Many project managers manage their project performance by comparing planned to actual results. With this approach, you could easily be on time but overspend according to your plan.
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A better method is Earned Value Management (EVM). Simply stated, EMV compares what you’ve received or produced to what you’ve spent.
Cost variance is one of the most popular variances that project managers use. Cost variance shows whether your actual costs are higher than budgeted (with a resulting negative number) or lower than budgeted (with a resulting positive number).
The cost variance (CV) is calculated as follows:
CV = EV – ACCV = Negative, OVER BUDGETCV = Positive, UNDER BUDGET
In our ExampleCV = $ 375-$ 345 = $ 50 ($50 under budget as of July 1)A negative cost variance is often non-recoverable
Schedule variance, also a popular variance, tells you whether the schedule is ahead or behind what was planned for this period in time. The schedule variance (SV) is calculated as follows:
SV = EV – PVSV = Negative, BEHIND SCHEDULESV = Positive, AHEAD OF SCHEDULE
Lets plug in the numbers:SV = $375-$400 = -$25 (Behind schedule as of July 1)Performance Indexes
Together, the CV and SV are known as efficiency indicators for the project.
Cost and schedule performance indexes, (CPI and SPI) are primarily used to calculate performance efficiencies. They’re often used in trend analysis to predict future performance.
You’ll need to know the calculations and what the results mean.
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Cost Performance Index (CPI)
The cost performance index (CPI) is calculated this way:CPI = EV ÷ AC
Let’s plug in the numbers:CPI = 375 ÷ 325 =1.15Interpretation: as of July 1, we are getting $1.15 for every dollar invested on this project
Schedule Performance Index (SPI)
The schedule performance index (SPI) is calculated this way:SPI = EV ÷ PV
Let’s plug in the numbers:SPI = 375 ÷ 400 =0.94Interpretation: Uh-oh, not so good. You are only progressing at 94% of the rate planned