As a project manager, or someone who is studying to become a Project Management Professional, there are very many things that you need to know how to monitor and calculate. When you are just getting started, many of these calculations can seem challenging or daunting. This article will help demystify all of the formulae that you need, and make them easy to understand. Each formula will have a brief description, an explanation, and a logical example.
1. Range of / Expected Activity Duration (EAD)
The Range of Activity Duration, also known as the Expected Activity Duration, is the length of time that it is still expected for the project to take.
The formula for calculating EAD is expressed as follows: EAD = O+P+(4L)/6
In this formula, the Expected Activity Duration is equivalent to one sixth of the sum of the Optimistic Value plus the Pessimistic value plus four times the Most Likely Value.
Let’s look at an example.
Sample Calculation
A project has an Optimistic Value of 5 weeks, a Pessimistic Value of 20 weeks, and a Most-Likely value of 10 weeks.
Expected Activity Duration = Optimistic + Pessimistic + (4 Most-Likely) / 6
EAD = 5 + 20 + (4 10) / 6
EAD = 25 + 40 / 6
EAD = 65 / 6
EAD = 10.83
The expected Activity Duration remaining for this project is 10.83 weeks.
2. Total Float
The Total Float is the total amount of time that a project may be delayed without delaying the end date of said project, or violating a schedule constraint/requirement.
It is expressed as follows:
TF=LS-ES
TF =LF-EF
As you can see, the Total Float may be calculated in one of two different ways.
The Total Float is equivalent to the Late Start minus the Early Start.
The Total Float is also equivalent to the Late Finish minus the Early Finish.
Let us look at an example.
Sample Calculation
A Project has an early start day of 2 and a late start day of 7.
Total Float = Late Start – Early Start
TF = LS – ES
TF = 7 – 2
TF = 5
So, in this case, the project may be delayed by a total of five days without delaying the end time of the project.
3. Communication Channel Formula
The Communication Channel is defined as the amount of ways in which information can flow within the project.
The Project Manager is always the centre of the Communication Channel and,
depending on the way that the project is structured, the information can flow in
any direction.
The equation for the Communication Channel is: C= n (n – 1) / 2
In this equation, the Communication Channel equals half the total number of stakeholders multiplied by the number of stakeholders minus one.
The
variable ‘n’ is the placeholder for the number of stakeholders in the project.
A stakeholder being defined as any team member, sponsor, project member or any
other person with a direct interest in the outcome of the project.
Sample Calculation
A project has 28 shareholders.
Communication Channel = Number of Stakeholders (Number of
Stakeholders -1) /2
C = 28 (28-1) / 2
C = 28 (27) / 2
C = 756 / 2
C = 378
Therefore, in this particular case, there are 378 possible ways for information to move within this company.
4. Standard Deviation (SD)
The Standard Deviation is represented by the Greek letter sigma: σ. It is an analysis tool that measures the variation from the average.
SD is calculated using the following formula: σ = (Pessimistic – Optimistic) / 6
The Standard Deviation is equivalent to one sixth of the total of the Pessimistic Outlook minus the Optimistic Outlook.
Sample Calculation
A company has a Pessimistic Outlook of 20, and an Optimistic Outlook of 5.
σ = (Pessimistic – Optimistic) / 6
σ = (20 – 5) / 6
σ = 15 / 6
σ = 2.5
In SD, a low value means that the points are distributed close to the mean / average. A high value means that the points are distributed far from the average.
5. PERT Formula
PERT is an event-based, 3-point estimation technique – it uses the weighted average of the Pessimistic Duration, Optimistic Duration, and Most-Likely Duration to give an accurate estimate. Before we continue, let’s define these three terms:
Optimistic – An estimate, taking into account all the known variables,
of the shortest possible duration for the project
Pessimistic – An estimate, taking into account all the known variables,
of the longest possible duration for the project
Most-Likely – An estimate, taking into account all the known variables,
of the Most-Likely duration for the project
Beta can be calculated as follows: Beta = (P + 4M + O) / 6
Beta equals one sixth of the sum of the Pessimistic value, the Optimistic Value, and the Most likely value (multiply the Most Likely Value by 4 first).
