Project Cost Management

Dr. V Bharathi, Senior Faculty

SLIDE NO 1
 PROJECTS
REQUIRE

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No NO 2
 PROJECTS
REQUIRE
Investment

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No NO 3
AUTHOR
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No NO 4
 PRE PROJECT PHASE

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No NO 5
 Investment appraisal

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No NO 6
 Investment appraisal

• Assess the viability of project, programme or portfolio decisions

and the value they generate.

• Choice between Projects, Programmes or Portfolios.

• Management information.

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No NO 7
 Investment appraisal ???

Project Feasibility

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No NO 8
 YES or No ???

Go or No Go Decision???

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No NO 9
 Cost

It is defined as the amount of expenditure incurred on a specific

need or an activity.

It is a resource sacrificed or foregone to achieve a specific

objective, or something given up in exchange.

Costs are usually measured in monetary units, such as rupees,

dollars etc.

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No NO 10
 Project Cost

Project cost is defined as all costs specific to

a project incurred through development Phase.

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No NO 11
 20 50 100 100 150 300 30
Cash Inflow

Year
0 6 7 8 9 10 1 12
1
Investment (1000)
Or Production Phase
Cash Out flow (Revenue Generation Phase)
Design Phase
(Rs. in Crore)

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No NO 12
 A Bird’s eye view of Finance in Projects
Shareholders Customer Debt (Loan)
Preference; Equity Shares Advance
Banker; Debenture Holders
(Cost of Equity) (Liquidated Damages)
(Cost of debt)

Current Assets
Liability
(Short term + Long term) = (Cash and Cash equivalents)

Cash Outflow :
Working Capital
Fixed Assets or Non Current Assets
(Capital Items) (Current Assets)

Income/Revenue/
Sales - Expenditure
(Revenue
Expenditure)
Profit &
Loss Balance Sheet (As at )
Statement Profit After Tax EQUITY + LIABILITIES = ASSETS
(For the
period) Operating Cash Inflow
= PAT + Depreciation
CASH OUTFLOW : Investment

CASH INFLOW : Profit After Tax +

Depreciation or Amortisation
Project Cash Outlay/Outflow

It is an amount of money, especially a large amount, that

is invested on a project.

It refers to the project’s expenses.

Generally, the investment commences from the beginning

of the project and it can be in stages based on the project
requirements.
Project Cash Inflow

It refers to an operating Profit, gained from the Project.

The cash inflow occurs at regular intervals of time.

Accounting profits are cash flows that include non-cash inflows/outflows such as
depreciation, credit sales etc.

.
 Alternative Methods of Calculating Operating Cash Flow

TOP - DOWN APPROACH Rs. In Crore

   
Sales
Less : Operational Expenses

Gross Profit

Less : Administrative and Commercial Expenses

Profit Before Depreciation, Amortisation, Interest and Tax

(PBDAIT)

Less : Depreciation & Amortisation

Profit Before Interest and Tax (PBIT)

Less : Interest
Profit Before Tax (PBT)
Less : Tax at 30 %
Profit After Tax (PAT) or Net Profit

Add : Depreciation & Amortisation

OCF
 Profit & Loss Statement
(For the period 2017)
  Rs. In Crore
Sales   200
Less : Operational Expenses    
i) Material 100 
ii) Employee Benefit 20 
iii) Factory Overheads 10 130
Gross Profit   70
Less : Administrative and Commercial Expenses   10

Profit Before Depreciation, Amortisation, Interest and Tax (PBDAIT)   60

Less : Depreciation & Amortisation   10

Profit Before Interest and Tax (PBIT)   50
Less : Interest   5
Profit Before Tax (PBT)   45
Less : Tax at 30 %   13.5
Profit After Tax (PAT) or Net Profit   31.5
Alternative Methods of Calculating Operating Cash Flow

The bottom-up approach to operating cash flow takes the company's bottom line--that is, its
NET PROFT (NET INCOME) and adds back non-cash expenses such as depreciation and
amortization.

OCF = N + D

The top-down approach starts with total sales and subtracts only cash expenses (primarily fixed
costs, variable costs and taxes), leaving out non-cash expenses such as depreciation and
amortization.

OCF = S - C – T

Because depreciation is tax deductible, it reduces a firm's tax liability. The tax shield method of
computing operating cash flow takes this fact into account by multiplying the company's
depreciation expense by its tax rate.

OCF = (S - C) x (1 - T) + D x T

Each of these three methods yields the same number for OCF.
 Alternative Methods of Calculating Operating Cash Flow
BOTTOM - UP
Rs. In Crore TOP - DOWN APPROACH Rs. In Crore TAX SHIELD METHOD Rs. In Crore
APPROACH
           
NET PROFIT Sales Sales (S)
Add: Depreciation & Less : Operational
Less : Cost ( C )
Amortisation Expenses
OCF Gross Profit (S-C)

Less : Administrative and

  (1-T)
Commercial Expenses
Profit Before
Depreciation,
  (S-C) x (1 - T)
Amortisation, Interest and
Tax (PBDAIT)
Less : Depreciation &
  DxT
Amortisation
Profit Before Interest and OCF
 
Tax (PBIT) (S-C) x (1 - T) + D x T
  Less : Interest  
  Profit Before Tax (PBT)    
  Less : Tax at 30 %    
Profit After Tax (PAT) or
     
Net Profit
Add : Depreciation &
     
Amortisation
  OCF    
 BOTTOM - UP
Rs. In Crore TOP - DOWN APPROACH Rs. In Crore TAX SHIELD METHOD Rs. In Crore
APPROACH
           
NET PROFIT 31.5 Sales 200 Sales (S) 200
Add: Depreciation & Less : Operational
10 130 Less : Cost ( C ) 145
Amortisation Expenses
OCF 41.5 Gross Profit 70 (S-C) 55
Less : Administrative and
    10 (1-T) 0.7
Commercial Expenses
Profit Before
Depreciation,
    60 (S-C) x (1 - T) 38.5
Amortisation, Interest and
Tax (PBDAIT)
Less : Depreciation &
    10 D x T 3
Amortisation
Profit Before Interest and OCF
    50 41.5
Tax (PBIT) (S-C) x (1 - T) + D x T
    Less : Interest 5   
    Profit Before Tax (PBT) 45    
    Less : Tax at 30 % 13.5    
Profit After Tax (PAT) or
    31.5    
Net Profit
Add : Depreciation &
    10    
Amortisation
    OCF 41.5    
Financial Projections

A forecast of future revenues and expenses for a business.

It will take into account both internal information such as

historical income & cost data, estimates of the development of
external market factors.

Planning out and working on project’s financial

projections is one of the most critical things in the project.
 Time Value of Money

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No NO 23
 Time Value of Money

•The time value of money is the central concept in finance

theory.

•A rupee today is more valuable than a rupee a year hence

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No NO 24
 Time Value of Money
Why ?

An investment of one rupee today would grow to (1+r) a year

hence ( r is the rate of return on the investment).

In an inflationary period, a rupee today represents greater real

purchasing power than a rupee a year hence.

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No NO 25
 Future Value of money
• FVn = PV(1+r)^n ;

(1+r)^n is called the future value interest factor or simply the future value factor.

Future Value of an Annuity

Deposit of Rs. 1000 annually in a bank for 5 years. The interest rate is 10 %. (Deposit
occurs at the end of the year). The future value of annuity will be as follows:

= 1000(1.10)^4 + 1000(1.10)^3+1000(1.10)^2
+ 1000(1.10)+1000
= Rs. 6,105

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No NO 26
 Present Value

The cumulative present value of future cash flows can

be calculated by summing the contributions of FVt, the value of
cash flow at time t

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No NO 27
 Present Value

•The current worth of a future sum of money.

•Future cash flows are discounted at some

discount rate.

•Higher the discount rate, the lower the

present value of the future cash flows.

•Determining the appropriate discount rate is

the key to properly valuing future cash
flows.

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No NO 28
 Discounted cash flow (DCF) is an application of the time-
value-of-money concept.

The idea that money to be received or paid at some time in

the future has less value, today, than an equal amount
actually received or paid today.

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No NO 29
 Capital Budgeting Techniques

Non-
Discounting Discounting
Techniques Techniques

Net Benefit Internal Payback Accounting

Present Cost Ratio Rate of period Rate of
Value Return Return

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No NO 30
 Profit & Loss Statement
(For the period )

Revenue minus Expenditure = Net Profit

(Net Cash Inflow = Net Profit +
Depreciation) Net Present
Value;
D. Cash Inflows D. Cash Outflows
Year 1 Year 0 Internal Rate
Year 2 Year 1 of Return;
. .
Minus
. . Payback
.
Period;
Year n Year n
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No NO 31
 Net Present Value

Net Present Value (NPV)

NPV measures the difference between present value of future cash inflows
generated by a project and present value of cash outflows during a specific
period of time.

