Unit 4 Project Chapter 7 Cost Estimates Information Technology Project Management

Unit 4 Project November, 30, 2010 Unit 4 Project Identify and explain the different types of cost estimates: Estimate type| Definition| Rough order of magnitude (ROM) estimate| A ROM estimate is based on high-level objectives, provides a bird’s-eye view of the project deliverables, and has lots of flexibility. Most ROM estimates, depending on the industry, have a range of variance from –50% all the way to +100%. This estimate is typically done very early in a project or even before it is officially started. | Budgetary estimate| It is used to allocate money into an organizations budget.

These are created one to two years before project completion. The accuracy of budgetary estimates ranges from -10% to +25%. | Definitive estimate| Gives a accurate estimate of the total project cost. Used for making purchasing decisions for which accurate estimates are required. Definitive estimates are created one year or less prior to project completion. The accuracy of a definitive estimate ranges from -5% to +10%. | 1. Given the following information for a one year project, answer the following questions. Recall that PV is the planned value, EV is the earned value, AC is the actual cost, and BAC is the budget at completion.

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PV=$23,000 EV=$20,000 AC=$25,000 BAC=$120,000 a. What is the cost variance, schedule variance, cost performance index (CPI), and schedule performance index (SPI) for the project? Cost Variance is CV=EV-AC CV=$20,000- $25,000 CV= -$5000 Schedule Variance is SV=EV-PV SV=$20,000-$23,000 SV= -$3000 Cost Performance Index is CPI= EV/AC CPI=$20,000/$25,000 CPI=0. 8 Schedule Performance Index is SPI= EV/PV SPI=$20,000/$23,000 SPI=0. 8695 b. How is the project doing? Is it ahead of schedule or behind schedule? Is it under budget or over budget? The project is behind schedule.

The project is also over budget. c. Use the CPI to calculate the estimate at completion (EAC) for this project. Is the project performing better or worse than planned? Estimate at completion (EAC) is EAC=BAC/CPI EAC=$120,000/0. 8 EAC=$150,000 This project is performing worse than planned as it will end over budget. d. Use the schedule performance index (SPI) to estimate how long it will take to finish this project. Estimated time to complete =Original time estimate/SPI or 365/0. 8695 = 419. 7 or 420 days. 2. Assume you have completed three months of the project.

The BAC was $200,000 for the six month project. Also assume the following: PV=$120,000 EV=$100,000 AC=$90,000 a. What is the cost variance, schedule variance, cost performance index (CPI), and schedule performance index (SPI) for the project? Cost Variance is CV=EV-AC CV=$100,000-$90,000 CV=$10,000 Schedule Variance is SV=EV-PV SV=$100,000-$120,000 SV= -$20,000 Cost Performance Index is CPI= EV/AC CPI=$100,000/$90,000 CPI=1. 1 Schedule Performance Index is SPI= EV/PV SPI=$100,000/$120,000 SPI=0. 83 b. How is the project doing? Is it ahead of schedule or behind schedule?

Is it under budget or over budget? The project is behind schedule. The project is under budget. c. Use the CPI to calculate the estimate at completion (EAC) for this project. Is the project performing better or worse than planned? Estimate at completion (EAC) is EAC=BAC/CPI EAC=$200,000/1. 1 EAC=$ 181818. 18. Currently the project is performing better than planned as it is coming in under budget. d. Use the schedule performance index (SPI) to estimate how long it will take to finish this project. Estimated time to complete =Original time estimate/SPI or 183/0. 83 = 220. 48 or 221 days.

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