In: Operations Management
A project to build a new bridge seems to be going very well since the project is well ahead of schedule and costs seem to be running very low. A major milestone has been reached where the first two activitieshave been totally completed and the third activity is 60 percent complete. The planners were only expecting to be 50 percent through the third activity at this time. The first activity involves prepping the site for the bridge. It was expected that this would cost $1,420,000 and it was done for only $1,300,000. The second activity was the pouring of concrete for the bridge. This was expected to cost $10,500,000 but was actually done for $9,000,000. The third and final activity is the actual construction ofthe bridge superstructure. This was expected to cost a total of $8,500,000. To date they have spent $5,000,000 on the superstructure. Calculate the schedule variance, schedule performance index, and cost index for the project to date. How is the project going?
Activity – 1:
Fully completed
Expected cost = $1,420,000
Actual cost = $1,300,000
Activity – 2:
Fully completed
Expected cost = $10,500,000
Actual cost = $9,000,000
Activity – 3:
60% done while expected was 50%
Expected cost = 0.6*8,500,000 = $5,100,000
Actual cost = $5,000,000
Total Actual Cost till now = 15,300,000
Estimated cost till now = 17,020,000
Schedule Variance:
Schedule Variance = BCWP – BCWS
BCWP (Budgeted Cost of Work Performed) = $17,020,000
BCWS (Budgeted Cost of Work Scheduled) = $16,170,000
So, Schedule Variance = 17020000 – 16170000 = $850,000
Schedule Variance = $850,000
Schedule Performance Index:
SPI = Earned Value/Planned Value
Here Earned Value = what we actually have completed (in terms of cost) = 0.6*8500000 +$1,420,000 + $10,500,000 = 5100000 + 1420000 + 10500000 = $17020000
Planned Value = what we actually were supposed to complete as per plan = 0.5*8500000 + $1,420,000 + $10,500,000 = $4,250,000 + $1,420,000 + $10,500,000 = $16170000
So, Schedule Performance Index = 17020000/16170000 = 1.052
Schedule Performance Index = 1.052
Cost Performance Index:
CPI = Earned Value / Actual Cost
Here, Earned Value = $17020000 (found in the upper section)
Actual Cost = $1,300,000 + $9,000,000 + $5,000,000 = 15300000
So, CPI = 17020000 /15300000= 1.11
Cost Performance Index = 1.11
How is the Project Going:
Here, SPI is 1.052 (greater than 1). This means project is progressing well against as per the schedule.
CPI is 1.11 (greater than 1). This means project is progressing well against the budget and will be completed within the budget (with some savings) if it progresses at the same rate.
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