NPV calculation permits time varying discount rates

The general formula for NPV is
n
NPV = ∑ Ct - Present Value of Cash outflows
t=1 (1+rt)^t

Accept the Project if the NPV is positive

Reject the Project if the NPV is negative

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No NO 32
 Net Present Value
The present value of a project’s cash inflows and outflows

Discounting cash flows accounts for the time value of money

Choosing the appropriate discount rate accounts for risk

n
NPV = ∑ Ct - Present Value of Cash outflows
t=1 (1+rt)^t

Accept projects if NPV > 0

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No NO 33
 Net Present Value

A key input in NPV analysis is the discount rate

r represents the minimum return that the project must earn to satisfy
investors

r varies with the risk of the firm and/or the risk of the project

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No NO 34
 Internal Rate of Return (IRR)
The IRR is the interest rate, also called the discount rate, that is required to bring
the net present value (NPV) to zero. That is, the interest rate that would result in the
present value of the capital investment, or cash outflow, being equal to the value of
the total returns over time, or cash inflow
It is the discount rate which equates the present value of future cash flows
with the initial investment. It is the value of r in the following equation.
n
∑ Ct
t = 1 (1+r)^t
Ct = Cash flow at the end of year t ; r = IRR ; n = Life of the project

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No NO 35
 Internal Rate of Return (IRR)

• If the IRR is greater than the cost of capital,

accept the project.

• If IRR is less than the cost of capital, reject

the project.

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No NO 36
 Investment Appraisal
Tool Description Selection Criteria

Time Value of Money

Net Present Value Project Net Value in today’s Should be positive. The more
(NPV) Value. the better
PV of Cash inflows-PV of
Cash outflows
Internal Rate of Return It is the annualized effective IRR > Cost of Capital
(IRR) compounded return rate
that makes the NPV = 0 The more the better
Time Value of Money not used

Payback period Minimum period to get back Lesser the better

the original investment. Time
value is not considered.

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No NO 37
 What is Project Cost Management?

Project Cost Management includes the processes

involved in planning, estimating, budgeting,
financing, funding, managing, and controlling
costs so that the project can be completed within the
approved price and the available budget.

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No NO 38
 PROJECT COST MANAGMENT

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No NO 39
 Plan Cost Management

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No NO 40
 1. Plan Cost Management
Inputs Tools & Techniques Outputs
Project Charter Cost Management
Expert Judgment Plan
Project
Management Plan Data Analysis
EEF and OPA Meetings

Plan Cost
Management

Estimate Determine Control

Costs Budget Costs
 1. Plan Cost Management-Inputs
Inputs Tools & Techniques Outputs
Project Charter Cost Management
Expert Judgment Plan
Project
Management Plan Data Analysis
EEF and OPA Meetings

Plan Cost
Management

Estimate Determine Control

Costs Budget Costs
 1. Plan Cost Management - Inputs
KA↓ PG → Planning (Output) Project Management Plan
-Scope Baseline-Scope statement; WBS.
2. Develop
Project -Schedule Baseline – Defines when the project cost will
Project be incurred.
Integration
Management -Others – Cost related scheduling, risk, communication
Management
Plan decisions etc.

Project Charter
Project 1. Develop -Summary Budget from which the detailed project
Integration Project costs are developed.
Management
Plan Cost Charter -Project approval requirements.
Management
EEF
-Organization Culture and Structure; Market conditions;
Currency exchange; Published commercial information

OPA
-Fincl. Control Procedures; Historical information;
Lessons learned knowledge bases; Financial data
bases; Budget related policies
 1. Plan Cost Management – T&T
Inputs Tools & Techniques Outputs
Project Charter Cost Management
i) Expert Judgment Plan
Project
Management Plan

EEF and OPA

ii) Data Analysis
(iii) Meetings

Plan Cost
Management
1. Plan Cost Management – T&T
Expert Judgment
•Guided by Historical information / previous similar
i) Expert Judgment
projects.
•Based on expertise in an application area,
Knowledge area, Discipline, Industry etc.
ii) Analytical Techniques
Data Analysis
•Strategic Options of funding – Self funding, funding
(iii) Meetings
with equity, funding with debt etc.
•Ways to finance Project Resources : Making,
Plan Cost Purchasing, Leasing etc.
Management •Financial techniques for decision : Payback period,
NPV, ROI, IRR

Meetings
Project team meetings with relevant stakeholders
1. Plan Cost Management - Output
Inputs
Tools & Techniques Outputs
Project Charter Cost Management
Expert Judgment Plan
Project Management Analytical Techniques
Outputs
Plan
Meetings
EEF and OPA

Plan Cost
Management
1. Plan Cost Management – Output
Cost Management Plan
It is a component of Project Management Plan and describes how the
i) Expert
project cost will be planned, Judgment and controlled. The CMP
structured
includes :
•Units of measure – Staff Hours, Litres, Tons,
ii) Analytical Kilometes or Lump sum etc.
Techniques
•Level of precision : The degree to which activity cost estimates will be rounded
up or down. (iii) Meetings
•Level of accuracy – The acceptable range (+or–10 %) used in determining
Plan Cost
realistic activity cost estimates is specified.
Management
•Organizational procedural link – The WBS Component used for Project Cost
Accounting is called the Control Account and it is linked to Organisation’s
Accounting System.
• Control thresholds (% deviation from the baseline plan)
•Performance Measurement (EVM)
•Reporting Formats and Frequency of Reporting.
 ESTIMATE COST

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No NO 48
 2. Estimate Costs
Inputs Tools & Techniques Outputs
Project Management Cost Estimates
Plan Expert Judgment
Analogous Estimating
Project Documents
Parametric Estimating Basis of Estimates
Bottom –Up Estimating
EEFs
Three Point Estimating
Project Document
OPAs Data Analysis Updates
Project Management
Information System
Plan Cost
Management
Decision Making
 Estimate Costs – T&T
Expert Judgment – Guided by historical information

Analogous Estimating Parametric Estimating

•It uses the values such as scope, cost,i)budget,
Expert Judgment
•It uses a statistical relationship between relevant
duration from a previous, similar project as the basis historical data and other variables.
for estimating the same parameter for a current •This technique can produce higher levels of
project.
ii) Analyticalaccuracy.
Techniques
•It relies on the actual cost of previous, similar
Eg: Square Footage in Construction
projects.
•It is a gross value estimating approach.
(iii) Meetings
•It is useful when limited data about the project
•Less costly,
Plan Costless time consuming and less
accurate.
Management
Three - point Estimating Bottom-up Estimating
Three estimates are used to define the cost •It is a method of estimating a component of work.
-Most Likely (CM), Optimistic (CO) and •The cost of individual work package or activity is
Pessimistic(CP) estimated to the greatest level of specified detail.
Triangular Distbn. CE = (CM + CO + CP)/3 •The detailed cost is rolled up to higher levels.
Beta Distribution CE = (CP+4CM+CP)/6
 Estimate Costs – T&T
Reserve Analysis Cost of Quality
•Cost estimates include contingency reserves to -Cost of Conformance
address the “ Known-Unknowns”.
-Cost of non-conformance
Eg: Rework i) Expert Judgment
•Management Reserves are meant to address the Project Management Software
“Unknowns-Unknowns”. •Software applications
ii) Analytical Techniques
•Contingency reserve is part of the Cost Baseline, •Spread Sheets
whereas, Management Reserves is not included in
the Cost Baseline. •Simulation

cost Meetings•Statistical tools

•Management reserves is added to the(iii)
baseline when it is used to address unknown-
unknowns, thus requiring an approved change to
thePlan
costCost
baseline.
Management Group Decision Making Techniques
Vendor bid analysis
Brain Storming, Delphi Technique
Analysis based on the responsive bids from
qualified vendors
 2. Estimate Costs - Outputs
Inputs Tools & Techniques Outputs
Cost Management Plan Activity Cost
Human Resource Expert Judgment Estimates
Management Plan Analogous Estimating
Scope Baseline
Parametric Estimating Basis of Estimates
Project Schedule
Bottom –Up Estimating
Risk Register Three Point Estimating
Project Document
EEF & OPA Reserve Analysis Updates
Cost of Quality
Plan Cost Project Management
Management Software
Vendor Bid Analysis
Group Decision
Techniques
Division:
2. Estimate Costs
Project Cost Estimation range :

Project Status Estimate Range Variation

Initiation Rough Order of - 25 % to + 75 %
magnitude

Planning Definitive - 5 % to + 10 %
Estimates

53
 Cost Estimation
Of Design & Development Project

PRODUCT : TRAINER AIRCRAFT

AUTHOR
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No NO 54
 Assumptions for cost estimation :

1. All financial figures are at cost to the point of incurrence

2. Man hours is based on Technical estimation

3. MHR at 2016 Price Level (PL)

- Design : Rs. 2000
- Shop : Rs. 1500
- Outsourcing-Des : Rs. 1750
- Outsourcing-Shop : Rs. 1000

