Operations and Supply Chain Management The Core

PROJECTS chapter 5 137
Step 1: Calculate the Budgeted Cost of Work Scheduled (BCWS) given the current state of the project.
This is the value or cost of the project that is expected, given the project is at time X:
Activity A − 100% of $18K = $18K
Activity B − 100% of $10K = $10K
Activity C − 80% of $20K = $16K
Activity D − 15% of $40K = $6K
BCWS = $18K + $10K + $16K + $6K = $50K
Step 2: Calculate the Budgeted Cost of Work Performed (BCWP) given the current state of the project.
This is the actual value or cost of the project to date, given the project is at time X:
Activity A − 100% of $18K = $18K
Activity B − 80% of $10K = $8K
Activity C − 70% of $20K = $14K
Activity D − 0% of $40K = $0
BCWP = $18K + $8K + $14K + $0K = $40K
Step 3: Obtain the Actual Cost (AC) of the work performed. This would need to be obtained from
accounting records for the project. Assume that the actual cost for this project to date is $45K.
AC = $45K (Data from Acct. System)
Step 4: Calculate key performance measures for the project:
Schedule Variance: This is the difference between the Budgeted Cost of Work Performed (BCWP)
and the Budgeted Cost of Work Scheduled (BCWS) for the project:
Schedule Variance = BCWP − BCWS
Schedule Variance = $40K − $50K = −$10K
Greater than 0 is generally good because it implies that the project is ahead of schedule.
Schedule Performance Index: This is the ratio of the BCWP versus the BCWS for the project:
Schedule Performance Index = BCWP/BCWS
Schedule Performance Index = $40K − $50K = $0.8
Greater than 1 is generally good because it implies that the project is ahead of schedule.
Cost Variance: This is the difference between BCWP and the Actual Cost (AC):
Cost Variance = BCWP − AC
Cost Variance = $40K − $45K = −$5K
Greater than zero is generally good as it implies underbudget.
Cost Performance Index: This is the ratio of the BCWP versus the AC for the project to date:
Cost Performance Index = BCWP/AC
Cost Performance Index = $40K/$45K = $0.89
<1 means the cost of completing the work is higher than planned, which is bad;
=1 means the cost of completing the work is right on plan, which is good;
>1 means the cost of completing the work is lower than planned, which is usually good.
That means the project is spending about $1.13 for every $1.00 of budgeted work accomplished. This
is not very good as the project is overbudget and tasks are not being completed on time or on budget.
A Schedule Performance Index and a Cost Performance Index greater than one are desirable.
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