Succeeding With Best Practices and Methodologies

In this article I will cover how to find the Delta between two numbers.

A while back I wrote an article where I showed the how to utilized various queries to find difference and commonalities between two data sets. You might want to check it out.

Lets looks at a simple example where an organization is running multiple projects and needs to determine how projects are doing in terms of how the project owners predicted the value of the project will be in terms of planed revenue versus the actual revenue. The same goes to comparing the planned expenses, that will be as part of executing this project, and the actual expenses.

BTW, revenue is not the same as income or profit, we will not cover their differences this article. Simply revenue is a gross amount and income or profit reports the net proceeds.

To find the Delta between the Planned Revenue and Actual Revenue.

Absolute Delta formula:

Delta Planned Revenue vs Actual Revenue = Planned Revenue - Actual Revenue

Delta Planned Expense vs Actual Expense = Planned Expense - Actual Expense

Relative Delta formula:

Delta Planned Revenue vs Actual Revenue = (Planned Revenue - Actual Revenue) / Planned Revenue * 100

Delta Planned Expense vs Actual Expense = (Planned Expense - Actual Expense) / Planned Expense * 100

This will provide the Percent (%) difference between the two numbers.

Here is a dashboard which clearly specifies the difference between planned revenue/expenses and actual revenue/expenses.

Now if you are overseeing the portfolio, you’d better have another dashboard explaining that differences to the executives.

Let me know what are your thoughts In the comments below.

Project managers look inside the project to determine progress, measure variance, predict outcomes, report status and manage change. Earned Value (EV) is a quantitative technique to measure project performance against the project baseline. Through the use of EV analysis, one can detect and predict problems earlier, evaluate status, and report progress.

There are two Earned Value performance indexes that are of particular value to project managers. First is the Cost Performance Index (CPI). CPI is the ratio of budgeted to actual costs for work performed. One can determine the relationship between estimated and actual costs. Second is the Schedule Performance Index (SPI). SPI is the ratio of work performed to work scheduled. SPI is an efficiency rating for work accomplished up to the time of the measurement.

First lets define some of the terms that are used in earned value analysis and explain what the results mean:

Planned Value (PV) - Answers what is the estimated value of the worked planned to be done.

Earned Value (EV) - Answers what is the estimated value of the worked actually to be done.

Actual Value (EV) - Answers what is the actual cost incurred for the worked accomplished.

Budget at Completion (BAC) - Answers what how much did we budget for the total project.

Estimate at Completion (EAC) - Answers what do we currently estimate the total project to cost.

Estimate to Completion (ETC) - Answers from current point how much more do we estimate it to cost to finish the project.

Variance at Completion (VAC) - Answers how much over or under budget do we estimate to be at the end of the project.

Now lets look at some of the financial calculations and understand what the results mean:

Formula for Cost Variance (CV) is: EV - AV

If the result is a Negative number that means that the project is over budget.

If the result is a Positive number that means that the project is under budget.

Formula for Schedule Variance (SV) is: EV - PV

If the result is a Negative number that means that the project is behind schedule.

If the result is a Positive number that means that the project is ahead of schedule.

Formula for Cost Performance Index (CPI) is: EV/AC

The result answers how much we are getting in turns of a $ worth of work out of every $1 spent. It answers whether the funds are or are not being used efficiently.

If the CPI is greater than one, the project is under budget, which means you are earning more than what you have spent

If the CPI is less than one, the project is over budget, which means you are earning less than what you have spent.

If the CPI is equal to one, earning and spending is equal, which means that the project is proceeding as per the planned spending.

Formula for Schedule Performance Index (SPI) is: EV/PV

The result answerers of how we are progressing at certain percentage of the rate originally planned.

If the SPI is equal to one; the project is on schedule, the completed work is equal to the planned work.

If the SPI is greater than one; the project is ahead of schedule, which means you have completed more work than planned.

If the SPI is less than one, the project is behind schedule, which mean you have completed less work than planned work.

If the SPI is equal to one; the project is on schedule, completed less work than planned work.

There are many formulas for Estimate at Completion (EAC):

The result answers as of now how much do we expect the total project to cost.

We use the following formula: BAC/CPI

If no variance from the BAC have occurred or continue at the same rate of spending

We use the following formula: AC + ETC

When original estimate was flowed. Actual plus a new estimate for remaining work.

We use the following formula: AC + (BAC - EV)

When current variance is thought to be different from the future. Actual to date plus remaining budget to perform.

We use the following formula: AC + (BAC - EV)/CPI

When current variance is through to be similar of the future. Actual to date plus remaining budget modified by performance.

Formula for Estimate to Complete (ETC) is: EAC - AC

The result answers how much more will the project cost.

