Monday, November 12, 2007

Measuring the Impact of Approved Project Changes

If you are familiar with performance measurement techniques, you know that one of them—earned value—is used to forecast estimates before work is started. Did you know you could also use it to forecast the effect of a project change?

When a change is verified, the work must be incorporated into the project plan, which usually increases the cost and lengthens the schedule. As the work for the change progresses, earned value (EV) analysis can be used to forecast how the change will affect the project completion estimates for budget and schedule. This will allow the project manager to better control the change.
  • Planned value (PV) - is the approved cost estimate for a change during a specific period of time. It answers the questions: "How much will the work for the change for this time period cost?" and "How much work should be done by now?"
  • Actual cost (AC) - is the real amount it costs to perform the change in a given time period. It answers the question: "How much has it cost for the work on the change so far?"
  • Earned value (EV) - is the value of the work actually completed on a change in a given time period. It answers the question: "How much work is done and what was the original budget to complete that work?"
To use EV analysis to measure the performance associated with the change and the project as a whole, you will need to calculate two performance indicators:
  • schedule performance index (SPI)
  • cost performance index (CPI)
The SPI is the ratio of earned value of the accepted change to the planned cost of the change at the present point in time. It indicates how the change is affecting the schedule right now. To calculate the SPI, divide the earned value by the planned value.
Project managers can use the information resulting from the SPI calculations to make changes to the final product delivery schedule.
  • If SPI is equal to 1.0 - no changes to schedule are necessary.
  • If SPI is greater than 1.0 - project will finish ahead of schedule.
  • If SPI is less than 1.0 - additional days will be needed to complete the project.
The EV for Carla's textile project is $188,000 and the PV is $200,000. To calculate the schedule performance index for her project, Carla divides the EV of the change, $188,000, by the PV of the change, 200,000, to equal 0.94. Since the result is less than 1.0, Carla will need to add additional days to her project schedule because of the change.

Another factor that you must look at when a change has been accepted is how the change will affect the final cost, or cost upon completion, of the project. To do so, calculate the cost performance index (CPI). It divides the sum of all individual EV budgets by the sum of all AC budgets. When calculating CPI, round your answer to the first decimal place.

CPI = Total of EV/ Total of AC

The results of the SPI and CPI are then used to forecast the project completion estimates for the changed project.

Earned value analysis provides a way to measure project performance and determine where your project is heading after the approval of a change to the project. This helps project managers to determine if the finished project will be on time and within budget.

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