1 00:00:00,008 --> 00:00:03,006 - The earned value approach for tracking project status 2 00:00:03,006 --> 00:00:05,008 is excellent for forecasting, 3 00:00:05,008 --> 00:00:09,005 especially when your project's in the execution phase. 4 00:00:09,005 --> 00:00:12,003 By monitoring the status against your plan, 5 00:00:12,003 --> 00:00:14,005 you can estimate the money you'll spend 6 00:00:14,005 --> 00:00:16,004 when the project is complete. 7 00:00:16,004 --> 00:00:19,000 You can also forecast the funds needed 8 00:00:19,000 --> 00:00:23,003 from your current point in time to the project conclusion. 9 00:00:23,003 --> 00:00:26,000 The amount of money spent when the project is complete 10 00:00:26,000 --> 00:00:30,004 is called estimate at completion or EAC. 11 00:00:30,004 --> 00:00:32,000 The money needed to get you 12 00:00:32,000 --> 00:00:35,000 from your current point in the project until the end 13 00:00:35,000 --> 00:00:39,004 is called the estimate to complete or ETC. 14 00:00:39,004 --> 00:00:42,005 Let's look at how to calculate these forecast figures. 15 00:00:42,005 --> 00:00:46,006 But first, a warning, a bit of math is coming up. 16 00:00:46,006 --> 00:00:48,002 We'll step through it slowly 17 00:00:48,002 --> 00:00:51,006 and show the formulas on screen. 18 00:00:51,006 --> 00:00:56,004 We first need to determine the cost performance index or CPI 19 00:00:56,004 --> 00:00:58,005 to produce these forecasts. 20 00:00:58,005 --> 00:01:01,001 The CPI equals the earned value, 21 00:01:01,001 --> 00:01:03,005 the value of the work you've completed, 22 00:01:03,005 --> 00:01:05,009 divided by the actual cost, 23 00:01:05,009 --> 00:01:08,007 what you spent to complete that work. 24 00:01:08,007 --> 00:01:15,003 As a formula, this is CPI equals EV over AC. 25 00:01:15,003 --> 00:01:18,005 CPI indicates what you expected to spend 26 00:01:18,005 --> 00:01:21,005 versus what you've actually spent on the project. 27 00:01:21,005 --> 00:01:25,003 We use that knowledge for forecasting costs in the future. 28 00:01:25,003 --> 00:01:30,008 Now, let's calculate the estimated completion or EAC. 29 00:01:30,008 --> 00:01:32,002 Take the original budget 30 00:01:32,002 --> 00:01:34,001 you estimated to complete the project 31 00:01:34,001 --> 00:01:37,001 and divide it by the CPI. 32 00:01:37,001 --> 00:01:39,000 Let's say you initially estimated 33 00:01:39,000 --> 00:01:42,002 it would cost 100,000 euros to complete your project 34 00:01:42,002 --> 00:01:45,009 and your CPI was 1.2. 35 00:01:45,009 --> 00:01:50,000 The result would be 100,000 divided by 1.2, 36 00:01:50,000 --> 00:01:54,001 which equals 83,333 euros. 37 00:01:54,001 --> 00:01:57,001 You'd be doing quite well in this case. 38 00:01:57,001 --> 00:02:01,000 However, if your CPI was 0.85, 39 00:02:01,000 --> 00:02:05,002 the calculation would be 100,000 divided by 0.85, 40 00:02:05,002 --> 00:02:10,001 which equals 117,647 euros. 41 00:02:10,001 --> 00:02:12,007 This shows you'd be over your original estimate 42 00:02:12,007 --> 00:02:14,007 to complete the project. 43 00:02:14,007 --> 00:02:19,000 Okay, let's calculate the estimate to complete. 44 00:02:19,000 --> 00:02:21,003 It's similar to calculating EAC, 45 00:02:21,003 --> 00:02:23,009 but with one additional step. 46 00:02:23,009 --> 00:02:28,001 For ETC, you take your original project budget estimate, 47 00:02:28,001 --> 00:02:32,007 subtract the earned value, and divide it by your CPI. 48 00:02:32,007 --> 00:02:34,005 Here are examples. 49 00:02:34,005 --> 00:02:37,003 If your earned value was 30,000 euros, 50 00:02:37,003 --> 00:02:40,005 your original budget was 100,000 euros, 51 00:02:40,005 --> 00:02:43,001 and your CPI was 1.2, 52 00:02:43,001 --> 00:02:48,005 the calculation would be 100,000 minus 30,000, 53 00:02:48,005 --> 00:02:50,007 which equals 70,000. 54 00:02:50,007 --> 00:02:54,007 You then divide 70,000 by 1.2, 55 00:02:54,007 --> 00:02:58,005 giving you 58,333. 56 00:02:58,005 --> 00:03:02,003 You need that much money to complete the project. 57 00:03:02,003 --> 00:03:04,009 If your CPI was 0.85, 58 00:03:04,009 --> 00:03:07,001 you would still subtract 30,000 59 00:03:07,001 --> 00:03:09,005 from your original estimate 100,000, 60 00:03:09,005 --> 00:03:12,000 equaling 70,000. 61 00:03:12,000 --> 00:03:17,003 Dividing that by 0.85 yields 82,353, 62 00:03:17,003 --> 00:03:19,005 which is the forecast of the money you need 63 00:03:19,005 --> 00:03:23,001 from here forward to complete the project. 64 00:03:23,001 --> 00:03:26,003 I've included examples of these forecasts in chart form 65 00:03:26,003 --> 00:03:28,003 in the Exercise Files. 66 00:03:28,003 --> 00:03:29,005 With these formulas, 67 00:03:29,005 --> 00:03:33,000 you can adjust your forecasts as your project progresses. 68 00:03:33,000 --> 00:03:36,003 Your forecast results may change as the project progresses. 69 00:03:36,003 --> 00:03:39,005 Make sure you understand any variances from your plan 70 00:03:39,005 --> 00:03:43,000 so you can explain your forecast changes.