Let us look at an example.
Sample Calculation
A Project has an Optimistic Case of 12 weeks to finish, a Pessimistic Case of 32 weeks, and a Most-Likely Case of 18 weeks.
Beta = [32 + 4 (18) + 12] / 6
Beta = (32 + 72 + 12) / 6
Beta = 116 / 6
Beta = 19.3
Therefore, the most likely result is that the project will take around 19.3 weeks to complete.
6. Risk Priority Number (RPN)
The Risk Priority Number is a numerical assessment of the risks attached to a process.
RPN is expressed as follows: RPN = Detection × Occurrence × Severity
Severity: a subjective expression of how badly the user will experience the effects of a failure. It is expressed on a scale of 1-10 – (1 = best / 10 = worst).
Occurrence:
a subjective estimation of how likely an error is likely to occur. Again, it is
expressed on a scale of 1-10 – (1 = best / 10 = worst).
Detection:
a subjective estimation of how effective the controls are at detecting failures
and the causes of failures before products/services reach the users. It is also
expressed on a scale of 1-10 – (1 = best / 10 = worst).
Let’s look at an example:
A
company releases a laptop with several potential software glitches. They won’t
be fatal to the laptop, but if they occur they will be frustrating to the user.
We’ll assign a severity rating of 5.
The
chances of the controls finding the failures or reasons for the failures is
quite good, so we’ll give it a Detection rating of 2.
The chances of the glitches actually occurring after the product has reached the user is also quite low, so we will assign an Occurrence rating of 2.
The Risk Performance Number will be determined as follows:
Sample Calculation
Risk Performance Number = Detection × Occurrence × Severity
RPN = 2 × 2 ×5
RPN = 20
Risk Priority Numbers have a scale of 1 – 1000.
A score of 1 is the absolute best risk score, with essentially no risk; and a score of 1000 is the absolute worst risk score, being riddled with risks.
This Project only has a Risk Score of 20, so the risks really aren’t that bad. Remember that all the scales used for RPN are estimates, so RPNs can be mistaken and shouldn’t be viewed as more than an estimate.
7. Return on Investment (ROI)
The Return on Investment tool is used to calculate the profit or loss gained by an investment – dependent on the amount that has been invested.
Return on Investment is expressed as a percentage, and helps to determine the viability of a project or investment.
It is expressed as: ROI = (Net Profit / Cost of Investment) × 100
Sample Calculation
An investment in a Hotdog Stand has earned a profit of $5000, and had an initial investment of $500.
Return on Investment = (Net Profit / Cost
of Investment) × 100
ROI = (0.1 / 5000) × 100
ROI = 0.1 × 100
ROI = 10
In this case, you have an ROI of 10%, meaning there is a 10% return on your investment.
8. Payback Period
The Payback Period is the amount of time that it takes for an investment to recover or earn the cost of the initial investment.
It is expressed by the following equation: Payback Period = Initial Investment / Periodic Cash Flow
Let’s look at an example.
Sample Calculation
A Hotdog Stand has an initial Investment of $500. It earns $50 a day. It’s Payback Period would be calculated as follows:
Payback Period = Initial Investment / Periodic
Cash Flow
Payback Period = 500 / 50
Payback Period = 10 days
9. Benefit-Cost Ratio (BCR)
The Benefit-Cost Ratio is an indicator that is used to compare the overall value – expressed in monetary terms – of a project’s costs as compared to its benefits. It expresses the project’s overall value.
BCR is expressed as follows: BCR = Benefits/Costs
The Benefit to Cost Ratio is calculated by dividing the Benefits by the Costs.
Sample Calculation
A
project is currently spending $1,000000 per annum on necessary expenses, and is
earning a revenue of $1,500000.
Benefit-Cost Ratio = Benefits / Costs
BCR = 1,500000 / 1,000000
BCR = 1.5
With this indicator, the results may be read as follows:
BCR = 1 – the project will break even.
BCR < 1 – the project is failing, and not considered a good investment.
BCR > 1 – the project is doing well, and considered profitable.
In this case, your project will be considered as profitable.
