- 2070 Chaitra (old course) · 2+2+4 marks
Cost control need; earned value; EVA approach
Short answer
Cost control is necessary because budgets are limited, costs change, and early warning prevents overruns. Earned value is the budgeted cost of work completed, EV = % complete x BAC. EVA uses PV, EV, AC to compute SV, CV, SPI, CPI, and EAC = BAC/CPI to forecast final cost and guide corrective action.
Why is cost control necessary in a project? What is earned value? Explain the EVA approach of cost control.
Why cost control is necessary
- The budget is limited, and overspending can make the project unviable.
- Costs change with price rises, wastage, variations and delay, so they must be watched.
- It gives early warning of an overrun while correction is still possible.
- It helps funding and cash-flow planning, and satisfies the client and the lender.
- It improves the efficiency and profit of the contractor.
Earned value
Earned value (EV) is the budgeted cost of the work actually completed at the status date: . It tells what the completed work is worth according to the budget.
EVA approach of cost control
At each review the following quantities are used:
| Term | Other name | Meaning |
|---|---|---|
| BAC | Budget at completion | Total approved budget of the project |
| PV | BCWS (planned value) | Budgeted cost of the work scheduled up to the date |
| EV | BCWP (earned value) | Budgeted cost of the work actually completed = % complete x BAC |
| AC | ACWP (actual cost) | Actual money spent for the work done up to the date |
| Indicator | Value | Meaning |
|---|---|---|
| SV, SPI | SV > 0, SPI > 1 | Ahead of schedule |
| SV = 0, SPI = 1 | On schedule | |
| SV < 0, SPI < 1 | Behind schedule | |
| CV, CPI | CV > 0, CPI > 1 | Under budget (cost efficient) |
| CV = 0, CPI = 1 | On budget | |
| CV < 0, CPI < 1 | Over budget (cost inefficient) |
CV and CPI show cost performance; SV and SPI show schedule performance. EAC forecasts the final cost. If CPI < 1, the manager looks for the cause (low productivity, wastage, high rates) and acts to bring the cost back to the budget; the forecast is updated every month.
✓ Answer checked by Claude Opus 5.5 (high effort)
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