Question

In: Operations Management

A project to build a new bridge seems to be going very well since the project...

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?

Solutions

Expert Solution

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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