10. Target Price
The Target Price is the sum of the Target Cost and the Target fee.
If the Target Price is reached, the Buyer and Seller share the profits as per the cost sharing document. If the Target Price is not reached, the profits are shared as per their profit sharing agreement.
The Target Price is expressed as follows: Target Price = Target Cost + Target fee
Sample Calculation
A Project wishes to earn $5 profit per item, and the item has a cost of $20 to manufacture.
Target Price = Target Cost + Target fee
$25 = $20 cost + $5 fee
11. Point of Total Assumption (PTA)
The Point of Total Assumption is a term related to Fixed Price Incentive Fee contracts. It is the point at which the profitability of the Seller decreases.
The PTA is expressed as follows: PTA = [(Ceiling Price – Target Price) / Buyer’s Share Ratio] + Target Cost
Let’s look at an example.
Sample Calculation
Target Cost: 2,000,000
Seller’s Profit Target: 150,000
Target Price: 2,150,000 – The Target Price is equivalent to the target cost and the seller’s profit target
Ceiling Price: 2,200,000 – the Buyer will not pay anything beyond this point
The Share Ratio (Buyer to Seller) is – in percentages – 70/30 on over-runs, and 50/50 on under-runs.
Point of Total Assumption = [(Ceiling Price –
Target Price) / Buyer’s Share Ratio] + Target Cost
PTA = ((2,200,000 – 2,150,000)/ 0.70) + 2,000,000 = $2,071,429
The Point of Total Assumption – where the transaction ceases to be profitable for the seller – for this transaction is $2,071,429.
12. Rough Order of Magnitude (ROM)
Rough Order of Magnitude is a project estimation method, and is usually one of the first estimates to be conducted during a project’s life-cycle.
It is considered to have an accuracy of ± 50%. If, for example, the estimate is for 50,000 it is assumed that the true cost will be somewhere in the 25,000 – 75,000 range.
There is no specific formula for this estimate, but it is included here due to its common use in conjunction with the other estimates found here.
In truth, ROM estimating relies on averages taken from other, similar projects in order to gain an accurate idea of how much a project will cost. Each segment of the project is estimated as a separate value, and then they are all combined to get an estimate.
Value Formulae
13. Earned Value (EV)
Earned value is a measure of the amount of work that has been performed – in terms of said work’s authorized budget.
Calculating Earned Value is a way of monitoring your project plan to check the project status – If you know the Earned Value of your project, you know whether or not adjustments are required, and by how much adjustments need to be made.
EV = % complete (man hours worked / total man hours needed for project)×(BAC)
The Earned value is equivalent to the number of man hours worked divided by the total amount of man hours needed for the project multiplied by the project’s completed percentage- Multiplying this total by the Budget at Completion will deliver the final result.
Sample Calculation
A company which needs to work a total of two hundred man-hours to complete their project has worked a total of fifty man-hours. The Budget at Completion is $1000.
Earned Value = % Complete × Budget at Completion
Earned Value = (man hours worked × 100 / total man hours needed ×100) × Budget at Completion
EV = (50/200 × 100) × 1000 – Division first
EV = 25 × 1000
EV = $25,000
In this case, the project has an Earned Value of $25,000.
14. Net Present Value (NPV)
Net Present Value is a tool for calculating the current net-worth of a project.
The formula for calculating NPV is represented as follows: NPV = Value / (1 + r)^t
In this equation, t is the predefined period of time, r is the rate of discount (typically the inflation rate), and Value is the Value of all the benefits.
Sample Calculation
A company invests $20,000 in a project that will yield profits of $100,000 in a timeframe of 2 years. The project has in inflation rate of 5%.
NPV = Value / (1 + r)^t
NPV = 100,000 / (1 + 0.05)^2
NPV = 100,000 / (1.05)^2
NPV = 100,000 / (1.054)
NPV = 94,876.6
The Net Present Value of the Project is $94,876.6
15. Present Value (PV)
Present Value calculates the current worth of an investment that will produce a lump sum at some point in the future.
The Equation for Present Value is expressed as follows: PV = FV / (1 + i)^n
Present Value = Future Value / (1 + interest rate) ^Time Period
Sample Calculation
An Investment has a future value of 1,000. It is a 24-month investment, and has a 2% annual interest rate.
