, you decided to
perform earned value analysis.
The information received from site up to day 3 is:
- Side one : Done 100% on time and Actual Cost 1000$
- Side two : Done 100% with a little delay than planned and actual cost 1200$
- Side three : Done 50% and actual cost 600$

You issued a control stating that :

- Project is ____________ Schedule
- Project is ____________ Budget
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 WHAT IS: CALCULATION ANSWER INTERPRETATION OF THE
ANSWER
BCWS 1,000 plus 1,000 plus 1,000 3,000 We should have done $3,000 worth
of work.
BCWP Complete, complete, half 2,500 We budgeted $2,500 for the work
done or 1,000 plus 1,000 plus we completed.
500
ACWP 1,000 plus 1,200 plus 600 2,800 We actually spent $2,800.
BAC 1,000 plus 1,000 plus 1,000 4,000 Our project budget is $4,000.
plus 1,000
CV 2,500 minus 2,800 -300 We are over budget by $300.
CPI 2,500 divided by 2,800 0.893 We are only getting 89 cents out of
every dollar we put into the project.
SV 2,500 minus 3,000 -500 We are behind schedule.
SPI 2,500 divided by 3,000 0.833 We are only progressing at 83% of
the rate planned.
EAC 4,000 divided by .893 4,479 We currently estimate that the total
project will cost $4,479.
ETC 4,479 minus 2,800 1,679 We need to spend $1,679 to finish
the project.
VAC 4,000 minus 4479 -479 We currently expect to be $479
over budget when the project is
completed.

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 To-Complete Performance Index (TCPI)
The to-complete performance index (TCPI) is a measure of the cost performance that is
required to be achieved with the remaining resources in order to meet a specified
management goal
TCPI based on the BAC = (BAC – EV) / (BAC – AC)
TCPI based on the EAC = (BAC – EV) / (EAC – AC)

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Cost
------------- Budget

------------- Schedule

AC

PV
EV

Time
Month 6

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 Break - Even Analysis

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 Break Even Definition:- The point at which sales revenues equal production costs
Algebraic determination of the Break-Even Point
1- Sales Value = Production costs ---- 1
2- Sales Value = (Sales Volume ) x (Unit Sales Price) ---- 2
3- Production Costs = (Fixed Costs) + (Variable Unit Costs) x (Sales Volume) ---- 3
X = Production (Sales) Volume at the break-even point
Y = Sales Value (= Production Costs)
F = Fixed Costs
P = Unit Sales Price
V = Variable Unit Costs
The following algebraic expressions are derived:
Equation for Sales : Y = PX ---- 2a
Equation or Production Costs : Y = VX +F ---- 3a
PX = VX + F ---- 1a
X = F / (P-V) --- Break-Even Equation ----- Eq. 4
The Break-Even point is determined by the relationship between the :
Fixed costs &The difference of the unit sales price and variable unit costs

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 3- Expressed in terms of Rate of
Capacity:
Break-Even analysis lends itself easily to sensitivity analysis, particularly
with the following modified equation, which is used to calculate the rate of
capacity utilization at the break-even point

BEP = F / (R-V) = 3,280,000 / (12,500,000 – 6,500,000) = 55%

Break-Even Point can be reached at a capacity utilization of : 55%

In this way, BEP can be very useful in determining the impact of changes in unit prices, and in fixed
and variable production costs, on the BEP of a project

The above approach has the advantage of enabling the Project Planner to calculate several break-even
points, taking into account alternative investment proposals resulting from different installed
capacities or alternative technological processes.

Changes in the installed capacity cause variations in the fixed costs.

Changes in the technological process also have an impact on the variable costs since, for example, a
technological more advanced ( and more costly) process normally leads to lower variable unit costs,
particularly as far as labor costs are concerned.
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 PRODUCTIVITY ANALYSIS
Method 1—Units Completed—
• This method is applicable to tasks that involve repeated production of easily
measured pieces of work, when each piece requires approximately the
same level of effort.
For example, if 10,000 linear meters (LM) of wire is to be
pulled, and 4000 LM have been pulled, the percent
complete is found by dividing 4000 LM by 10000 LM to
show 40 percent complete

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MEASURING WORK PROGRESS:-
Method 2—Incremental Milestone
• This method is applicable to any control account that includes subtasks that
must be handled in sequence. For example, installing a major vessel in an
industrial facility includes the sequential tasks or operations listed

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 Method 3—Start/Finish—
• This method is applicable to tasks that lack readily definable intermediate
milestones or
- those for which the effort/time required is very difficult to estimate

In the start/finish approach, a percent complete is arbitrarily assigned to the

start of a task, and 100 percent is recorded when the task is finished.

