How EVA controls cost; three examples

Use of EVA in controlling cost

During implementation, at every review date the manager finds PV, EV and AC and calculates the variances and indices:

$$\begin{aligned} SV &= EV - PV, \qquad CV = EV - AC \\ SPI &= \frac{EV}{PV}, \qquad CPI = \frac{EV}{AC} \\ EAC &= \frac{BAC}{CPI}, \qquad ETC = EAC - AC, \qquad VAC = BAC - EAC \end{aligned}$$

CV and CPI show the cost performance; SV and SPI show the schedule performance; EAC forecasts the final cost. The result decides the control action. The same figures are plotted every month, so the trend is visible. A project with BAC = Rs 10,00,000 and a duration of 10 months, reviewed at month 5 (PV = Rs 5,00,000), is used for the three examples.

Example 1: behind schedule and over budget

PV = Rs 5,00,000, EV = Rs 4,00,000, AC = Rs 6,00,000. $SV = -1{,}00{,}000$, $CV = -2{,}00{,}000$, $SPI = 0.80$, $CPI = 0.667$, $EAC = 10{,}00{,}000 / 0.667 = 15{,}00{,}000$.

Status: behind schedule, over budget. Control approach: both schedule and cost are in trouble, so the control must be strong: find the causes, add resources only to the critical activities, tighten cost control (wastage, rates), and revise the plan or scope with the client. If CPI is very low, consider stopping low-value work.

Example 2: ahead of schedule and under budget

PV = Rs 5,00,000, EV = Rs 5,50,000, AC = Rs 4,80,000. $SV = 50{,}000$, $CV = 70{,}000$, $SPI = 1.10$, $CPI = 1.146$, $EAC = 10{,}00{,}000 / 1.146 = 8{,}72{,}727$.

Status: ahead of schedule, under budget. Control approach: the project is doing better than planned. Control here means keeping up the good performance: check that quality is not being sacrificed, keep the contingency, and release the extra resources or crew to other work. No corrective action is required.

Example 3: on schedule but over budget

PV = Rs 5,00,000, EV = Rs 5,00,000, AC = Rs 6,00,000. $SV = 0$, $CV = -1{,}00{,}000$, $SPI = 1.00$, $CPI = 0.833$, $EAC = 10{,}00{,}000 / 0.833 = 12{,}00{,}000$.

Status: on schedule, over budget. Control approach: time is satisfactory but money is being lost, so the control is on cost only: reduce wastage, improve productivity, renegotiate rates or procurement, and control variations. Adding resources to speed up the work is not needed and would increase the cost.

Another case is behind schedule but under budget (EV = Rs 4,50,000, AC = Rs 4,00,000, SPI = 0.90, CPI = 1.13): here the saving can be used to add resources and recover time.