Present Value = Future Value / (1 + interest
rate) ^Time Period
Present Value = 1,000 / (1 + .02) ^2
Present Value = 1,000 / 1.02^2
Present Value = 1000 / 1.0404
Present Value = 961.97
And, there you have it, your investment has a Present Value of, or is currently
worth, $961.97
16. Future Value (FV)
Future Value is the value of an investment at a point in the future based on the rate at which that investment is estimated to grow.
The equation for Future Value is expressed as: FV = PV(1+i)^n
Future Value = Present Value (1 + Interest Rate) ^timeframe of investment.
Sample Calculation
An Investment has a present value of $1000. It is a 24-month investment, and has a 8% annual interest rate.
Future Value = Present Value (1 + Interest Rate) ^timeframe
of investment.
FV = 1000 (1 +.05)^2
FV = 1000 (1.05)^2
FV = 1000 (1.1025)
FV = 1102.5
In this case, your investment has a Future Value of $1102.5 – after the 2 Year investment term, your investment will be worth $1102.5.
17. Expected Monetary Value (EMV)
The Expected Monetary Value is a tool that is used to predict how much money will be made by making a specific decision.
The formula for EMV is as follows: EMV= Probability × Impact
Let’s look at an example.
You
make a bet of $10, with a friend, that you can pull a four out of a pack of cards
on the first try without looking.
Since there are 52 cards altogether, and 4 of each number, we can simplify the
probability to be out of 13 – with each number counting as 1.
This means that you now have a 1/13 probability to draw a 4 on the first try,
and a 12/13 possibility to draw another number instead. How would we calculate
the EMV?
Sample Calculation
First, calculate the EMV for a positive outcome.
EMV = Probability Impact
EMV = 1/13
×
10
$0.77
Then Calculate the EMV for a negative outcome
EMV = Probability Impact
EMV = 12/13 × 10
EMV = $-9.23
Lastly, add the results of the positive and negative probabilities.
EMV = 0.77 – 9.23 = $-8.46
In this case, the most likely result like of your decision to make the bet is the loss of $8.46 – in reality we know that our friends would take all our money if we lose a bet, but that was a simple way of explaining how to calculate the EMV.
Estimate at Completion (EAC) Formulae
The EAC is a forecasting function that forecasts the total cost of completing all work – it is expressed as the total sum of the Actual Cost (AC) and ETC.
Depending on which information is available to us, there are four different ways in which we can calculate the EAC. You will notice, through careful observation, that each of the examples has the same result.
Whichever equation you use will give you an accurate result, they simply allow you to use different base values to arrive at the same answer.
18. 1st Formula for the EAC
This, the first equation for the EAC relies on the Budget at Completion and the Cost Price Index.
The formula is as follows: (EAC) = BAC / CPI
In this equation, the Estimate at Completion is equivalent to the Budget at Completion divided by the Cost Performance Index.
Let’s look at an example.
In this particular example, we have a project with a Cost Performance Index of 1 and a Budget at Completion of 20,000. To calculate the Estimate at Completion, we will do the following equation:
Sample Calculation
Estimate at Completion = Budget at Completion / Cost
Performance Index
EAC = 20,000/1
EAC = $20,000
This project is estimated to have a cost of $20,000 to complete all work.
19. 2nd Formula for the EAC
The Second equation relies on the Actual Cost and the Bottom-up Estimate to Complete.
The formula is as follows: (EAC) = AC + Bottom-up ETC
In this equation, the Estimate at Completion is equivalent to the Actual Cost plus the Bottom-up Estimate to Complete. Actual Cost is defined as the total of realized costs that have been incurred in order to fulfil the amount of work measured by the EV.
Sample Calculation
Let’s look at another example – A company that has an actual cost of 10,000 and an ETC of 10,000.
Estimate at Completion = Actual cost + Bottom-up Estimate
to Complete
EAC = 10,000 + 10,000
EAC = 20,000
This project is estimated to have a cost of $20,000 to complete all work.