4. MHR Yearly escalation 10 %

  Y1 Y2 Y3 Y4 Y5 Y6
Design 2000 2200 2420 2662 2928 3221
Shop 1500 1650 1815 1997 2197 2417
Outsourcing-Des 1750 1925 2118 2330 2563 2819
Outsourcing-shop 1000 1100 1210 1331 1464 1610

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No NO 55
  TRAINER AIRCRAFT D&D SCHEDULE  72 Months 
   
                 
Sl.No. Activity Duration Year1 Year2 Year3 Year4 Year5 Year6
    Months            
1 Preliminary Design 6 6          
2 Detailed Design 30 6 12 12      
3 Prototype tooling 24   12 12      
4 Prototype manufacturing 36 6 12 12 6    
Structural & Systems
5 Testing 36     12 12 12  
6 Flight Testing 36       12 12 12
Modifications &
7 Improvements 36       12 12 12
8 Simulators 12         12  
9 Certification 12           12
10 Publications 12           12

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No NO 56
 Schedule planned for Series Production

T0+7 T0+8 T0+9 T0+10 T0+11 T0+12 T0+13 T0+14 T0+15

 

No. of
Aircrafts 25 50 50 50 50 50 75 75 75

Cumulative 25 75 125 175 225 275 350 425 500

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No NO 57
 Cost Elements

D&D project cost broadly classified :

• Materials ( Raw Materials, Standard parts, Consumables, BOIs, LRUs, GTC &
FTC Items, ATF,Others)

• Labour & Overheads (Design Hours, Shop Hours)

• Sundry Direct Charges (SDC)- (project related travel, Insurance, Repair

Costs, Non-recurring costs, Machining charges, Work-package cost,
certification costs, AMC,etc.,)

• Facilities cost : CAD /CAM Facilities / Building , P&M, Others

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No NO 58
 Design & Development cost
Labour Cost Other
Direct
 
Exp.
Sl. Total Total Material Facilities Total
No. Major Activities Hrs Cost Cost Cost Cost
1 Preliminary Design            
2 Detail Design            
3 Prototype tolling            
4 Prototype            
manufacturing
5 Structural &            
Systems Testing
6 Flight Testing            
7 Modifications &            
Improvements
8 Simulators            
9 Certification            
10 Publications            
11 Contingency & Risk            
elements
12 Profit

DIVISION 
AUTHOR Total Cost            
Page SLIDE
No NO 59
 DESIGN AND DEVELOPMENT EXPENDITURE
Labour Cost (Rs. In Cr) Other
Direct Exp.
(Rs. In Cr)  
TOTAL
  Material Facilities
Sl. # Major Activities Total Cost Cost (Rs. In
Des Hrs Des Cost Shop Hrs Shop Cost OS Hrs OS Cost Total Hrs Cost (Rs. In Cr) (Rs. In Cr)
Cr.)
1 Preliminary 100875 20.18 11250 1.69     112125 21.86 5.00
Design 2.00 10.00 38.86
2 Detail Design 843750 189.68     100000 19.67 943750 209.35 3.00
25.00 25.00 262.35
3 Prototype 15000 3.37 100000 16.83 15000 1.71 130000 21.90 5.00 -
tooling 3.00 29.90
4 Prototype     852500 148.76 100000 11.33 952500 160.09 258.00
manufacturing 50.00 120.00 588.09
5 Structural & 70000 17.77 180000     250000 52.58 5.00  
Systems Testing 34.81 2.00 59.58
6 Flight Testing 50000 14.96 50000     100000 26.19 10.00  
11.23 10.00 46.19
7 Modifications & 50000 14.96 50000     100000 26.19 5.00  
Improvements 11.23 4.00 35.19
8 Simulators             0 0.00 15.00  
5.00 20.00
9 Certification             0 0.00    
20.00 20.00
10 Publications             0 0.00    
10.00 10.00
11 Contingency & 112963 26.09 124375 22.45 21500 3.27 258838 51.82 30.60 13.10 15.50
Risk elements 111.02
-10 % of above
AUTHOR
DIVISION
  Total 1242588 287.00 1368125 246.99 236500 35.98 2847213 569.97 336.60 Page170.50
144.10 No NO
SLIDE 60
1221.17
 PRELIMINARY DESIGN
TRAINER AIRCRAFT - PDP- AND PROJECT DESIGN
Schedule = 6months

Sl No Detailed Activity No. of No. of Hours per Year 1

Total
Engineers Months month
Man Hours
            6M
1.1 Design Studies 55 6 187.5 61,875 61,875

1.2 System Development 20 6 187.5 22,500 22,500

1.3 Wind Tunnel Tests 4 2 187.5 1,500 1,500

1.4 Programme Planning 10 4 187.5 7,500 7,500

1.5 Facility Plans 5 4 187.5 3,750 3,750

1.6 Structure Standards 5 4 187.5 3,750 3,750

  TOTAL-DESIGN HOURS 99     1,00,875 1,00,875

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No NO 61
 Sl No Detailed Activity No. of No. of Hours per Total Year 1
Engineers Months month Man Hours

  Des. Man Hour Rate (Rs.)         2000

             
Total Des. Labour Cost
A       - 20.18
(Rs.Cr)
             
  Shop Labour 20 3 187.5 11,250 11,250
  for Mock-up, WT, Otherss          

  Shop . Man Hour Rate (Rs.)         1500

             
Total Shop Labour Cost
B         1.69
(Rs.Cr)
             
C Material cost         5.00
             
D Direct Exp.         2.00
  ( TA/DA, Consultancy, etc.)          
E IT Infrastructure (Rs. Cr)         10.00
             

  TOTAL (Rs. Cr)       38.86

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No NO 62
 MAJOR ACTIVITY - DETAIL DESIGN

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No NO 63
 MAJOR ACTIVITY - DETAIL DESIGN
Schedule = 30 months
Sl No Detailed Activity No. of No. of Months Hours per Total Year 1 Year 2 Year 3
Engineers month Man
Hours
            6M 12M 12M

1.1 Aerodynamics, Layout & Performance 50 30 187.5 2,81,250 56,250 1,12,500 1,12,500

1.2 Mass Properties 10 30 187.5 56,250 11,250 22,500 22,500

1.3 Structure 10 30 187.5 56,250 11,250 22,500 22,500
1.4 Fuselage 10 30 187.5 56,250 11,250 22,500 22,500
1.5 Wing, Flap & Aileron 10 30 187.5 56,250 11,250 22,500 22,500
1.6 Empennage 10 30 187.5 56,250 11,250 22,500 22,500
1.7 Material & Processes 10 30 187.5 56,250 11,250 22,500 22,500
1.8 Flight Control 10 30 187.5 56,250 11,250 22,500 22,500
1.9 Power Plant & Fuel System 10 30 187.5 56,250 11,250 22,500 22,500
1.10 ECS & Others 5 30 187.5 28,125 5,625 11,250 11,250
1.11 Landing Gear & Brakes 5 30 187.5 28,125 5,625 11,250 11,250
1.12 Hydraulics 2 30 187.5 11,250 2,250 4,500 4,500
1.13 Ejection System 2 30 187.5 11,250 2,250 4,500 4,500
1.14 Avionics & Electrical System 4 30 187.5 22,500 4,500 9,000 9,000
1.15 Others 2 30 187.5 11,250 2,250 4,500 4,500
          0 0 0 0
         0 0 0 0

A TOTAL- DESIGN HOURS 150     843750 168750 337500 337500

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DIVISION Page SLIDE
No NO 64
Sl No Detailed Activity No. of No. of Hours Total Year 1 Year 2 Year 3
Engineers Months per Man
month Hours
            6M 12M 12M
  Des. Man Hour Rate (Rs.)        2000 2200 2420
-
A Total Des. Labour Cost (Rs.Cr)       33.75 74.25 81.68

                 
  Design Outsourcing              
  Hours       100000 20000 40000 40000
  MHR         1750 1925 2118
Total Des O/S Labour Cost
B
(Rs.Cr)
        3.50 7.70 8.47

