INFO6007 Chap.5 Cost Baselines and Earned Value Analysis

Cost Baselines and Earned Value Analysis

This chapter estimates, budgets and controls IT project cost. It distinguishes analogous, parametric, bottom up and three point estimating, then separates contingency from management reserve. Earned Value Management integrates scope, schedule and cost using PV, EV and AC, producing variances, performance indices and forecasts that must be interpreted with the correct direction words.

Work package estimates should include labour, technology, suppliers, assurance, training and transition, then be time phased against scheduled work. Contingency reserve covers identified uncertainty inside the performance baseline; management reserve remains outside it for unknown work under higher authority.

Planned Value represents budgeted scheduled work, Earned Value the budgeted value of completed work and Actual Cost the money spent on that work. Their differences and ratios show cost and schedule performance, but the aggregates do not diagnose causes. Managers still investigate completion rules, rework, supplier cost, timing and scope change before recommending action.

A forecast also needs an explicit assumption, such as current cost efficiency continuing.

What this chapter covers

• 01

  Cost types and estimation

• 02

  Contingency and management reserves

• 03

  Time phased cost baseline

• 04

  Planned Value, Earned Value and Actual Cost

• 05

  Cost and schedule variances

• 06

  CPI and SPI

• 07

  Estimate at Completion

• 08

  Label planned value, earned value, actual cost and budget at completion before calculating any variance or performance index

• 09

  Interpret each earned-value result in project language and avoid treating schedule variance as a direct calendar-delay measure

• 10

  Select an estimate-at-completion formula by stating whether observed cost efficiency is expected to continue

• 11

  Use estimate to complete, variance at completion and to-complete performance index to test the credibility of recovery

• 12

  Validate progress rules, rework, supplier cost and baseline change before recommending action from an unfavourable index

• 13

  Keep contingency, management reserve and unauthorised scope distinct when explaining the available project budget

Worked example · free

Forecast a troubled release

Key terms

Cost baseline

The approved time phased budget used to measure cost performance, excluding management reserve.

Cost Performance Index

Earned Value divided by Actual Cost, where a result below one signals cost inefficiency.

Schedule Performance Index

Earned Value divided by Planned Value, where a result below one signals progress behind plan.

Cost Baselines and Earned Value Analysis FAQ

Exam move

Learn cost management from the work upward. Compare analogous, parametric, bottom up and three point estimating by speed, evidence, detail and uncertainty. Use bottom up estimates to connect WBS work packages with labour, supplier, technology, assurance, training and transition costs. Time phase those costs against the schedule to create the baseline.

Keep contingency reserve for identified uncertainty inside the baseline and management reserve for unknown work outside it under the proper authority. Reconcile the total against scope and schedule before using it for control. For earned value, memorise meanings rather than initials. Planned Value is the budgeted cost of work scheduled by the status date. Earned Value is the budgeted cost of work actually completed.

Actual Cost is what that completed work cost. Derive CV as EV minus AC and SV as EV minus PV. Derive CPI as EV divided by AC and SPI as EV divided by PV. Practise with fresh numbers and say every direction aloud: negative CV is over budget, negative SV is behind planned progress, CPI below one is cost inefficient and SPI below one is behind. When using EAC, write the selected formula and its assumption.

BAC divided by CPI assumes current cost efficiency continues; another situation may require another authorised forecasting basis. Do not let a correct aggregate become a false diagnosis. Investigate which work packages created the signal, whether completion rules are credible and whether spending occurred earlier for a justified reason.

Preserve the original baseline unless a change is formally authorised, because rewriting past plans destroys the comparison. For Agile work, explain why changing scope can destabilise Planned Value and why rolling forecasts or business value measures may supplement lightweight EVM. Put formulas and direction tests together on the notes sheet.

In every answer, show calculation, interpretation, likely investigation and governance route for corrective action. The final recommendation should protect value rather than chase a favourable index at the expense of scope or quality.

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