In: Accounting
A leading FMCG company has hired an advertising agency to work on its media campaign project. The project is about to launch a series of dairy products in the country. The total duration of the project is 6 months. The initial amount approved by the sponsors was PKR 11,000,000/- for the entire project. At the end of 4th month, the project is only 35% completed while the Project team had already utilized PKR 7,000,000/- against several expenses.
1a. Actual Cost (AC)
Actual Cost is the amount of money that you have spent so far, hence the actual cost is PKR 7,000,000
1b. Planned Value (PV)
Planned value is the value of the work that should have compleated so far.
Fromulla: Planned value=planned percentage of the completed work*project budget
i.e. 66.67/100*11,000,000= PKR 7,333,700
1c. Earned Value (EV)
Earned Value is the value of the work actually completed till date
Formulla: Earned Value= Comleted work Percentage * Budget at completion
i.e. 35/100*11,000,000= PKR 3,850,000
2a. Schedule Variance (SV)
SV is difference between earned value and planned value
Fromulla: SV=EV - PV
3,850,000 - 7,333,700 = PKR -3,483,700
2b. Schedule Performance Index (SPI)
SPI provides time efficiency of your project
Fromulla: EV/PV
3,850,000 / 7,333,700=0.53
2c. Cost Performance Index (CPI)
It is measure of the cost efficiency of budgeted
CPI = EV / AC
3,850,000/7,000,000=0.55
3. Inferred from the values calculated above
The above ratio calculated is less then one, hence we can conclude that there is some problem in the project and some corrective action has to be taken immediately.
4. Estimate at Completion (EAC) of the project
It is expected total cost of completing all work
EAC = BAC / CPI
11,000,000/0.55=20,000,000