C Material cost         1.00 1.00 1.00

D Direct Exp.         5.00 10.00 10.00
  ( TA/DA, Consultancy, etc.)              
E IT Infrastructure (Rs. Cr)         5.00 10.00 10.00
  (Hardware & Software, AMC)              
  TOTAL (Rs. Cr)         48.25 102.95 111.15
AUTHOR
DIVISION Page SLIDE
No NO 65
 PROTOTYPE TOOLING
% 0F
SL
DESCRIPTION MAN- HOURS Year2 Year3 Year4 Year5
NO.
HOURS
A Tool design            
  Des Hours   15000 12000 3000    
  MHR     2200 2420    
  Cost   15000 2.64 0.73 0.00 0.00
B Tool Fabrication            
1 DETAIL TOOLS            
  Machine Shop 15% 15000 12000 3000   
  N.C. Shop 5% 5000 4000 1000   
  Sheet Metal Shop 10% 10000 8000 2000   
  Canopy Tooling 2% 2000 1600 400   
2 SUB-ASSEMBLY JIGS 5% 5000 4000 1000   
3 ASSEMBLY JIGS            
  Fuselage 10% 10000 8000 2000   
  Wing (LH & RH) 15% 15000 12000 3000   
  Horizontal Stabiliser 5% 5000 4000 1000   
  Vertical Stabiliser 7% 7000 5600 1400   
Control Surfaces (Flaps,
  Ailerons, Elevators and Rudder) 10% 10000 8000 2000   
Fuselage And Wing Coupling Jig
AUTHOR
DIVISION
  12% 12000 9600 2400  Page SLIDE
No  NO 66
 PROTOTYPE TOOLING
% 0F
SL
DESCRIPTION MAN- HOURS Year2 Year3 Year4 Year5
NO.
HOURS
4 MISC. TOOLS 4% 4000 3200 800   
Re design/
5 Modfications            
TOTAL-Tool
  Fabrication 100% 100000 80000 20000 0 0
MHR     1650 1815 1997 2197
Cost     13.20 3.63 0.00 0.00
C Tooling Outsourcing            
  Hours   15000 10000 5000    
  MHR     1100 1210 1331 1464
  Cost   15000 1.10 0.61 0.00 0.00
Materil cost
D     4.00 1.00    
Machning
E chgs/Other payments    2.00 1.00    
F Machines            
  Total cost Rs crs   22.94 6.96 0.00 0.00
AUTHOR
DIVISION Page SLIDE
No NO 67
 ESTIMATE FOR PROTOTYPE
MANUFACTURING

AUTHOR
DIVISION Page SLIDE
No NO 68
 ESTIMATE FOR PROTOTYPE MANUFACTURING

Year
Year2 Year3 Year4
    Hrs / Set No.of Sets Factor Total Hrs 1
                   

  Detail Parts 50000 5 2.00 500000  300000 200000 0

                   
  Assembly 30000 5 1.75 262500  131250 105000 26250
                   
  Equipping 20000 3 1.50 90000  9000 36000 45000
                   
  Hours 100000    852500  440250 341000 71250
  MHR           1650 1815 1997
A MFG. COST           72.64 61.89 14.23
                   
Outsourcing /
B Sub Cont.                
  Hours       100000  70000 30000 
  MHR           1100 1210 
  Cost           7.70 3.63 0.00
                   

AUTHOR
DIVISION Page SLIDE
No NO 69
 Hrs / Set No. of Factor Total Year 1
Year2 Year3 Year4
    Sets Hrs
Mat cost Set
C cost/Crs              
  Raw Materials 1.00 5 2 10.00  8.00 2.00 
  Std. Parts & consumables 1.00 5 2 10.00  8.00 2.00 
  System Equipments, BOIs, 15.00 4 1.5 90.00  36.00 45.00 9.00
LRUs, including Avionics,
cables, etc.
  Engines 5.00 3 2 30.00    15.00 15.00
  Other items 3.00 3 2 18.00  9.00 7.20 1.80
  NRC, Equipment       100.00  10.00 80.00 10.00
Customisation, adpation
charges
          258.00  71.00 151.20 35.80
D Direct Exp.       50.00  10.00 30.00 10.00
  (Mach. Charges,                
Conslutancy, TA/DA,
Insurance, ATF OIL, Etc.)
E Infrastructure facilities :                
  Buildings / Hanger       50.00 10.00 40.00   
  Machines       50.00 20.00 30.00   
  Others       20.00 10.00 10.00   
          120.00 40.00 80.00 0.00 0.00
  Total         40.00 241.34 246.72 60.03
AUTHOR
DIVISION Page588.09
No NO 70
SLIDE
 ESTIMATED UNIT PRICE OF ‘X’
TRAINER AIRCRAFT ( 2016 PL)

AUTHOR
DIVISION Page SLIDE
No NO 71
 (Rs. In Crores)
S.No. Particulars     2016 PL

1 Material Cost:      
Raw Materials     1.00
Std. Parts & consumables     1.00
System Equipments, BOIs, LRUs, including Avionics, cables, etc.     15.00
Engines     5.00
Other items     3.00
      25.00
2 Labour Cost     15.00
  Hours -1,00,000      
  MHR - 1500      
3 Insurance and Fuel     1.00
4 Warranty @ 5%     2.05
  Sub-total     43.05
5 Profit @ 10%     4.31
  Basic price excluding amortisation     47.36
6 Amortization of : Total No. a/c  
 D&D Cost 1221.17 500 2.44
 SP DRE 500 0.60
300.00
        3.04
7 Profit at 7.5% on      
 D&D Cost     0.18
 SP DRE     0.05
  Unit Selling Price     50.63
Estimated Price @ 5% escalation p.a 67.84
AUTHOR
DIVISION Page SLIDE
No NO 72
 A model Unit Price structure of an Aircraft

AUTHOR
DIVISION Page SLIDE
No NO 73
AUTHOR
DIVISION Page SLIDE
No NO 74
 3. Determine Budget
Inputs Tools & Techniques Outputs
Cost Baseline
Project Management Expert Judgment
Plan
Cost Agreement
Project Documents
Project Funding
Data Analysis
Business Documents Requirements
Historical
Agreements information review
Project Document
EEFs
Funding Limit Updates
OPAs
Reconciliation

Plan Cost Financing

Management
 2. Determine Budget – T&T
Cost Aggregation
Expert Judgment
•Work packages in accordance with the WBS
Consultants, Stakeholders, Professionals
•.Work Package Cost estimates are then aggregated for
the higher component levels of WBS.
•Entire Project
Historical Relationships
Result in Parametric or Analogous estimates

Reserve Analysis
•Cost estimates include contingency reserves to
address the “ Known-Unknowns”. Funding Limit Reconciliation
Eg:
PlanRework
Cost A variance between the funding limits and
Management the planned expenditures may lead to
•Management Reserves are meant to address the
rescheduling of work to level out the rate of
“Unknowns-Unknowns”.
expenditures.
•Contingency reserve is part of the Cost Baseline,
whereas, Management Reserves is not included in
the Cost Baseline.
•Management reserves is added to the cost
baseline when it is used to address unknown-
unknowns, thus requiring an approved change to
the cost baseline.
3. Determine Budget - Outputs
Cost Baseline
•It is the approved version of the time-phased project budget,
excluding any Management Reserves.
•Cost Baseline can be changed through formal control procedures.
•It is used as basis for comparison to actual results.

Project Funding Requirements

Total funding and periodic funding requirements derived from the Cost
Baseline;
Anticipated Liabilities
Project Document Updates
Risk Register, Cost Estimates, Project Schedule
Project Budget Components
79
 4. Control Costs
Inputs Tools & Techniques Outputs
Project Management Work Performance
Plan Earned Value Information

Project Funding Management Cost Forecasts

Requirements
Forecasting Change Requests
Work performance To-Complete PMP Updates
Data Performance Index
Project Document
OPA Performance Updates
Reviews
OPA Updates
PMSW
Plan Cost
Management Reserve Analysis
 4. Control Costs - Inputs
KA↓ PG → Planning (Output) Project Management Plan

2. Develop Cost Baseline

Project
Project Cost Management Plan
Integration
Management
Management
Plan
Project Funding Requirements
Project Cost Total funding and periodic funding requirements
3. Determine Budget
Management derived from the Cost Baseline;
Anticipated Liabilities

Plan Cost Executing (Output)

Project Work Performance data
Management
Integration Data about project progress
3. Direct and Manage
Management
Project Work
OPA-
Cost control related policies; procedures and
guidelines
Cost control tools
Monitoring and reporting methods
 4. Control Costs – T & T
Inputs Tools & Techniques Outputs
Project Management Work Performance
Plan Information
Expert Judgment
Project Documents Cost Forecasts
Project Funding Data Analysis - Earned
Requirements Value Analysis, Variance, Change Requests
Work performance Trend, Reserve Analysis PMP Updates
Data
To-Complete Project Document
OPA Performance Index Updates
Project Management
Information System
Plan Cost
Management
 Control Costs
Inputs Tools & Techniques Outputs

• Work performance Information

• Cost forecasts
• Expert Judgment
• Project Management Plan • Change requests
• Data Analysis
- Cost Management Plan • Project Management Plan Updates
-Earned Value Analysis
- Cost Baseline -Cost Management Plan
-Variance Analysis
-Performance measurement baseline -Cost Baseline
-Trend Analysis
• Project Documents -Performance measurement baseline
-Reserve Analysis
- Lessons Learned Register • Project documents updates
• To Complete
• Project funding requirements - Assumption Log
Performance Index
• Work performance data - Basis of Estimates
• Project Management Information
• Organisational Process Assets - Cost estimates
System
- Lessons learned register
- Risk Register
EARNED VALUE MANAGEMENT
EARNED VALUE MANAGEMENT
Earned Value Management (EVM) is the
measurement, monitoring and controlling of
project progress in terms of cost, time and scope
as against an agreed and fully integrated baseline
plan.

