The attached spreadsheet an example of outsourcing a system to an external vendor. The planned value (PV) for the entire system was $14,000. There will be four phases to the system with a payment due at the completion of each phase. The project is only 75% complete, but already, there are several 'red flags'.
The first item that stands out is the cost variance (CV) and a cost performance index (CPI). Although both of these values for Phase 2 stand out, luckily they both have positive impacts. The CV is $300, which basically means we spent $300 less than we had planned to spend for Phase 2. The CPI was the next important value. A CPI of 1.07 means that for every $1 we planned to spend, $1.07 of work was completed. Both of these numbers suggests that we are ahead of budget up to this point because we are under budget with all work up to this point completed fully.
Phase 3 is where the problems occur. The CV was -$615 and the CPI was only .802. So we spent $615 more than we planned to spend for the work, and for every $1 we planned to spend, only $0.80 worth of work was completed. Another negative to this phase is the percent completion of each task. Only 1 task out of 5 was fully completed. At this point, a decision about the rest of the project needs to be made. One option is to crash this phase with extra resources to get it completed as soon as possible, this would add to the budget though. Another option is to cancel the project, depending on whether the budget and schedule are strict enough, project completion is not in reach. A third option is to just move onto to Phase 4. This would be the only option if time boxing had been used to schedule this project.
The cumulative values are important as well. While our PV is $14,000, both the estimate at completion (EAC) for typical variance and non-typical variance was over budget, $14,505 and $14,315 respectively. The typical variance EAC is what the total cost will be if the project continues to have the same problems in Phase 4 as it did in Phase 3. The non-typical EAC is the estimate if Phase 3 is the only phase with any problems. In both situations, the cost will be higher and it is important to relay this information to any supervisors or sponsors as early as possible so there are no surprises if the project goes over schedule or budget, or both.
Below is a summary of the cumulative values for the system as well as all calculations relating to this worksheet.
PV- Planned Value - the total cost budgeted for this project
AC- Actual Cost - the actual cost of each task and as a total
CV- Cost Variance - the difference between EV and AC (EV-AC)
EV- Earned Value - what we should have paid for the amount of work completed (PV*the % of completion)
CPI- Cost Performance Index - how much work was completed for each $1 spent (EV/AC)
Typical EAC- if the problems will continue for the rest of the project - Cumulative AC+(Cumulative PV-Cumulative EV)/CPI
Non-typical EAC- if the rest of the project goes as planned - Cumulative AC+Cumulative PV-Cumulative EV
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