Earned Value Reporting – To Complete Cost Performance Index

In this article on Earned Value Reporting we’ll examine the To Complete Cost Performance Index. In a nutshell, the To Complete Cost Performance Index tells us the cost performance that is required to complete a given project for it’s original budget based on how it is performing right now.

The book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina is the source for much of this overview.

What is the to complete cost performance index?

The to complete cost performance index, TCCPI, tells us the required cost performance that is necessary to complete the project for the original budget based on the performance of the project as of today.

The to complete cost performance index is a seldom-used indicator, and there are some difficulties in its use. The TCCPI is calculated by dividing the work remaining by the money remaining in the budget to do it. The remaining work in a project is simply the difference between the work already accomplished, the BCWP, and the total work of the project, the BAC. You will recall that when the project is completed, the BCWP must exactly equal the BAC. Mathematically it is impossible for this not to happen since the BAC is equal to the sum of the BCWP and is also equal to the sum of the BCWS. The remaining budget for the project is simply the difference between the total budget for the project, again the BAC, and the amount of money that has been spent to date, the ACWP.

TCCPI = (BAC – BCWP) / (BAC – ACWP)

It can be seen that as a project’s cost performance index moves below one, the TCCPI will increase and become greater than 1. Although called an “index”, this is not really accurate since all indexes indicate something bad when they fall below one and this index indicates something bad when it is greater than one.

The TCCPI gives us a rough estimate of the performance that is required for the remaining portion of the project in order for the project to be completed for the original budget. A TCCPI of 1.33 indicates that the project team must perform with a CPI of 1.33 from now until the project is completed in order for the project to be completed at the original budget.

There is a mathematical difficulty with this term as well. If a project is over budget toward the end of the project, it is possible for the BAC and the ACWP to be equal. This produces a division by zero and a point of discontinuity.

Under normal conditions it results in a value that indicates the required performance that the project must have from now until the end of the project.

Example:

Suppose a project is somewhere near 50 percent complete:

BCWS = $100,000

BCWP = $95,000

ACWP = $97,000

BAC = $200,000

CV = BCWP – ACWP

CV = -$2,000

What is the TCCPI?

TCCPI = (BAC – BCWP) / (BAC – ACWP)

TCCPI = (200,000 – 95,000) / (200,000 – 97,000)

TCCPI = 1.02

In this example the project would be required to do all of the remaining work at a 2 percent higher cost performance than was originally planned. This may be particularly difficult since the cost performance index to date is only 98 percent. We will be asking the project team to improve their cost performance by some 4 percent.

Notice that if the cost variance remains the same as the end of the project approaches, the TCCPI increases rapidly. Suppose we have the following when the project is approximately 95 percent complete:

BCWS = $195,000

BCWP = $190,000

ACWP = $192,000

BAC = $200,000

CV = BCWP – ACWP

CV = -$2,000

What is the TCCPI?

TCCPI = (BAC – BCWP) / (BAC – ACWP)

TCCPI = (200,000 – 190,000) / (200,000 – 192,000)

TCCPI = 1..25

As we approach the end of the project, the cost variance has not changed, but the TCCPI has changed from 1.02 to 1.25. This is an indicator that the cost variance will be much more difficult to recover now than it was earlier in the project.

Kaplan University Students Bring Project Management Lessons to U.S. Food Banks

Sourced from Business Wire.

Kaplan University, a leading provider of online postsecondary education, today announced the release of a special report, “Project Management Toolkit: Building Food Bank Efficiencies and Best Practices.” The report is the culmination of an assignment at the University’s School of Business Administration and Management in which online graduate students analyzed the operations of several food banks across the U.S. to determine best practices. From these analyses, they developed recommendations to improve competencies for food collection and distribution this holiday season.