EVM has the unique ability to combine

measurements of work performance (completion
of planned work), schedule performance (behind
or ahead of schedule), and cost performance
(below or above budget) within a single integrated
methodology.
EARNED VALUE MANAGEMENT – KEY TERMS

To manufacture 10,000 parts for an assembly, you estimate the cost of

manufacturing Rs. 10 per part. You estimate that your team can manufacture 500
parts per week. After 12 weeks you have 50 % of the job complete and you have
spent Rs. 60,000.

Answer
Key Term Explanation Formula Calculation
(Rs.)
How much did we Cost per unit x
Budget at Completion Rs. 10 x
budget for Total Total no. of 100000
(BAC) 10000 parts
project to cost? units

How much time is (Total no. of 10000 Parts

Total duration of the 20
required to complete Parts/ capacity --------------
Project Weeks
the project? per week) 500 Parts
/week
EARNED VALUE MANAGEMENT – KEY TERMS

To manufacture 10,000 parts for an assembly, you estimate the cost of

manufacturing Rs. 10 per part. You estimate that your team can manufacture 500
parts per week. After 12 weeks you have 50 % of the job complete and you have
spent Rs. 60,000.

Answer
Key Term Explanation Formula Calculation
(Rs.)
How much did we Cost per unit x
Budget at Completion Rs. 10 x
budget for Total Total no. of 100000
(BAC) 10000 parts
project to cost? units

How much time is (Total no. of 10000 Parts

Total duration of the 20
required to complete Parts/ capacity --------------
Project Weeks
the project? per week) 500 Parts
/week
EARNED VALUE MANAGEMENT – KEY TERMS

Answer
Key Term Explanation Formula Calculation
(Rs.)

Planned Value (PV); As of today (review Capacity per

Budgeted Cost of the date) what is the est. week x Review 500 parts x 12
60000
Work Scheduled value of the work period x Cost weeks x Rs. 10
(BCWS) planned to be done. per unit

Earned Value (EV) ; As of today what is the Work

Budgeted cost of the est. value of the work performed till 10000x 50 %x 50000
work performed review period x Rs. 10
actually accomplished.
(BCWP) Cost per unit

Actual Cost (AC); As of today what is

Actual cost
Actual cost of the the actual cost
spent till Rs. 60000 60000
work performed incurred for the work
review period
(ACWP) accomplished.
EARNED VALUE MANAGEMENT – KEY TERMS

Answer
Key Term Explanation Formula Inference
(Rs.)
Cost Variance Deviations from Zero – On Budget;
(CV) the EV - AC Positive – Under Budget; - 10000
budget Negative – Over Budget
Schedule
Zero – On Schedule;
Variance (SV) Deviations from
Positive – Ahead of Schedule; -10000
the work planned EV - PV
Negative – Behind Schedule
Cost
=1;
Performance Ratio of EV to
EV / AC <1; 0.833
Index (CPI) Actual cost.
>1
=1;
Schedule Ratio of EV to EV / PV <1;
0.833
Performance Planned Value >1
Index (SPI)
89
EARNED VALUE MANAGEMENT – KEY TERMS
Answer
Key Term Explanation Formula Calculation
(Rs.)
Estimate at What do we currently 100000
Completion (EAC) expect the total project to BAC / CPI ------------- 120000
cost 0.8333
Estimate to From this point on how
Complete (ETC) much more do we expect EAC - AC
120000 -
60000
it to Cost to finish the 60000
project.
As of today how much
Variance at over or under Budget do 100000 -
BAC - EAC - 20000
Completion (VAC) we expect to be at the 120000
end of the project
To complete The rate of work required
Performance to be done to be within BAC – EV
50000
Index (TCPI) budget (Work ------------
------------ 125 %
Remaining/Funds BAC - AC
40000
remaining) 90
EARNED VALUE MANAGEMENT – KEY TERMS
Forecasting EAC
1)All the future work will be completed at the current cost efficiency; The present
variation in cost is typical and will apply to all the works to be performed in the
future. (Typical Situation)
BAC
EAC = ---------
CPI
2) All the future work will be completed at the Budgeted rate; The present
variation is a atypical in cost is typical and will not apply to all the work to be
performed in the future. (Atypical Situation)
EAC = AC + BAC -EV
EARNED VALUE MANAGEMENT – KEY TERMS

To Complete Performance Index (TCPI)

TCPI can be calculated using BAC or EAC

TCPI using BAC = ( BAC- EV)/ (BAC- AC)

TCPI using EAC = ( BAC- EV)/ (EAC- AC)
Given a project with the following characteristics, answer the following questions with
detailed computation:
You are the project manager of a project to build Flight Hangar
You are required to build two Flight Hangars a month for 12 months.

Each Hangar is planned to cost Rs. 100 Crores.

Your project is scheduled to last for 12 months.

It is the beginning of month 10.

You have built 20 Hangars and your CPI is 0.9091.

 How is the project performing?

•What is the actual cost of the project right now?
•Assuming that the COST variance experienced so far in the project will continue,
how much more money will it take to complete the project?
•If the variance experienced so far were to stop, what is the project’s estimate at
completion?
•What is the project’s TCPI using the project’s budget at completion?
94
 Earned Value: Example
Actual Cost:
Cost what you Today
d i ng
n
have actually spent to
Spe
)
this point in time.
n ed
P lan
ed(
Cost (Person-Hours)

e t
u dg
B
Planned Value:
Value what your
plan called for sending on
the tasks planned to be
completed by this date.
ing
e n d
a lue
l Sp e dV Earned Value:
Value value
a r n
c tu Ea (cost) of what you have
A
accomplished to date, per
the base plan.

Time (Date)
 Earned Value: Example
Today
d i ng
n
Spe
)
n ed
Over P lan
Budget ed(
Cost (Person-Hours)

e t
u dg
B

ing
e n d
a lue Behind
l Sp e dV
a r n Schedule
c tu Ea
A

Time (Date)
EVM Performance Measures
Basic Interpretations of EVM
EARNED VALUE MANAGEMENT – EXERCISE

To build 10,000 Ft Fence for a school. You

estimate the cost of fence installation to be
Rs. 10 per foot. You estimate that your crew
can install 500 feet of fence per week. After
12 weeks you have 50 % of the job complete
and you have spent Rs. 45,000.
EARNED VALUE MANAGEMENT – EXERCISE

Given Information / Data :

1 Scope 10000 FEET OF FENCE  
10000/ 500 = 20 WEEKS.
2 Time Schedule
(500 FT PER WEEK ) 
Estimated
3 Cost/Budget at 10000 ft x Rs. 10 / ft = Rs. 100,000 
Completion
4 Actual Cost Rs. 45,000 
5 Today 12 Weeks
Work completed 50 % i,e 5000 FT
6
today  
101
EARNED VALUE MANAGEMENT – EXERCISE

Solution :
Budget At
= Rs. 100,000
1 Completion
 
(BAC)
Planned Value = Rs. 60,000
2
(PV) (500 Ft/ week X 12 weeks X Rs. 10/ Ft)
= Rs. 50,000 
3 Earned Value (EV)
(5000 ft X Rs. 10 /ft)
4 Actual Cost (AC) = Rs. 45,000 

5 Cost Variance (CV) EV- AC  = Rs. 5,000

EARNED VALUE MANAGEMENT – EXERCISE

Solution :

6 Sch Variance (SV) EV- PV  = Rs. -10,000

Cost perf Index

7 EV/AC  1.111
(CPI)

8 Sch Perf Index (SPI) EV/PV  0.8333

Est at Completion
9 BAC/CPI  = Rs. 90,000
(EAC)
Est to Complete
10 EAC-AC  = Rs. 45,000
(ETC)
Variance at
11 BAC- EAC  = Rs. 10,000
Completion (VAC)
EARNED VALUE MANAGEMENT – EXERCISE

To build fence with four sides. Each side to take one day to
build and is budgeted for Rs. 1000 per side. The sides are
planned to be completed one after the another. Today is
the end of day three.
Activity Day 1 Day 2 Day 3 Day 4 Status on end of day 3

Side -1 S---------F Comp. Spent Rs. 1000

Side-2 S---------PF --- F Complete, spent Rs. 1200

Side-3 PS---S---PF 50 % done. Spent

Rs. 600
Side-4 PS----- PF Not yet started.
EARNED VALUE MANAGEMENT – EXERCISE

Given Information / Data :