Formula for Variance at Completion (VAC) is: BAC - EAC

The result answers how much over or under budget will we be at the end of the project.

Now take this knowledge and control your organizations project’s costs.

#CostManagement

#ControllingCost

Why Cost Management is Important?

Cost Management is important because it:

• Sets the baseline for the project's costs.
• Helps to keep the budget on track.
• Makes sure that we do not go over the budget.

You start cost management process in the planning phase of the project. Costs are approved by project owner and executive stakeholders in the project charter. As project is executed you monitored the expenses. At the close of the project you compare the actual costs to the estimated costs determined at the beginning of the project. Cost management is one of the triple constraint metrics that define a project: cost, scope and time.

Example of some of the fixed and variable costs, are shown in the diagram below:

What is Cost Management?

The process of Cost Management is:

• Estimating Costs
• Developing Project Budget with baseline costs
• Controlling expenditure

Cost Management Plan

Cost Management Plan is a component of the overall project management plan.

The better you are at cost precision and accuracy the better you’ll have control of your project costs. You control cost thresholds by knowing the cost variations and where you have wiggle room and where you don’t.

Establish how the project performance will be measured in order to see if you’re meeting the goals and expectations of the project.

Inputs into Cost Management Plan

• Project Charter
• Project Management Plan
• Enterprise environmental factors
• Organizational process assets

Tools and Techniques in Cost Management Plan

• Expert judgment
• Data Analysis
• Meetings

Outputs of Cost Management Plan

• Cost management plan

Cost Planning

As part of Cost Planning is you have to plan for resources. Resource planning is the process of determining future resource requirements for an organization or a scope of work. This involves the evaluation and planning of the use of the physical, human, financial, and informational resources required to complete work activities and their tasks. Resource planning begins in the scope and execution plan development process during which the work breakdown structure, tasks and execution strategy are developed. Resource estimating determines the activity’s resource quantities needed, such as hours, tools, materials. While schedule planning and development determines the work activities be performed. Resource planning takes the estimated resource quantities, evaluates resource availability and limitations considering project circumstances, and then iteratively optimizes how the available resources will be used in the activities over time.

Cost Estimation

Cost Estimation is the process of quantifying the cost and price of the resources required by the project. The outputs of cost estimating are used as inputs for business planning, cost analysis, and decisions or for project cost and schedule control processes. The estimation of the time duration of activities must be considered concurrently with costs because costs are often dependent on time duration and resource requirements identified in cost estimating may affect the schedule. Iterative approaches are used because outcomes of a cost estimate often lead to changes in scope or plans. Estimating process can be viewed as part of the scope definition process because iterative trading off between cost and scope intertwine the processes.

Inputs into Cost Estimation

• Project management plan
• Project documents
• Enterprise environmental factors
• Organizational process assets

Tools and Techniques of Cost Estimation

• Expert judgment
• Analogous estimating
• Parametric estimating
• Bottom-up estimating
• Three-point estimating
• Data analysis
• Project management information system
• Decision making

Outputs from Cost Estimation

• Cost estimates
• Basis of estimates
• Project documents updates

Cost Budgeting

Cost Budgeting is a sub-process within the cost estimating and is used for allocating the estimated cost of resources into cost accounts against which cost performance will be measured and assessed. Cost Budgeting forms the baseline for cost control.

Inputs into Cost Budgeting

• Project management plan
• Project documents
• Business documents
• Agreements
• Enterprise environmental factors
• Organization process assets

Tools and Techniques of Cost Budgeting

• Expert judgment
• Cost aggregation
• Data analysis
• Historical information review
• Funding limit reconciliation
• Financing

Outputs from Cost Budgeting

• Cost baseline
• Project funding requirements
• Project documents updates

Cost Control

During Cost Control you measure the variances from the cost baseline and take necessary corrective action to achieve minimum costs. All of the changes to the cost baseline need to be recorded and the expected final total costs are continuously forecasted. When actual cost information becomes available you measure against the cost baseline to explain and determine what is causing the variance. Corrective action might need to be taken based on this analysis to avoid cost overruns.

Inputs into Cost Control

• Project management plan
• Project documents
• Project funding requirements
• Work performance data
• Organizational process assets

Tools and Techniques of Cost Control

• Expert judgment
• Data analysis
• To-complete performance index
• Project management information system

Outputs from Cost Control

• Work performance information
• Cost forecasts
• Change requests
• Project management plan updates
• Project management plan updates
• Project documents updates

Now that you got the cost management is under your belt. You can be confident in managing your projects.

#CostManagement

#ProjectControl

#CostManagement Plan

#CostPlanning

#CostEstimation

#CostBudgeting

#CostControl