20. 3rd Formula for the EAC
The third equation relies on the Actual Cost, the Budget at Completion and the Earned Value.
The formula is as follows: (EAC) = AC + (BAC – EV)
In this equation, the Estimate at Completion is equivalent to the Actual Cost plus the sum of the Budget at Completion minus the Earned Value.
Sample Calculation
For this example, our company will have a Budget at Completion of 20,000, an Actual Cost of 10,000, and an Earned Value of 10,000.
Estimate at Completion = Actual Cost + (Budget at
Completion – Earned Value)
EAC = 10,000 + (20,000 – 10,000)
EAC = 10,000 + 10,000
EAC = $20,000
This project is estimated to have a cost of $20,000 to complete all work.
21. 4th Formula for the EAC
This fourth, and last, formula for calculating Estimate at Completion relies on many more values.
It requires the Actual Cost, the Budget at Completion, the Earned Value, the Cost Price Index, and the Schedule Performance Index.
The formula is as follows: (EAC) = AC + [(BAC – EV) / (CPI × SPI)]
In this particular equation, the Estimate at Completion is a little bit more involved to arrive at. The first step is to subtract the Earned Value from the Budget at Completion, and to multiply the Cost Performance Index by the Schedule Performance Index. Divide the result of the first calculation by the result of the second calculation. The Estimate at completion is equivalent to the result of that final sum plus the Actual Cost.
It will be much simpler for us to look at an example. From our previous three examples, we know that our company has an Actual Cost of 10,000, a Budget at Completion of 20,000, an Earned Value of 10,000, and a Cost Performance Index of 1. We now only require the SPI, which is also 1.
Sample Calculation
Estimate at Completion = Actual Cost + [(Budget at
Completion – Earned Value) / (Cost Performance Index × Schedule Performance
Index)]
EAC = 10,000 + [(20,000 – 10,000) / (1 × 1)]
EAC = 10,000 + (10,000 / 1)
EAC = 10,000 + 10,000
EAC = $20,000
This project is estimated to have a cost of $20,000 to complete all work.
Contract Formulae
Before we proceed with the Formulae to calculate the various contract types, we need to define some vital terms. These terms are cost and fee.
In
terms of contracts –
Cost is defined as the Expenditure of the Seller – whether Actual, Deemed, or
Estimated.
Fee is defined as the Compensation earned, or deemed to be earned, by the Seller.
22. Cost Plus Percentage of Cost (CPPC)
In a CPPC Contract, there is no risk undertaken by the Seller. All expenses and risks are undertaken by the Buyer. In addition to this, the Seller also earns a percentage of the cost as a fee.
The Contract is expressed as follows: Contract = Cost plus a percentage of the cost as fee.
For example, a European collector hires an expert to acquire a peculiar type of Persian Rug that the collector does not yet own. The Expert finds the Rug for sale for $3,000.
According to the CPPC contract between them, the Expert is entitled to 15% of the product cost as a profit. And so, the Collector (Buyer) pays the $3000 for the rug, and an additional $450 for the fee of the Expert (Seller). There is no risk to the Seller.
23. Cost Plus Fixed Fee (CPFF)
In the Case of a CPFF Contract, the buyer once again takes all the risks. However, because the contract is not based on a percentage of the product cost, the fee is unchanging. There is a fixed, agreed-upon amount that gets paid to the Seller.
The contract is expressed as follows: Contract = Cost plus fee of fixed amount.
Let’s use the same example as before.
A European collector hires an expert to acquire a peculiar type of Persian Rug that the collector does not yet own. The Expert finds the Rug for sale for $3,000.
According to the CPFF contract between them, the Expert is entitled to $150 as a profit. And so, the Collector (Buyer) pays the $3000 for the rug, and an additional $150 for the fee of the Expert (Seller).
There is no risk to the Seller, but the Seller also cannot expect a change in their fee – it is fixed.
24. Cost Plus Award Fee (CPAF)
In the case of a CPAF contract, the risk is shared with the seller. The Buyer reimburses the Seller for the exact Product Price, plus an additional fee – which is dependent on the satisfaction of the buyer.
This Contract is expressed as: Contract = Cost plus an award fee (some amount)
Let us use the example of our collector for a third time.