1 Scope To build fence with four sides
2 Time Schedule Four days
Estimated
3 Cost/Budget at Rs. 4,000
Completion
Rs. 1,000 + Rs. 1,200 + Rs. 600 =
4 Actual Cost
Rs. 2,800
5 Today End of day three
Work completed Rs. 1000 + Rs. 1000 + Rs. 500 =
6
today Rs. 2,500
EARNED VALUE MANAGEMENT – EXERCISE

Solution :
Budget At
1 Rs. 4,000
Completion(BAC)
Rs. 3,000;
2 Planned Value (PV) We should have done Rs. 3000 worth of
work
Rs. 2,500
3 Earned Value (EV)
We have completed Rs. 2500 worth of work
Rs. 2,800
4 Actual Cost (AC)
We have spent Rs. 2800
 - Rs. 300
5 Cost Variance (CV) EV- AC
Over budget by Rs. 300
EARNED VALUE MANAGEMENT – EXERCISE

Solution :
- Rs. 500
6 Sch Variance (SV) EV- PV
We are behind schedule
0.893
7 Cost perf Index (CPI) EV/AC We are getting 89 paise out of every
rupee spent.
0.833
8 Sch. Perf Index (SPI) EV/PV
Progressing at 83.33 %.
Rs. 4,479
Est at Completion
9 BAC/CPI Currently, the total project cost is Rs.
(EAC)
4479.
Rs. 1,679
10 Est to Complete (ETC) EAC-AC From this point on, it is expected to cost
Rs. 1,679 to complete the project.
- Rs. 479
Variance at As of today, over Budget of Rs. 479 is
11 BAC- EAC
Completion (VAC) expected to be at the end of the
A total budget of $65 Million is sanctioned for a project
named HCP with an estimated duration of two years.
While analyzing the project status, the project manager
calculated the metrics of SPI at 1.6 and CPI at 0.9. What
would be the best plan of action?
A. Reduce resources to control cost
B. Add resources to control cost
C. Utilize contingency reserves
D. Utilize management reserves

108
A total budget of $65 Million is sanctioned for a project
named HCP with an estimated duration of two years.
While analyzing the project status, the project manager
calculated the metrics of SPI at 1.6 and CPI at 0.9. What
would be the best plan of action?
A. Reduce resources to control cost
B. Add resources to control cost
C. Utilize contingency reserves
D. Utilize management reserves

109
The EVM technique monitors three key dimensions
for each work package and control account:
Planned Value(PV), Earned Value(EV),
and Actual Value(AC). What does EV-PV denote?
A. Cost Performance Index
B. Coat Variance
C. Schedule Performance Index
D. Schedule Variance
110
The EVM technique monitors three key dimensions
for each work package and control account:
Planned Value(PV), Earned Value(EV),
and Actual Value(AC). What does EV-PV denote?
A. Cost Performance Index
B. Coat Variance
C. Schedule Performance Index
D. Schedule Variance
111
4. Project DELHI has a total budget of $3 Million. The
record shows that $1.75 has been spent so far. The team
has completed 65% of the project work. According to the
plan, if it was scheduled to complete 60% of the work.
Calculate the CPI and CV for the project.
•A. CPI is 1.11 and CV is $200,000
•B. CPI is 1.08 and CV is $200,000
•C. CPI is 1.11 and CV is $150,000
•D. CPI is 1.08 and CV is $150,000

114
4. Project DELHI has a total budget of $3 Million. The
record shows that $1.75 has been spent so far. The team
has completed 65% of the project work. According to the
plan, if it was scheduled to complete 60% of the work.
Calculate the CPI and CV for the project.
•A. CPI is 1.11 and CV is $200,000
•B. CPI is 1.08 and CV is $200,000
•C. CPI is 1.11 and CV is $150,000
•D. CPI is 1.08 and CV is $150,000

115
5. The project named JHULA has been approved with a
budget of $65 Million. While analyzing the schedule, it
is found that the project CPI is 1.2 and SPI is 0.95.
Which process are you performing?

A. Project is ahead of schedule and over budget

B. Project is behind schedule and under budget
C. Plan cost management
D. Control cost

116
5. The project named JHULA has been approved with a
budget of $65 Million. While analyzing the schedule, it
is found that the project CPI is 1.2 and SPI is 0.95.
Which process are you performing?

A. Project is ahead of schedule and over budget

B. Project is behind schedule and under budget
C. Plan cost management
D. Control cost

117
6. The project FUTURE status report shows a CPI of
0.5 and SPI of 1.2, with a forecasted budget of USD
1.5 Million. What was the initial budget, assuming
CPI is constant throughout the project?
A. 1.8 Million
B. 1.25 million
C. 1 Million
D. 0.75 Million
118
6. The project FUTURE status report shows a CPI of
0.5 and SPI of 1.2, with a forecasted budget of USD
1.5 Million. What was the initial budget, assuming
CPI is constant throughout the project?
A. 1.8 Million
B. 1.25 million
C. 1 Million
D. 0.75 Million
119
7. The project XZ’s status report shows the following
information: CPI is 0.9, SPI is 1.1. What does this
information convey?

A. The project is under control

B. The project has some minor deviations
C. The project costs are more than planned and
is ahead of schedule
D. The project costs are more than planned and
is behind schedule.

120
7. The project XZ’s status report shows the following
information: CPI is 0.9, SPI is 1.1. What does this
information convey?

A. The project is under control

B. The project has some minor deviations
C. The project costs are more than planned and
is ahead of schedule
D. The project costs are more than planned and
is behind schedule.

121
8. The project ABC shows following data:
BAC = $2 million; AC = $1.1 Million; PV =$1.1 Million; EV =
$800,000
The management has asked the project manager for the
total estimated project cost at the current spending rate.
What is project manager response?
A. The management wants the Cost Variance, which is
minus
$300,000
B. The management wants the Schedule Variance,
which is minus $300,000
C. The management wants the Estimate at Completion,
which is minus $1.45 Million
D. The management wants the Estimate at Completion,
which is minus $2.75 Million
122
8. The project ABC shows following data:
BAC = $2 million; AC = $1.1 Million; PV =$1.1 Million; EV =
$800,000
The management has asked the project manager for the
total estimated project cost at the current spending rate.
What is project manager response?
A. The management wants the Cost Variance, which is
minus
$300,000
B. The management wants the Schedule Variance,
which is minus $300,000
C. The management wants the Estimate at Completion,
which is minus $1.45 Million
D. The management wants the Estimate at Completion,
which is minus $2.75 Million
123
9. The project manager has the following data:

PV EV AC
Month1 1000 900 900
Month2 2000 2200 2100
Month3 3000 2800 3200
Month4 4000 3900 3800

Which month had the best CPI and SPI?

A. Month 1
B. Month 2
C. Month 3
D. Month 4

124
9. The project manager has the following data:

PV EV AC
Month1 1000 900 900
Month2 2000 2200 2100
Month3 3000 2800 3200
Month4 4000 3900 3800

Which month had the best CPI and SPI?

A. Month 1
B. Month 2
C. Month 3
D. Month 4

125
10. The project APP has a TCPI of 1.6. What does this
information convey with regard to CPI of the project?

A. CPI > 1
B. CPI = 1
C. CPI < 1
D. NOT enough information available to calculate
CPI

126
10. The project APP has a TCPI of 1.6. What does this
information convey with regard to CPI of the project?

A. CPI > 1
B. CPI = 1
C. CPI < 1
D. NOT enough information available to calculate
CPI

127
11. Which estimating method tends to be the most
time consuming and precise for arriving at the cost
estimate?
A. Bottom-up estimation
B. Analogous estimation
C. Definitive estimation
D. ROM estimation

128
11. Which estimating method tends to be the most
time consuming and precise for arriving at the cost
estimate?
A. Bottom-up estimation
B. Analogous estimation
C. Definitive estimation
D. ROM estimation

129
12. Select the FALSE statement:

A. The cost baseline is the approved version of the time-

phased project budget
B. Cost estimates and approved budget tend to be the
same
C. Cost estimates and approved budget refer to two
different variables
D. Contingency reserves are included in the cost
baseline

130
13. What is the main difference between agile and traditional
approach regarding cost, scope and time?

A. None
B. Agile works on the principle that changes are acceptable
and welcomed
C. In a traditional approach, the scope is fixed and time and
cost are variables; in an agile approach, the schedule is fixed
and scope and costs are variables
D. In a traditional approach, the cost is fixed and time and
scope are variables; in an agile approach, the scope is fixed
and time and costs are variables

131
14. EVM is a type of:

A. Data representation technique

B. Data analysis technique
C. Estimation technique
D. Forecasting technique

132
15. Fill in the blank: _________________ analyzes the project
performance over time to determine whether the project performance
is improving or deteriorating.

A. Trend analysis
B. EVM analysis
C. Contingency analysis
D. Risk analysis

133
16. Fill in the blank: ______________ is a good measure
to forecast remaining costs to project completion.

