PM FPX 5333 Assessment 2 Earned Value Analysis Report

PM FPX 5333 Assessment 2 Earned Value Analysis Report

Name

Capella university

PM-FPX5333 Project Budgeting, Procurement, and Quality

Prof. Name

Date

Optimizing Project Management with Earned Value Analysis: A Case Study of NearlyFree.com

Introduction

NearlyFree.com is currently navigating a project that has exceeded its initial budget of $25,000. With the project being 43% complete, the company has recognized its shortcomings and has sought our expertise in project management. A thorough analysis of the project’s financial statements indicates that the earned value is under-budgeted. This project aims to develop and implement an automated web-based training system for new employees, thereby reducing the workload and minimizing the personnel resources needed for New Employee Orientation (NEO) training.

The project’s scope outlines a 92-day timeline with an approved budget of $22,300. This report will review the Earned Value Technique (EVT), assess the project’s current status, and perform crucial earned value calculations to facilitate an effective turnaround strategy.

Understanding the Earned Value Technique

The Earned Value (EV) technique is a critical method used in project management to monitor the relationship between a project’s plan, its actual progress, and the value of the work completed. This technique helps determine if the project is on track by assessing how much of the budget and time should have been utilized based on the completed work. Project control is performed against the cost baseline using the Earned Value Technique, which involves calculating and reporting several key performance indicators based on actual progress.

Key Inputs in Earned Value Analysis

1. Earned Value (EV): Represents the actual progress of the task up to the date of analysis.
2. Planned Value (PV): Indicates the planned expenditure of funds up to the date of analysis, derived from the project schedule.
3. Actual Cost (AC): Reflects the actual expenditure of funds incurred up to the date of analysis.

Essential Calculations in Earned Value Management

To gain insight into the project’s performance, several key calculations can be performed:

Cost Variance (CV)

Cost Variance (CV) measures how much the project is above or below budget at a given point in time. It is calculated as follows:

[ \text{Cost Variance (CV)} = \text{Earned Value (EV)} – \text{Actual Cost (AC)} ]

For this project:

[ \text{CV} = \$12,373.95 – \$16,373.95 = -\$4,000.00 ]

A cost variance of -$4,000 indicates that the project is over budget, where the ideal variance should be zero or positive.

Schedule Variance (SV)

Schedule Variance (SV) assesses whether a project is ahead or behind schedule. The calculation is:

[ \text{Schedule Variance (SV)} = \text{Earned Value (EV)} – \text{Planned Value (PV)} ]

For this project:

[ \text{SV} = \$12,373.95 – \$20,453.95 = -\$8,080.00 ]

This negative schedule variance indicates that the project is significantly behind schedule.

Performance Indices

1. Schedule Performance Index (SPI) measures the project’s efficiency concerning its scheduled completion:

[ \text{SPI} = \frac{\text{Earned Value (EV)}}{\text{Planned Value (PV)}} ]

For this project:

[ \text{SPI} = \frac{\$12,373.95}{\$20,453.95} = 0.60 ]

An SPI of 0.60 indicates a delay in project progress, as a value below 1 signifies the project is lagging.

1. Cost Performance Index (CPI) assesses the project’s financial efficiency:

[ \text{CPI} = \frac{\text{Earned Value (EV)}}{\text{Actual Cost (AC)}} ]

For this project:

[ \text{CPI} = \frac{\$12,373.95}{\$16,373.95} = 0.76 ]

A CPI of 0.76 suggests that the project is facing financial difficulties, as a CPI below 1 indicates inefficiency in cost management.

Project Budget and Future Projections

Budget at Completion (BAC)

The Budget at Completion (BAC) reflects the total budget set for the project. For NearlyFree.com, the initial BAC is $22,300.

Estimate at Completion (EAC)

The Estimate at Completion (EAC) predicts the final cost of the project based on its past performance. The formula for calculating EAC is as follows:

[ \text{EAC} = \text{Actual Cost (AC)} + \left(\frac{\text{Budget at Completion (BAC)} – \text{Earned Value (EV)}}{\text{Cost Performance Index (CPI)}}\right) ]

For this project:

[ \text{EAC} = \$16,373.95 + \left(\frac{\$22,300 – \$12,373.95}{0.76}\right) ] [ \text{EAC} = \$16,373.95 + \$13,060.59 ] [ \text{EAC} = \$29,434.54 ]

Recommended Budget Turnaround Strategy

Earned Value Analysis (EVA) is a widely adopted approach for evaluating a project’s progress, forecasting its completion date and final costs, and analyzing variances in both schedule and budget. By comparing planned work with actual performance, EVA helps determine if cost, schedule, and completed work align with project expectations.

The current EVA indicates that NearlyFree.com’s NEO project is over 50% behind schedule, leading to significant budget overruns. A more meticulously planned EVA could have better predicted budget needs and completion timelines. The revised EAC indicates a necessary increase in the project budget, from the original $22,300 to an estimated $29,434.54, representing a significant increase of over $7,000.

To mitigate these challenges, it is recommended that NearlyFree.com extend the project timeline. This adjustment would provide the necessary time to complete the project, potentially improving earned value and decreasing the percentage of incomplete work.

Conclusion

Adjusting the project budget and timeline is crucial for the project’s success. Overruns can undermine stakeholder trust, potentially impacting the company’s market performance and its ability to secure future funding. By employing a more detailed project schedule and leveraging the Earned Value Technique effectively, NearlyFree.com can navigate its current challenges and enhance overall project management practices.

References

Peng, B. (2018, April 10). The earned value method. Retrieved from Project Engineer

Usmani, F. (2020, August 18). Planned value (PV), earned value (EV), & actual cost (AC) in project cost management. Retrieved from PM Study Circle

Haughey, D. (2020, July 26). What is earned value? Retrieved from Project Smart

PM FPX 5333 Assessment 2 Earned Value Analysis Report

Cullen, S. (2016, August 2). Earned value analysis. Retrieved from WBDG%20is,budget%20as%20the%20project%20proceeds.)