A European collector hires an expert to acquire a peculiar type of Persian Rug that the collector does not yet own. The Expert finds the Rug for sale for $3,000.
According to the CPAF contract between them, the Expert is entitled to be reimbursed for the product cost – as well as a profit that is dependent on the Collector’s satisfaction.
And so, the Collector (Buyer) pays the $3000 for the rug, If the Seller has found a particularly well-made, and well-preserved Persian Rug, he can expect a hefty tip – even as much as half of the product price. If, however, the Rug is Ragged and badly made the Seller cannot expect a large fee. Both parties share the risk.
25. Cost Plus Incentive Fee (CPIF)
In a CPIF Contract, the Buyer pays a small fee to the Seller, as an Incentive, and reimburses him for the Product Cost.
This contract is expressed as Follows: Contract= Cost Plus Incentive Fee
Once more, we return to our collector as an example.
A European collector hires an expert to acquire a peculiar type of Persian Rug that the collector does not yet own. The Expert finds the Rug for sale for $3,000.
According to the CPIF Contract between them, the Seller is only entitled to the reimbursement of the Product Cost, and a $100 Incentive Fee. Both Parties carry risk.
Formulae for Indices
26. Cost Performance Index (CPI)
The Cost Performance Index is yet another tool to calculate cost efficiency – this time the efficiency of the budgeted resources – it is expressed as a ratio of EV to AC.
The formula to calculate it expressed as follows: (CPI) = EV / AC
In this Equation, the Cost Performance Index is equivalent to the Earned Value divided by the Actual Cost.
The Cost Performance Index has three possible results:
A Cost Performance Index of $1 means that you are earning $1 for every $1 spent.
A Cost Performance Index of <1 you are earning less than $1 for every $1 you spend.
A Cost Performance Index of >1 means that you are earning more than $1 for every $1 you spend.
Sample Calculation
A Project has an Earned Value of $15,000 and an Actual Cost of $15,000.
Cost Performance Index = Earned Value / Actual Cost
CPI = 15,000/15,000
CPI = 1
This project has A Cost Performance Index of 1.
27. Cumulative CPI (CPIC)
The Cumulative Cost Performance Index is simply the Cost Performance Index for the entire project. It is used to calculate the overall cost effectiveness of the project.
It is expressed as follows: CPIc = EVc / ACc
The Cumulative Cost Performance Index is equivalent to the sums of all the project’s Earned Values divided by the sum of all the project’s Actual Costs.
28. Schedule Performance Index (SPI)
The SPI is a measure of the schedule efficiency, and is expressed as a ratio of EV to PV.
SPI = EV/PV
The Schedule Performance Index is equivalent to the Earned Value divided by the Planned Value. The Planned Value is defined as the authorized budget that has been assigned to work that has been scheduled.
The Schedule Performance Index also has three possible results:
A SPI of 1 means that the project is exactly on par with the expected rate.
A SPI of <1 means that the project is behind the expected rate.
A SPI of >1 means that the project is ahead of the expected rate.
Sample Calculation
A Project has an Earned Value of $15,000 and a Planned Value of $15,000.
Schedule Performance Index = Earned Value / Planned Value
SPI = 15,000 / 15,000
SPI = 1
This project has a Schedule Performance Index of 1.
To Complete Performance Index (TCPI)
The To Complete Performance Index is a measure of the cost performance that the project has to achieve with the resources remaining to it in order to meet a specified goal.
This Index is expressed as a ratio – (Cost to finish work : Remaining budget). There are two different formulae for calculating the TCPI – depending on whether you have the BAC or the EAC.
How to calculate TCPI
Formula 1
The first formula to calculate the TCPI is as follows: TCPI = (BAC – EV) / (EAC – AC)
The To Complete Performance Index is equivalent to the (Budget at Completion minus Earned value) divided by the (Estimate at Completion minus Actual Cost).