A. EAC
B. ETC
C. CPI
D. TCPI

134
17. Two efficiency indicators that reflect the cost and
schedule performance of a project are:

A. Cost Projection Index (CPI) and Schedule Projection

Index (SPI)
B. Cost Performance Index (CPI) and Schedule
Performance Index (SPI)
C. Actual Cost (AC) and Planned Value (PV)
D. Cost Pricing Index (CPI) and Schedule Performance
Index (SPI)

135
18. At the end of a project, what will your schedule variance be equal
to?

A. Zero
B. Equal to the total PV
C. One
D. Equal to the total EV

136
19. While analyzing a project, the project manager calculated the ratio
of the Earned Value (EV) to the Actual Costs (AC) and obtained a value
of 1.2. The project manager decided this was an unfavourable
condition for the project and decided to take corrective action. What
is your view?
A. The project manager is correct. The ratio of EV to AC is the Cost
Performance Index and ratio greater than 1 is unfavourable to the
project
B. The project manager is not correct. The ratio of EV to AC is the Cost
Variance and a ratio greater than 1 is favourable to the project
C. The project manager is not correct. The ratio of EV to AC is the Cost
Performance Index and a ratio greater than 1is favourable to the
project
D. The project manager is correct. The ratio of EV to AC is the Cost
Variance and a ratio greater that 1 is unfavourable to the project

137
20. While looking at the project cost baseline graph
shown below, a project manager sees that the stair-
step line’s last point is higher than the estimate at
completion (EAC). What does this relationship
mean for the project?

138
A. The project is running over budget
B. The management reserve is too large
C. Total funding for the project exceeds the project's
anticipated needs
D. The project is behind schedule

139
21. You are managing a hotel construction project, and you have asked
your project team to calculate the current earned value metrics to
determine the project performance. Your team reports back that the
project's to-complete performance index (TCPI) is 0.9 based on the
budget at completion (BAC). Which of the following is true regarding
your project's current situation as reflected by this TCPI value?

A. The project is within budget

B. The project is over budget
C. The project is behind schedule
D. The project is ahead of schedule

140
22. While working to determine the budget for an avionics project, the
company decides to hire a highly reputable financial analyst that has
worked in the aviation industry for three decades. Halfway through
the project, a series of unanticipated risk events occur, and the
project cannot pay its invoices. What is most likely to be the cause?

A. The control accounts were not correctly established

B. The analyst did not identify risks properly
C. Funding limit reconciliation was done incorrectly
D. The management reserves were exhausted

141
23. A project manager is currently managing a manufacturing process
improvement project which will be completed in five phases. The
project manager has prepared the following chart to review the
status of the project. Based on the information provided, what is the
earned value of the project?

A. $7,750
B. $9,000
C. $20,000
D. $8,000

142
24. A project team member runs an earned value analysis (EVA) report. There is an
unexpected spike in actual costs over the last three weeks. The team member shows
the report to the project manager and based on her analysis presents four possible
reasons for the spike. Which reason is most probable?

A.Soaring steel prices have impacted the fixed price with

economic price adjustments procurement contracts
B. There was a strike at the loading dock which delayed many needed
steel shipments until today
C. Fewer employees are showing up for work the past two weeks causing
a backlog of unfinished work
D. Much higher than expected quarterly bonuses were given to
executives during that three week period

143
25. The project has reached a stage where work is being
done in seven countries. Project team members need to
know in which currency
they are to report their cost data. Which of the following
should they reference?
A. Cost baseline
B. Cost management plan
C. Cost estimates
D. Cost breakdown structure
144
26.

A. -$650
B. $3,750
C. $650
D. $3,100

145
27. A project manager is developing a cost management plan and needs to
determine the best source of funding for a project that is dictated by a legal
requirement. The cost of capital is estimated at 9.7% for non-dividend paying equity,
6.7% for debt, and 5.1% for self-funding. The NPV of the project is $500,000 with an
opportunity cost of $750,000. What is the project manager's best course of action?

A. Fund the project with equity since there are no dividend obligations
B. Select the self-funding option since it provides the lowest cost of
capital
C. Perform an alternatives analysis since there are multiple factors to consider
D. Recommend the termination of the project since another project has a higher
NPV

146
28. You are in the process of developing an approximation of the
monetary resources needed to complete project work for a large-scale
multinational project which will take at least seven years to complete.
Your previous projects have all been domestic with short timeframes.
As part of the process you are currently performing, what might you
need to do differently compared with your past projects?

A. Create a stakeholder engagement assessment matrix

B. Develop a more robust risk management plan
C. Consider additional enterprise environmental factors
D. Include additional organizational process assets

147
Additional Questions

148
For a project, the following earned value data have been
assessed: AC: Rs. 4,000,000 CV: Rs. -500,000 SPI: 1.12
BaC: Rs. 9,650,000 What is the earned value of the
project?
 
a)Rs.3,000,000
b)Rs.3,500,000
c)Rs.4,480,000
d)Rs.5,650,000
For a project, the following earned value data have been
assessed: AC: Rs. 4,000,000 CV: Rs. -500,000 SPI: 1.12
BaC: Rs. 9,650,000 What is the earned value of the
project?
 
a)Rs.3,000,000
b)Rs.3,500,000
c)Rs.4,480,000
d)Rs.5,650,000
A project was budgeted at Rs.1,000,000. Meanwhile, the
project is executed, and the following current figures have
been assessed: PV: Rs.500,000 EV: Rs.450,000 AC:
Rs.550,000 Assuming that the cost variance was caused by
one-time cost drivers, which are no more effective, what
estimate at completion (EAC) can you derive from these
figures? 
a)Rs. 900,000
b)Rs.1,000,000
c)Rs.1,100,000
d)Rs.1,222,222
4. A project was budgeted at Rs.1,000,000. Meanwhile, the
project is executed, and the following current figures have
been assessed: PV: Rs.500,000 EV: Rs.450,000 AC:
Rs.550,000 Assuming that the cost variance was caused by
one-time cost drivers, which are no more effective, what
estimate at completion (EAC) can you derive from these
figures? 
a)Rs. 900,000
b)Rs.1,000,000
c)Rs.1,100,000
d)Rs.1,222,222
152
A project was assessed and the following earned value
data have been found: PV: Rs.750,000 EV: Rs.750,000
AC: Rs.900,000 What is the burn rate of the project?
 
a)1.20
b)1.10
c)1.00
d)0.83
 
A project was assessed and the following earned value
data have been found: PV: Rs.750,000 EV: Rs.750,000
AC: Rs.900,000 What is the burn rate of the project?
 
a)1.20
b)1.10
c)1.00
d)0.83
 
Your project exceeded costs in the past caused by an
underestimation of resource costs in the cost baseline:
PV: Rs.1,200,000, EV: Rs.1,000,000, AC: Rs.1,200,000
You expect the underestimation to influence the future
as much as it did in the past. If the value of the
remaining work (BAC – EV) is at Rs.1,000,000, what
should be your new EAC (estimate at completion)?

a)Rs.1,800,000
b)Rs.2,000,000
c)Rs.2,200,000
d)Rs.2,400,000
155
Your project exceeded costs in the past caused by an
underestimation of resource costs in the cost baseline:
PV: Rs.1,200,000, EV: Rs.1,000,000, AC: Rs.1,200,000
You expect the underestimation to influence the future
as much as it did in the past. If the value of the
remaining work (BAC – EV) is at Rs.1,000,000, what
should be your new EAC (estimate at completion)?

a)Rs.1,800,000
b)Rs.2,000,000
c)Rs.2,200,000
d)Rs.2,400,000
A project manager reported the following earned value data:
PV: Rs.12,400,000 EV: Rs.14,500,000 AC: Rs.14,500,000 What
does this mean?

a) The project is over budget and on schedule.

b) The project is under budget and on schedule
c) The project is on budget, but behind schedule.
d) The project is on budget and ahead of schedule.
A project manager reported the following earned value
data: PV: Rs.12,400,000 EV: Rs.14,500,000 AC:
Rs.14,500,000 What does this mean?

a) The project is over budget and on schedule.

b) The project is under budget and on schedule
c) The project is on budget, but behind schedule.
d) The project is on budget and ahead of schedule.
During Project execution the forecasted remaining hours
exceed planned remaining hours. Consequently the project
takes on a negative variance. Which calculation is the project
manager likely to use a measurement tool to validate this
information.
 
a) EV/AC
b) EV – AV
c) EV / PV
d) EV-PV
 
During Project execution the forecasted remaining hours
exceed planned remaining hours. Consequently the project
takes on a negative variance. Which calculation is the project
manager likely to use a measurement tool to validate this
information.
 
a) EV/AC
b) EV – AC
c) EV / PV
d) EV-PV
 
EVM is an example of
a. Performance Reporting
b. Integrating the Project Components into a whole
c. Planning & Control
d. Ishikawa Diagrams
 
