The Earned Value Management (EVM) technique is quite exhaustive but effective for Project Management.
As the technique is being widely accepted and implemented on projects, the degree of rigor is as well increasing.
Organisations are monitoring projects on CPI and SPI, that indicates the health of the project, while EAC gives a forecast of the expected cost expenditure based on the current status. But if the forecasted EAC or the expected BAC has to be met, what should be the Cost Performance in the forthcoming reporting periods?
The 'To Complete Performance Index' answers the question. It provides a projection of the anticipated performance required to achieve the targetted BAC or EAC. The formula to compute:
TCPI = BAC - EV [if BAC is to be achieved]
BAC - AC
TCPI = BAC - EV [if EAC is to be achieved]
EAC - AC
An easy way to understand this is - while CPI is the current Run-Rate (as in the game of cricket), TCPI is the required Run-Rate calculated cumulatively.
Easy!!!
4 comments:
management itself means .. blindly following some equation which was created bye some one for his own benificial ... and thats defenitly very easy too....
In my opinion Management is a resource like any other taskforce, who performs their defined ROLES. All resources perform their assigned roles to meet the common goal of the organisation, and then share the benifits amongst themselves.
Shafi, If someone feels this allignment is missing, and Management is working for their 'OWN' goals (which I doubt), may be he/she is either in the wrong envirionment or needs to voice their opinion in the right forum in a right way.
Anyone who breaths oxygen and can SEE, would not want to follow blindly am sure....as it can be easy but devastating.
There is an issue with the second formula. I know PMI states it this way in the PMBOK fourth edition. Stay with me on this and see if it makes sense.
First we need CPI.
Lets say EV equals $20,000 and AC equals $30,000
CPI =EV/AC or $20,000/$30,000 = .667. In other words I'm getting 66.7 cents in value for every dollar I spend.
The TCPI for BAC is straightforward. If my BAC equals $50,000 the TCPI calculation comes out like this:
(BAC - EV)/ (BAC - AC) which comes out to:
( $50,000 - $20,000)/( $50,000 - $30,000) which reduces to:
$30,000/$20,000 or 1.5.
From this point forward I have to to achieve an efficiency of a $1.50 in value for every dollar I spend in order to bring the project in on budget.
Now let's look at the scenario for TCPI if we calculate a new estimate at completion. Let's use the simplest formula: EAC=BAC/SPI which comes out to $50,000/.667. This equals approximately $75,000, my new EAC. Essentially we have a new cost baseline.
If I use the TCPI formula based on any EAC, I get something very strange. TCPI = (BAC-EV)/(EAC-AC) or ($50,000 - $20,000)/ ( $75,000 - $30,000) reduces to:
$30,000/$45,000 = 2/3 or approximately .667 ( the original SPI value). However in terms of TCPI for EAC, this is telling me is that I only have to get 66.7 cents in value for every dollar that I spend to hit my new budget number! In other words, I have less work to do than I have budget to do it!!
Huh??? How is it that we went from requiring a $1.50 value for every dollar spent with the original BAC(and he almost superhuman effort to accomplish that end), to slacking off by only requiring 66.7 cents of efficiency for every dollar we spend with the new EAC?
I think the TCPI formula for EAC is incorrect. Since we have calculated a new EAC and by doing so created a new cost baseline for the project, why is the original BAC in the numerator of this formula? For this to make sense, the TCPI formula for EAC should read:
TCPI = (EAC - EV)/(EAC - AC)
This would yield:
($75,000 - $20,000)/( $75,000 - $30,000) which reduces to:
$55,000/$45,000 = 1.22
We would then require an efficiency of $1.22 in value for every dollar we spent. This seems much more reasonable given the new estimate at completion.
Appreciate your thoughfulness and spirit to challenge the patterns.
This is what I can say, based on my understanding of the technique:
When in the earlier scenario the CPI was 0.667 and we were required to complete the project withing the original BAC, i.e. $50,000; the required TCPI for the remaining portion of the Project needs to be maintained at 1.5 ---CORRECT!
In the second scenario, when our CPI is 0.667, and we calculate EAC using the formula EAC=BAC/CPI (pls remember this formula is used when we are saying that the current variances are typical and the same trend is going to continue in the future), it computes to $75,000.
Now if we calculate TCPI and say that the Project needs to be completed within the forecasted EAC, it will obivously be eaqual to the current CPI !!!
Let us try working this differently. Let's say that when we forecasted the EAC, it calculated to $75,000. But our sponsor does not approve of it as it is beyond the tolerences.
The BAC was $50,000 and let's assume there was a contingency planned for $10,000.
Though our EAC is $75,000 which the sponsor is not going to approve, let us look at the feasibility of completing it within the tolerences....
In this case the TCPI = (50,000 - 20,000)/(60,000 - 30,000) = 1.0
Hence, going forward we need to maintain a CPI of 1.0 to complete the project within $60,000.
//Also remember, the CPI that will be calculated in the next reporting period, will be from the begining of the project till date, i.e. cumulative///
Hope it answers...?
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