Cost control; EVA 50 doghouses in 90 days

Why cost control is important

Cost control means monitoring actual expenditure against the budget and taking action on variances. It is important because it:

• keeps the project within the approved budget and prevents cost overrun;
• gives early warning of problems, so that corrective action is taken in time;
• improves profit for the contractor and value for the client;
• helps to forecast the final cost and cash flow;
• supports good decisions and accountability on resources and prices.

Status of the project by EVA

• BAC = 50 x $1,000 = $50,000; time elapsed = 20 of 90 days (planned progress = 22.22 %)
• Completed = 10 doghouses (20 %); actual cost AC = $8,500

$$\begin{aligned} PV &= \frac{20}{90} \times 50{,}000 = 11{,}111.11\\ EV &= 10 \times 1{,}000 = 10{,}000\\ AC &= 8{,}500 \end{aligned}$$

Calculation (in $)

$$\begin{aligned} SV &= EV - PV = 10{,}000 - 11{,}111.11 = -1{,}111.11\\ CV &= EV - AC = 10{,}000 - 8{,}500 = 1{,}500\\ SPI &= EV/PV = 10{,}000/11{,}111.11 = 0.900\\ CPI &= EV/AC = 10{,}000/8{,}500 = 1.176\\ EAC &= BAC/CPI = 50{,}000/1.176 = 42{,}500\\ ETC &= EAC - AC = 42{,}500 - 8{,}500 = 34{,}000\\ VAC &= BAC - EAC = 50{,}000 - 42{,}500 = 7{,}500\\ \text{Forecast duration} &= 90/SPI = 90/0.900 = 100\ \text{days} \end{aligned}$$

Comment

• Schedule: SV is negative and SPI = 0.900, so the project is behind schedule. Only 90 % of the planned work is done. At this rate the work will take about 100 days instead of the planned 90 days (10 days late).
• Cost: CV is positive and CPI = 1.176, so the project is under budget. Each $1 spent gives $1.18 of work.
• Forecast: if the present cost trend continues, the final cost will be $42,500 against the budget of $50,000 (variance at completion = $7,500 saving).

Answer: SV = -$1,111.11, CV = $1,500, SPI = 0.900, CPI = 1.176; the project is behind schedule and under budget.

Status

The contractor is slightly behind schedule (SPI = 0.90; about 100 days needed instead of 90) but under budget (CPI = 1.18; forecast final cost $42,500 against $50,000). The cost saving is good, but the contractor should add resources or work extra shifts to recover the delay, remove bottlenecks (material, equipment, approvals), and keep the present cost discipline.