Optimizing Project Management with Earned Value Analysis: A Case Study of NearlyFree.com
Introduction
PM FPX 5333 Assessment 2 NearlyFree.com is currently dealing with a project that has exceeded its initial budget of $25,000. As the project is 43% complete, the company has learned its mistakes and has requested our project management services, An intense review of the annual accounts of the project indicates that the earned price is within the budget. The project is attempting to develop and disseminate an automated online training system for new hires, therefore lowering the fee and minimizing the staff resources needed for new employee orientation (NEO) training.
The project scope determines the 92-day program with a budget approved at $ 22,300. The report will explore the earned price technology (if any), assess the project’s current status and perform the earned price calculation necessary to facilitate an effective turnaround strategy.
Understanding the Earned Value Technique
Acquired price (EV) technology is a vital way of monitoring the correlation between a project plan within a project management in project management, actual progress and value of the work. The technology can be utilized to decide whether the project ought to have used how much time should have been used based on the work done by assessing the project. Control on project is undertaken against the basis of cost through applying the earned value, which occurs in terms of calculating and presenting a set of key performance indicators based on the actual progress.
Key Inputs in Earned Value Analysis
• Earned Value (EV): The current actual progress of the task up to the analysis date.
• Planned Value (PV): The forecasted expenditure of funds up to the date of analysis based on the calculation from the project schedule.
• Actual Cost (AC): The actual amount of money actually expended during the time period being analyzed.
Essential Calculations in Earned Value Management
In understanding how well or badly the project is performing, some very important calculations can be performed:
Cost Variance (CV)
Cost Variance (CV) specifies by how much the project is ahead or behind schedule at any point in time. It can be calculated as:
[ Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC) ]
For the project:
[ CV = $12,373.95 – $16,373.95 = -$4,000.00 ]
A cost variance of -$4,000 indicates that the project is running behind budget, while the optimum variance will be higher or zero.
Schedule Variance (SV)
Schedule Variance (SV) checks whether a project is ahead or behind time. The formula is:
[ Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV) ]
For this project:
[ SV = $12,373.95 – $20,453.95 = -$8,080.00 ]
This negative schedule variance indicates that the project is way behind schedule.
Performance Indices
• PM FPX 5333 Assessment 2 Schedule Performance Index (SPI) measures the effectiveness of the project in relation to its planned completion:
[ SPI = Earned Value (EV) / Planned Value (PV) ]
For this project:
[ SPI = $12,373.95 / $20,453.95 = 0.60 ]
An SPI of 0.60 indicates that there is a lag in the progress of the project, as any value below 1 indicates the project is behind.
• Cost Performance Index (CPI) gauges the financial performance of the project:
[ CPI = EV / AC ]
For this project:
[ CPI = $12,373.95 / $16,373.95 = 0.76 ]
A CPI of 0.76 suggests that the project is facing financial issues, since a CPI of less than 1 indicates inefficiency in cost control.
Project Budget and Future Projections
Budget at Completion (BAC)
Budget at Completion (BAC) refers to the total budget spent on the project. For NearlyFree.com, BAC is $22,300 initially.
Estimate at Completion (EAC)
Estimate at Completion (EAC) predicts the total cost of the project using its history. The EAC formula is as follows:
[ EAC = Actual Cost (AC) + (Budget at Completion (BAC) – Earned Value (EV)) / Cost Performance Index (CPI) ]
For this project:
[ EAC = $16,373.95 + ( $22,300 – $12,373.95 ) / 0.76 ]
[ EAC = $16,373.95 + $13,060.59 ]
[ EAC = $29,434.54 ]
Recommended Budget Turnaround Strategy
PM FPX 5333 Assessment 2 Earned Value Analysis (EVA) is a widely used technique for evaluating the progress of a project, estimating its completion time and final cost, and quantifying schedule and budget variances. Through the measurement of planned work and actual performance, EVA determines if cost, schedule, and work completed are in line with project expectations.
The recent EVA indicates that NearlyFree.com’s NEO project is over 50% behind schedule, and there are enormous budget overruns. A more planned EVA would have expected better budget needs and delivery times. The revised EAC indicates an increase in the project budget, from the original $22,300 to a new estimate of $29,434.54, which is a huge increase of over $7,000.
To offset these problems, it is recommended NearlyFree.com postpone the project schedule. This adjustment would provide ample time to complete the project, possibly improving earned value and decreasing incomplete work percentage.
Conclusion
Scheduling and budget shifts are critical in ensuring a successful project. Cost overruns have the potential to destroy stakeholder confidence, which might influence the performance of the company in the market and financing for future ventures. With the help of a more accurate project schedule and by performing the Earned Value Technique effectively, NearlyFree.com is able to handle its current challenges and improve general project management practices.
References
Peng, B. (2018, April 10). The earned value method. Retrieved from Project Engineerhttps://www.nibusinessinfo.co.uk
Usmani, F. (August 18, 2020). Planned value (PV), earned value (EV), & actual cost (AC) in project cost management. Retrieved from PM Study Circle
Haughey, D. (July 26, 2020). What is earned value? Retrieved from Project Smart
PM FPX 5333 Assessment 2 Earned Value Analysis Report
Cullen, S. (2016, August 2). Earned value analysis. Retrieved from WBDG%20is,budget%20as%20the%20 project%20 proceeds.https://link.springer.com/