Overall, the students found that food banks are serving growing numbers of people in their communities with shrinking resources. While the sophistication of food bank operations varied based on their size and resources, students observed that the food banks could improve their efficiencies with the implementation of the project management tools. According to “The Project Management Toolkit,” some of the best practices recommended are money, labor and time-saving strategies, including:

• Utilize worksheet templates like those provided with this report to map costs, scope, project durations and activities to serve more people with shrinking resources;
• Digitize paper-based systems to avoid duplication of effort and improve institutional memory; and
• Rethink marketing strategies to tap into new media and ensure that media targets are relevant to potential donors and beneficiaries of donated food.

“We wanted students to take lessons from their graduate program and apply them to a real-world setting,” said Professor Jeff Tyler, PMP, who led the project. “With so many households struggling to afford food this holiday season, Kaplan University wanted its students to demonstrate how their education can help make a difference in their communities and benefit food banks across the country.”

The graduate students recorded common food bank processes, assessed challenges, proposed improvements, and created a template of best practices using the project management skills learned in their courses. They studied food banks in their home communities that serve a mix of urban, suburban and rural areas, including YWCA Eastern Area Food Pantry in Batavia, OH; Idaho Food Bank in Boise, Lewiston and Pocatello, Idaho; Bread for the City in Washington, D.C.; and Second Harvest Food Bank of Metrolina in Charlotte, NC.

“Most people don’t understand the complexities of food banks, or the importance of technology and organizational systems in helping us end the epidemic of hunger,” said Terry Graves, Food Resources Manager for Idaho Food Bank. “Our organization has 227 partner agencies and distributed more than 11,000 turkeys, hams and chickens this year for the Thanksgiving holiday. We are proud to have taken part in the Kaplan University student project, and believe that outreach and education are key to understanding hunger issues and helping those in need.”

The students will share their insights and the final report with participating food banks and Kaplan University will distribute the report to hundreds of food banks around the country in the Feeding America Network, providing them with a valuable resource to maximize their food distribution efforts during the peak season. In addition, Kaplan’s School of Business student Ambassadors, a graduate-level leadership organization, will share the report and provide consultations to food banks in their communities.

iFramework Elevates Project Management

Sourced from Law.com

Duane Morris’ Practice Support Department is constantly challenged by tight deadlines, tight budgets, numerous processes that require extensive planning and project management, and let’s not forget the element of stress that comes with anything tied to the word “litigation.” The firm has advanced technologically over the years and operations have grown along with it. The Practice Support Department has long recognized the importance of project management to promote cost containment strategies and to ensure compliance with discovery requirements during the discovery phase of a litigation case. While the firm developed its own sophisticated project management database, the newly implemented iFrameworksoftware takes project management to a higher level. It provides a wide variety of options for implementing individualized best practices for specific law firm or legal department needs. The level of project management afforded by iFramework promotes consistent, standardized, repeatable results, and at the same time, provides the ability to monitor costs to contain them at every phase of the project.

PROJECT MANAGEMENT CHALLENGES

One of the more recent project management changes for the firm is from more traditional processes to electronic ones. Our Litigation Support Department made a necessary move away from using multiple systems, such as paper, e-mail inboxes and folders and/or Excel files, and began implementing centralized, online, real-time technologies that include integration with processing tools and online review platforms that can be accessed from one centralized project management system. iFramework’s project-based workflow solution is used to help improve visibility and track data acquisitions, data processing and document review from within projects. The Litigation Support Department benefits by optimizing resources, building efficient processes and solving many complex project management problems.

Although the IT department had developed a very sophisticated Access database to manage the firm’s products, which had worked well for a number of years, we appreciated the value of moving to the iFramework project management tool because of the more comprehensive utilities it provides.

It is extremely important to consider many factors when implementing a project management tool because it is going to affect everyone who is involved in many projects: partners, associates, paralegals, clients and vendors. We began looking at iFramework for numerous reasons. Mainly because the project-management solution was focused specifically to litigation support, it enabled us to share all of the details in one centralized tool, identify which projects are most critical and to help execute projects as efficiently as possible. We also found the software as a service-based offering more affordable, faster and easier to deploy than locally installed ones.