A company has A Budget at completion of $20,000, an Earned Value of $10,000, an Estimate at Completion of $25,000 and an Actual Cost of $15,000. The TCPI would be calculated as follows:
Sample Calculation
To Complete Performance Index = (Budget at Completion –
Earned Value) / (Estimate at Completion – Actual Cost)
TCPI = (20,000 – 10,000) / (25,000 – 15,000)
TCPI = 10,000 / 10,000
TCPI = 1
This project has a To Complete Performance Index of 1.
Formula 2
The second formula to calculate the TCPI is as follows: TCPI = (BAC – EV) / (BAC – AC)
The To Complete Performance Index is also equivalent to the (Budget at Completion minus Earned value) divided by the (Budget at Completion minus Actual Cost).
Using the same values as we did for TCPI formula 1, let’s look at an example. In this case, the calculations will look like this:
Sample Calculation
To Complete Performance Index – (Budget at Completion –
Earned Value) / (Budget at Completion – Actual Cost)
TCPI = (20,000 – 10,000) / (20,000 – 15,000)
TCPI = 10,000 / 5,000
TCPI = 2
This project has a To Complete Performance Index of 2.
29. Cost Variance (CV)
Cost Variance is defined as the amount of budgetary surplus, or budgetary deficit, at any given point in time – it is expressed as the difference in the values of the EV and AC.
The formula for Cost Variance is as follows: CV=EV-AC
In this equation, the Cost Variance is equivalent to the Earned Value minus the Actual Cost.
Sample Calculation
A project has an earned value of $35, 000, and an actual cost of $30,000.
Cost Variance = 35,000 – 30,000.
Cost Variance = $5000
In this case, the project is under budget, meaning it is still well within an acceptable range. If the result is a negative value, then your project is over budget. If your result is a perfect Zero, then your project budget is precisely on par.
30. Schedule Variance (SV)
Schedule Variance is a measure of how far ahead, or behind, the project is of the planned delivery date at a given point in time – it is expressed as the difference between the Earned Value and Planned Value.
The formula for calculating Schedule Performance is as follows: SV=EV-PV
In this Formula, the Schedule Variance is equivalent to the Earned Value minus the Planned Value.
Sample Calculation
A project has an Earned Value of $20,000 and had a Projected Value of $15,000.
Schedule Variance = Earned Value – Projected Value
Schedule Variance = 20,000 – 15,000
SV = $5000
In this case, the project has a positive Schedule Variance of $5000. Meaning it is $5000 ahead of the projected value. If the result of the equation is negative, then it is behind the Projected Value, and if it the result is zero then the project is on par.
31. Variance at Completion (VAC)
VAC is a projection of budgetary shortfall, or budgetary surplus – it is expressed as the difference between the BAC and EAC.
VAC is expressed as: (VAC) = BAC – EAC
The Variance at Completion is equivalent to the Budget at Completion minus the Estimate at Completion.
Sample Calculation
A company has a Budget at Completion of $30,000 and an Estimate at Completion of $15,000.
Variance at Completion = Budget at Completion minus
Estimate at Completion
VAC = 30,000 – 15,000
VAC = $15,000
Therefore, this Company has a Variance At Completion – in this case, a budgetary surplus – of $15,000.
32. Estimate to Complete (ETC)
An ETC is another forecasting tool that predicts the costs required to complete the remaining work on a project.
It is calculated using the following formula: (ETC) = EAC – AC
In this equation, the Estimate to Complete is equivalent to the Estimate at Completion minus the Actual Cost.
Sample Calculation
A project has an Estimate at Completion of $15,000 and an Actual Cost of $10,000.
Estimate to Complete = Estimate at Completion – Actual Cost
ETC = 15,000 – 10,000
ETC = $5,000
The Estimate To Complete for this project is $5,000.
33. Budget at Completion (BAC)
The BAC is defined as the sum of all the budgets that have been set in place to be used by the project.
The Total Budget equals the Total activity cost estimates plus the Total contingency cost reserves.
Total Budget = Total Activity Cost + Total Contingency Cost Reserves
Sample Calculation
A company has a Total Activity Cost of $10,000 and Total Contingency Cost Reserves of $10,000.
Total Budget = Total Activity Cost + Total Contingency Cost
Reserves
TB = 10,000 + 10,000
TB = $20,000
This project has a Budget At Completion of $20,000
