ErrataSheet-2, Project Management
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Earned Value Management Changes
to the Glossary and Chapter 7
of the
PMBOK
®
Guide
– Third Edition.
Errata for Chapter 7
(Replacement pages provided)
Deleted “up to a given point in time” from the description for Planned Value (PV) on page 173.
Deleted “during a given time period” from the descriptions for Earned Value (EV), and Actual Cost
(AC) on page 173.
Deleted the first bullet on page 174 which contained the description for “Cumulative CPI”
Added a new paragraph on page 174 after the Schedule performance index (SPI) descriptive Bullet.
Removed the superscript C from all the acronyms on page 175 and page 176.
Deleted the word “cumulative in most cases on pages 172-176
Glossary
Actual Cost revised definition:
Actual Cost (AC).
Total costs actually incurred and recorded in accomplishing work performed for a
schedule activity
or
work breakdown structure component
. Actual cost can sometimes be direct
labor hours alone, direct costs alone, or all costs including indirect costs. Also referred to as the
actual cost of work performed (ACWP). See also
earned value management
and
earned value
technique
.
Chapter 7
−
Project Cost Management Errata - 1/2006
7.3.1 Cost Control: Inputs
.1 Cost Baseline
Described in Section 7.2.3.1.
.2 Project Funding Requirements
Described in Section 7.2.3.2.
.3 Performance Reports
Performance reports (Section 10.3.3.1) provide information on cost and resource
performance as a result of actual work progress.
.4 Work Performance Information
Work performance information (Section 4.4.3.7) pertaining to the status and cost of
project activities being performed is collected. This information includes, but is not
limited to:
• Deliverables that have been completed and those not yet completed
• Costs authorized and incurred
• Estimates to complete the schedule activities
• Percent physically complete of the schedule activities.
.5 Approved Change Requests
Approved change requests (Section 4.4.1.4) from the Integrated Change Control
process (Section 4.6) can include modifications to the cost terms of the contract,
project scope, cost baseline, or cost management plan.
.6 Project Management Plan
The project management plan and its cost management plan component and other
subsidiary plans are considered when performing the Cost Control process.
7.3.2 Cost Control: Tools and Techniques
.1 Cost Change Control System
A cost change control system, documented in the cost management plan, defines
the procedures by which the cost baseline can be changed. It includes the forms,
documentation, tracking systems, and approval levels necessary for authorizing
changes. The cost change control system is integrated with the integrated change
control process (Section 4.6).
.2 Performance Measurement Analysis
Performance measurement techniques help to assess the magnitude of any
variances that will invariably occur. The earned value technique (EVT) compares
the value of the budgeted cost of work performed (earned) at the original allocated
budget amount to both the budgeted cost of work scheduled (planned) and to the
actual cost of work performed (actual). This technique is especially useful for cost
control, resource management, and production.
A Guide to the Project Management Body of Knowledge (PMBOK
®
Guide)
Third Edition
172
2004 Project Management Institute, Four Campus Boulevard, Newtown Square, PA 19073-3299 USA
An important part of cost control is to determine the cause of a variance, the
magnitude of the variance, and to decide if the variance requires corrective action.
The earned value technique uses the cost baseline (Section 7.2.3.1) contained in the
project management plan (Section 4.3) to assess project progress and the magnitude
of any variations that occur.
The earned value technique involves developing these key values for each
schedule activity, work package, or control account:
•
Planned value (PV).
PV is the budgeted cost for the work scheduled to be
completed on an activity or WBS component.
•
Earned value (EV).
EV is the budgeted amount for the work actually
completed on the schedule activity or WBS component.
•
Actual cost (AC).
AC is the total cost incurred in accomplishing work on the
schedule activity or WBS component. This AC must correspond in definition
and coverage to whatever was budgeted for the PV and the EV (e.g., direct
hours only, direct costs only, or all costs including indirect costs).
•
Estimate to complete (ETC) and estimate at completion (EAC).
See ETC
and EAC development, described in the following technique on forecasting.
The PV, EV, and AC values are used in combination to provide performance
measures of whether or not work is being accomplished as planned at any given
point in time. The most commonly used measures are cost variance (CV) and
schedule variance (SV). The amount of variance of the CV and SV values tend to
decrease as the project reaches completion due to the compensating effect of more
work being accomplished. Predetermined acceptable variance values that will
decrease over time as the project progresses towards completion can be established
in the cost management plan.
•
Cost variance (CV).
CV equals earned value (EV) minus actual cost (AC).
The cost variance at the end of the project will be the difference between the
budget at completion (BAC) and the actual amount spent.
Formula: CV= EV – AC
•
Schedule variance (SV).
SV equals earned value (EV) minus planned value
(PV). Schedule variance will ultimately equal zero when the project is
completed because all of the planned values will have been earned.
Formula: SV = EV – PV
These two values, the CV and SV, can be converted to efficiency indicators to
reflect the cost and schedule performance of any project.
•
Cost performance index (CPI).
A CPI value less than 1.0 indicates a cost
overrun of the estimates. A CPI value greater than 1.0 indicates a cost
underrun of the estimates. CPI equals the ratio of the EV to the AC. The CPI
is the most commonly used cost-efficiency indicator. Formula: CPI = EV/AC
7
A Guide to the Project Management Body of Knowledge (PMBOK
®
Guide)
Third Edition
2004 Project Management Institute, Four Campus Boulevard, Newtown Square, PA 19073-3299 USA
173
Chapter 7
−
Project Cost Management Errata - 1/2006
•
Schedule performance index (SPI).
The SPI is used, in addition to the
schedule status (Section 6.6.2.1), to predict the completion date and is
sometimes used in conjunction with the CPI to forecast the project
completion estimates. SPI equals the ratio of the EV to the PV.
Formula: SPI = EV/PV
The parameters of Planed Value (PV), Earned Value (EV), and Actual Cost
(AC) may be reported and used on both a period by period basis and on a
cumulative basis. This allows measures such as the Cost Variance (CV), Cost
Performance Index (CPI), Schedule Variance (SV), and Schedule Performance
Index (SPI) to also be developed and used on both a period by period basis and on a
cumulative basis.
Figure 7-7 uses S-curves to display EV data for a project that is over budget
and behind the work plan.
Figure 7-7. Illustrative Graphic Performance Report
The earned value technique in its various forms is a commonly used method
of performance measurement. It integrates project scope, cost (or resource) and
schedule measures to help the project management team assess project
performance.
.3 Forecasting
Forecasting includes making estimates or predictions of conditions in the project’s
future based on information and knowledge available at the time of the forecast.
Forecasts are generated, updated, and reissued based on work performance
information (Section 4.4.3.7) provided as the project is executed and progressed.
The work performance information is about the project’s past performance and any
information that could impact the project in the future, for example, estimate at
completion and estimate to complete.
A Guide to the Project Management Body of Knowledge (PMBOK
®
Guide)
Third Edition
174
2004 Project Management Institute, Four Campus Boulevard, Newtown Square, PA 19073-3299 USA
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