•A starting percentage of 50 percent is equivalent to a task completed at a

constant rate over time, and is reasonable for short duration, lower-value tasks.
•
•For tasks with a longer duration or a higher value, a lesser percentage
(20-30 percent) would probably be used.
This is because the percentage directly affects progress payments, and an
owner will hesitate to recognize too much completion in advance.

For very short tasks, the start/finish percentages are usually 0 percent/100
percent.

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 Method 4—Supervisor Opinion—
In this method, the supervisor simply makes a judgment of percent complete.

The major problem with this approach is that some supervisors are optimists
and some are pessimists; thus, there could be major differences of opinion as to
the progress reported for the same or similar tasks.

This is a subjective approach and should be used only for relatively minor tasks
and only where developing a more discrete status is not feasible.

(Dewatering, temporary construction, architectural trim, and landscaping are

candidates for application of this approach.)

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Method 5—Cost Ratio—
This method is applicable to tasks that involve a long period of time or that are
continuous during the life of a project, and which are estimated and budgeted
on bulk allocations of dollars and work hours rather than on the basis of
production. Project management, quality assurance, contract administration,
and project controls are areas where the cost ratio method may be applied.
With the cost ratio method, percent complete is found as follows:

percent complete = actual cost or workhours to date

forecast at completion

Method 6—Weighted or Equivalent Units—This method is applicable when

the task being controlled involves a long period of time and is composed of two
or more overlapping subtasks, each with a different unit of work measurement.
To handle this, each subtask is weighted according to the estimated level of
effort (usually work hours) that will be dedicated to that subtask.

These weights are called “rules of credit.”

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 Chapter 15 – Performance and Productivity Management

Productivity is discussed and is related to the variabilities that may occur on

projects as it relates to:
• Sociological (area) factors
• Location factors
• Human factors
• Field organization and management factors
• Accounting and estimates formats

Productivity and performance analysis is also discussed in terms of the following:

• Determining percent complete
• Productivity measurement of individual work tasks
• Use of productivity data

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 • Companies in the business world are constantly concerned with:
-improving their bottom line
-increasing their rate of return on investment,
- increasing the ratio of profit to revenues,
or simply increasing total profit.

• Using programs with buzzword titles such as:-

productivity improvement, total quality management, re-engineering, time-based
competition, horizontal management, down-sizing, and right-sizing, they reorganize,
trim staffs, invest in training, automate, computerize, and otherwise do whatever is
considered necessary to optimize or maximize the company's performance and beat
the competition.
But, whatever the name of the program, the goal is the same
spend less to make more money
or spend less to provide the same or better service.
For production type activities, this translates into reducing worker and equipment
hours per unit of output—i.e., improving productivity.
For support and professional activities it means improving efficiency.
For all activities, it includes reducing waste of time, materials, and equipment.
Altogether it means improving the outcome of the total organization
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 SUCCESS INDEX
Numerical evaluation of total organizational performance is possible using the success
index (SI).
It could be called the performance index, but doing so might cause it to be confused
with the productivity index (PI) to be described and used later. Equation 1 is the
formula for the success index for a profit-oriented business.
Equation 2 is for a service organization, such as a government.

success index = net profit (equation 1)

total costs

success index = value of services rendered (equation 2)

costs of providing services
It should be noted that the success index is really an expression of organizational
productivity because:
it relates a form of output (profit or value) to a form of input (cost).

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Waste Through Interruptions
Take the typical office situation shown in Figure 17.3 where an individual is trying to write a
report: a series of interruptions in the form of telephone calls and visitors
reduces the individual's average productivity significantly.

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The productivity index (PI) for a combination of work packages or for a total project uses
this formula:
productivity index = (Σ CWH ÷ Σ actual work hours).
The format of these equations is such that an index of less than 1.0 is unfavorable, while
one equal to or greater than 1.0 is favorable.

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 B, $766,300/58,273 = $13.15 / WH

D 21,362/35,002 = 61% complete

D .48/.6 = 0.8 productivity

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