The evaluation and implementation of a new software tool can be a time-consuming exercise, so it’s a requirement that the results we expect to achieve are considered and documented. To achieve our project-management software implementation goals, all of the users in our department were part of the evaluation. We followed a four-step process:

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Earned Value Reporting – Other Ways of Calculating EAC

In this article on Earned Value Reporting we’ll at other ways of calculating Estimate at Completion. Again, the Estimate at Completion tells us the forecast value of the project when the project has been completed.

The book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina is the source for much of this discussion.

Other ways of calculating EAC

Taking the actual cost of work performed and adding it to the remaining work to be done can describe a somewhat more optimistic view of the EAC. This says that the project’s estimate at completion will be the sum of the remaining work to be done at the originally estimated budgets for that work plus the actual accumulated cost of the work already completed. The actual cost of the work already completed is nothing more than the ACWP, and the cost of the remaining work to be done, based on original estimates, is just the difference between the budget at completion and the work that is already completed.

EAC = ACWP + (BAC – BCWP)

Of course, the most optimistic calculation of the EAC is the one that is usually imposed on project managers. It says that in spite of the problems that have occurred on this project to date, the project is not only going to complete all the remaining tasks according to the original plans and estimates but is going to recover the budget overruns already spent. The calculation of EAC is quite simple.

EAC = BAC

While it may seem pessimistic to calculate the EAC by dividing the BAC by the CPI, it turns out that there have been a number of studies that have been done in this area.

Quentin Fleming states: “The cumulative CPI is a particularly reliable index to watch because it has been proven to be an accurate and reliable forecasting device. The cumulative CPI has been shown to be stable from as early as 15 to 20 percent in the project’s percentage complete point”.

From David Christensen: “Researchers found that the cumulative CPI does not change by more than ten percent once a contract is twenty percent complete; in most cases, the cumulative CPI only worsens as a contract proceeds to completion”.

What this is telling us is that the project managers who report that although bad things have happened early in the project, they expect to recover and finish the project within the originally planned budget are not very realistic. Unless they have good reason to defend this position, it should be accepted very reluctantly. The more probable outcome of the project is that the CPI will remain the same or get worse as the project progresses.

It is even rational to think this way. If a project cannot follow the project plan early in the project when the tasks planned were relatively close to the time the planning was done, then how likely is it that the tasks that were planned further in the future will have been estimated more accurately?

Earned Value Reporting – Estimate at Completion

In this article on Earned Value Reporting we’ll closely look at the concept of Estimate at Completion. What the Estimate at Completion tries to tell us is the forecast value of the project when the project has been completed.

Much of the following was derived from the book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina.

What is the estimate at completion?

The estimate at completion, frequently shown as the EAC, is the forecast value of the project when the project is complete. It should be noted that the EAC can be calculated in a number of different ways and is only an indicator of what the project’s cost will be at the end of the project.

The estimate at completion is a value that can get project managers in trouble. In its most commonly used form it is the budget at completion divided by the cost performance index.

EAC = BAC / CPI or EAC = (BAC x ACWP) / BCWP

This is a rather pessimistic estimate of the amount of money that will be spent at project completion. It says that the things that have gone wrong in the project until now will continue to go wrong, and we will not learn how to improve them between now and the end of the project. There are many reasons why this is true. There could be bias in our estimates. If the early items in the project were underestimated, it is likely that the later items in the project will be underestimated as well. If there is a chronic problem that has been evident in the early part of the project and the same people and equipment will be used on the later project activities, then the EAC will probably be accurate by this method. On the other hand, if different estimators and team members or different pieces of equipment are being used later in the project, the EAC may not indicate the project’s true estimated cost at the end.

Unfortunately, as we will see, much of the research that has been done in this area indicates that projects that are over budget when they are 25 percent complete are very likely to finish over budget. Not only that, but these projects are likely to finish with a worse cost performance index than they had when they were 25 percent complete.