EVM is an example of
a. Performance Reporting
b. Integrating the Project Components into a whole
c. Planning & Control
d. Ishikawa Diagrams
 
 You are tracking your project using EVM and found you are
behind schedule but under budget. Your variances show Schedule
Variance (SV)=- US $ 50 million; Cost variance (CV) = US $ 100
million and your actual costs are US $ 500 million. What are the
CPI, PV, & SPI
 
a. 0.92, US $ 550 million, 1.20
b. 0.92, US $ 650 million, 1.08
c. 1.20, - US $ 100 million, 0.92
d. 1.20, US $ 650 million, 0.92
You are tracking your project using EVM and found you are
behind schedule but under budget. Your variances show Schedule
Variance (SV)=- US $ 50 million; Cost variance (CV) = US $ 100
million and your actual costs are US $ 500 million. What are the
CPI, PV, & SPI
 
a. 0.92, US $ 550 million, 1.20
b. 0.92, US $ 650 million, 1.08
c. 1.20, - US $ 100 million, 0.92
d. 1.20, US $ 650 million, 0.92

164
A project team budgeted US $ 3,000 for the work performed and
has spent US $ 4,000 to date. If they budgeted US $ 5,000 for the
work scheduled what is the CV?

a.US $ 2000
b.US $ 1000
c.US ($1000)
d.US ( $ 2000)
A project team budgeted US $ 3,000 for the work performed and
has spent US $ 4,000 to date. If they budgeted US $ 5,000 for the
work scheduled what is the CV?

a.US $ 2000
b.US $ 1000
c.US ($1000)
d.US ( $ 2000)
What does ETC mean?
a. Anticipated expenses at Project Completion
b. Estimated Av. Cost at Project completion
c. Each anticipated cost for the Project
d. Anticipated total cost at Project completion

167
What does ETC mean?
a. Anticipated expenses at Project Completion
b. Estimated Av. Cost at Project completion
c. Each anticipated cost for the Project
d. Anticipated total cost at Project completion

168
A SPI of 0.76 means
 
a) You are progressing at 76 percent of the rate
originally planned
b) You are progressing at 24 percent of the rate
originally planned
c) You are over budget
d) You are ahead of schedule

169
A SPI of 0.76 means
 
a) You are progressing at 76 percent of the rate
originally planned
b) You are progressing at 24 percent of the rate
originally planned
c) You are over budget
d) You are ahead of schedule

170
To Complete Performance index (TCPI) is represented
by which of the following
a. (BAC – EV) / (BAC – AC)
b. AC + (BAC – EV)
c. A measure of the value of work completed compared
to the actual cost or progress
d. A measure of progress achieved compared to
progress planned

171
To Complete Performance index (TCPI) is represented
by which of the following
a. (BAC – EV) / (BAC – AC)
b. AC + (BAC – EV)
c. A measure of the value of work completed compared
to the actual cost or progress
d. A measure of progress achieved compared to
progress planned

172
If EV = 350 AC= 400 PV = 325 what is CV
 
a.– 75
b. 400
c. 350
d) -50

173
If EV = 350 AC= 400 PV = 325 what is CV
 
a.– 75
b. 400
c. 350
d) -50

174
 

One common way to complete EAC is to take budget

at BAC and
a. Divide by cumulative CPI
b. Multiply by SPI
c. Multiply by CPI
d. Divide by SPI
 

175
 

One common way to complete EAC is to take budget

at BAC and
a. Divide by cumulative CPI
b. Multiply by SPI
c. Multiply by CPI
d. Divide by SPI
 

176
Cost Performance Index (CPI) of 0.89 means
 
a) The project is getting 89 cents out of every dollar
invested.
b) The project is progressing at 89 percent of the
rate planned.
c) When the project is completed we will have spent
89 percent more than planned.
d) At this time, we expect the total project to cost
89 percent more than planned.
177
Cost Performance Index (CPI) of 0.89 means
 
a) The project is getting 89 cents out of every dollar
invested.
b) The project is progressing at 89 percent of the
rate planned.
c) When the project is completed we will have spent
89 percent more than planned.
d) At this time, we expect the total project to cost
89 percent more than planned.
178
You are a Project Manager working on a Project that requires
100 items to be tested spaced evenly over five weeks. You have
just begun week 3 with an overall budget of US $ 10,000. To
date, you have spent US $ 2000 with 40 items tested
successful. What does the CV tell you in this circumstance?
a. The project is getting US $ 2 of work for every dollar spent
b. The project is US $ 2000 under Budget
c. The project is proceeding at 100 percent of the expected rate
d. The project is on Budget

179
You are a Project Manager working on a Project that requires
100 items to be tested spaced evenly over five weeks. You have
just begun week 3 with an overall budget of US $ 10,000. To
date, you have spent US $ 2000 with 40 items tested
successful. What does the CV tell you in this circumstance?
a. The project is getting US $ 2 of work for every dollar spent
b. The project is US $ 2000 under Budget
c. The project is proceeding at 100 percent of the expected rate
d. The project is on Budget

180
The Network expansion project you just took over is said to be
doing pretty well. The previous Project Manager only used
variances to report the current project status. In the last report
you find SV = US $ 50,000, CV = US $ 10,000, PV = US $ 500,000.
You know the rate of spending and schedule progress is
important as well. Based on the details you have been given,
what are SPI and CPI?
a. 0.91, 0.98
b. 1.11, 0.98
c. 1.10, 1.02
d. 0.90, 1.02
 
181
The Network expansion project you just took over is said to be
doing pretty well. The previous Project Manager only used
variances to report the current project status. In the last report
you find SV = US $ 50,000, CV = US $ 10,000, PV = US $ 500,000.
You know the rate of spending and schedule progress is
important as well. Based on the details you have been given,
what are SPI and CPI?
a. 0.91, 0.98
b. 1.11, 0.98
c. 1.10, 1.02
d. 0.90, 1.02
 
182
Jim's project is in execution. The cost management plan and the
project budget were approved by all key stakeholders during the
planning phase of the project. Recently, the finance manager of the
company has notified Jim that his project funding might suffer as
another higher priority project has been initiated by the company.
Jim is surprised as his project was also a high priority project for the
company. What should Jim immediately do?

A.Immediately terminate the project in the best interest of the

organization
B.Put the project work on hold until the funds become available
C.Negotiate for funds with the finance manager and the project
sponsor
D.Release the project team members. 183
Jim's project is in execution. The cost management plan and the
project budget were approved by all key stakeholders during the
planning phase of the project. Recently, the finance manager of the
company has notified Jim that his project funding might suffer as
another higher priority project has been initiated by the company.
Jim is surprised as his project was also a high priority project for the
company. What should Jim immediately do?

A.Immediately terminate the project in the best interest of the

organization
B.Put the project work on hold until the funds become available
C.Negotiate for funds with the finance manager and the project
sponsor
D.Release the project team members. 184
Lucy is currently preparing a high-level cost estimate for her
project in the initiation phase. Given the limited detail available to
her, what would you expect the range of her estimate to be and
what would you call such an estimate?

a) -25 to +75 %, Rough Order of Magnitude

b) -5 to +10 %, Narrow
c) -1 to +1 %, Definitive
d) -25 to +25 %, Rough Order of Magnitude

185
Lucy is currently preparing a high-level cost estimate for her
project in the initiation phase. Given the limited detail available to
her, what would you expect the range of her estimate to be and
what would you call such an estimate?

a) -25 to +75 %, Rough Order of Magnitude

b) -5 to +10 %, Narrow
c) -1 to +1 %, Definitive
d) -25 to +25 %, Rough Order of Magnitude

186
A large construction project for a logistics company will
require the expenditure of a large amount of capital. The
finance group works with the project manager to project set
limits when expenses will be incurred in a given project, and
determine if there are ways to smooth out or level the
spending to avoid a single large expenditure one quarter
and none the next. This is an example of:

a) Levelized Billing
b) Funding Limit Reconciliation
c) A financial review
d) Rescheduling

187
A large construction project for a logistics company will
require the expenditure of a large amount of capital. The
finance group works with the project manager to project set
limits when expenses will be incurred in a given project, and
determine if there are ways to smooth out or level the
spending to avoid a single large expenditure one quarter
and none the next. This is an example of:

•a) Levelized Billing

•b) Funding Limit Reconciliation
•c) A financial review
•d) Rescheduling

188
The Cost Management Plan is an output
of the Plan Cost Management process.
This plan is then integrated with other
project plans in which of these
processes?

A. Develop Project Management Plan

B. Monitor and Control Project Work
C. Perform Integrated Change Control
D. Direct and Manage Project Work
189
The Cost Management Plan is an output
of the Plan Cost Management process.
This plan is then integrated with other
project plans in which of these
processes?

A. Develop Project Management Plan

B. Monitor and Control Project Work
C. Perform Integrated Change Control
D. Direct and Manage Project Work
190
THANK YOU

191