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Earned Value Management | EVM | PMP Questions and Answers 1 | PMP Exam Prep - YouTube
Channel: Sunny Sensei
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In this lesson, we will solve some problems on
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Earned Value Management
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Here is the first problem...
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You are working on a project that will last for 5 months.
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As per the plan, Activity A
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starts in the first month and finishes
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at the end of the third month.
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Activity B will be performed in the second
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and third months.
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Activity C starts in the mid of the third month
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and lasts for a month.
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Activity D begins at the start of the fourth month
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and has a duration of two months.
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The estimated cost of each activity is
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Activity A $20,000
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Activity B $50,000
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Activity C $10,000
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Activity D $30,000
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What is the Planned Value
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at the end of the third month?
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A: $70,000
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B: $80,000
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C: $75,000
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D: $30,000
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Please pause the video and try this problem.
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Alright ....
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we have a project that is 5 months long
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and we are supposed to find the planned value
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at the end of the third month
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What is the Planned Value?
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It is the planned cost of the activities
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that we are supposed to complete
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from the start of the project
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till the end of the third month.
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Activity A starts in the first month
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and finishes at the end of the third month.
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$20,000 is the planned cost.
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This activity ends before the end of the third month
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so, 100% of this amount contributes
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to the Planned Value.
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Activity B is performed in second and
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third months
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and the planned cost for activity B is
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$50,000
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Again, we plan to finish before the end
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of the third month.
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All of this money will contribute to the Planned Value.
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Activity C starts in the middle of the third month
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and ... When does it finish?
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It is one month long and will therefore finish
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in the middle of the fourth month.
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Only 50% of this activity
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will be completed in the 3rd month.
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Total cost of this activity is $10,000
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Half of $10,000 ... or
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$5000 will be consumed
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before the end of the third month.
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Activity D Starts at the beginning of fourth month
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and has a duration of two months.
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This is after the third month and will not contribute
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to the Planned Value.
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We can simply ignore Activity D.
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Planned Value at the end of the third month is
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$20,000 from activity A
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plus $50,000 from Activity B
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plus $5,000 from Activity C
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The Planned Value is
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$75,000
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C is the correct choice.
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Let’s move to the next problem.
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You are 5 months into a 2 year long project.
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The following numbers are reported by the project manager.
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EV equals $120,000
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CPI is 1.1
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SPI is 1.0
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Which of these statements is correct?
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A. The project is under budget
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and is also ahead of schedule
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B. The Cost Variance of the project
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is negative and the project is on schedule
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C. The Schedule Variance of the project
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is zero and the Cost Variance of the project
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is positive
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D. The project is on schedule
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but is over budget
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Please pause the video and try the problem.
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Every option talks about budget and schedule.
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Let’s check the schedule first.
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The first choice says …
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the project is ahead of schedule
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Option B says project is
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on schedule.
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Option C says
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schedule variance of the project is zero.
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Zero schedule variance means
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the project is on schedule.
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D also says
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the project is on schedule.
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SPI is 1
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This means the project is on schedule.
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A is incorrect.
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We are left with 3 options.
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We will look at the cost now.
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Option B says Cost Variance is negative.
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This means the project is over budget.
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Option C says Cost Variance
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of the project is positive.
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This means project is under budget.
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Positive Cost Variance is good.
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Option D says project is over budget.
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The CPI for the project is 1.1
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It is more than 1.
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The project is under budget.
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Clearly, option B and option D
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are incorrect.
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Option C is our choice.
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Let’s look at one more problem.
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You are assigned as a consultant
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to an ongoing project.
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Before your first meeting with the project manager,
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you come across the following information
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about the project.
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No other details about the project are known to you.
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BAC = $2,120,000
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CPI = 0.65
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SPI = 0.9
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Planned Project Duration = 18 months
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How can the current situation be described?
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A. It is impossible to complete the project
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at the budgeted cost
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B. The project is 35% over budget
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C. The project is 65% under budget
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D. 10% of the planned work
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has been completed till now
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Again, I would strongly recommend
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that you pause the video and try this problem yourself.
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Alright, let’s start with option A.
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It is impossible to complete the project
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at the budgeted cost.
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Budgeted cost is the BAC.
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$2,120,000 in this example.
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Is it impossible to complete the project
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at this budget?
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We cannot be sure about that.
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The project is 18 months long.
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It is possible that the project is still
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in the initial stages.
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Even though the CPI, at the moment
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looks pretty bad, there is enough time
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to improve the cost performance of the project
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and get it back on track.
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This is just a guess.
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There is simply not enough information for us
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to conclusively claim that the project
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cannot be completed within the budget.
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A is incorrect.
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Let’s move to option B.
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The project is 35% over budget.
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The CPI is 0.65
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This means for every dollar spent,
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only $0.65
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worth of activities are completed.
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Ideally, for every dollar spent, we want
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$1 worth of activities to be completed.
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The gap
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$1 minus $0.65
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is $0.35
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or 35% in relative terms
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We are 35% over budget.
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B is clearly the correct choice.
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Still, let’s check C and D also.
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C is incorrect.
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We have already proved that the project
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is 35% over budget.
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What about the D?
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10% of the planned work
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has been completed till now.
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SPI is 0.9
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or 90%
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We have completed 90% of the planned work.
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10% is incorrect.
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B is our choice.
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Let’s move to the next problem.
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You are reviewing a project
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that was completed last month.
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The planned project budget was $1,000,000
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and the planned execution time was 2 years.
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But, the project was over budget
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by 13% and took an extra
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4 months to complete.
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Which of the following is not true about this project?
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A. The Earned Value of the project is $1,000,000
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B. The SPI of the project is 1
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C. The Schedule Variance of the project is negative
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D. The CPI of the project is less than 1
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Please pause the video
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and try to find the correct choice.
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Alright ...
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we have to find the statement that is not true
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statement that is false
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Option A says…
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Earned Value is $1 million.
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The project budget is also $1 million.
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Budget is BAC or
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Budget At Completion.
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BAC indicates the total value
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that the project should create.
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When a project is completed, the value created
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or Earned Value equals
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BAC
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A is TRUE.
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Let’s move to B.
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SPI of the project is 1.
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We know that the project was delayed by 4 months.
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When a project is complete, SPI
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is always 1
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The overall delay doesn't matter.
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SPI is Earned Value divided by
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Planned Value
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EV or the value of work done
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at the end of a project is BAC
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We talked about this in option A.
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Total Planned Value for the project
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is also BAC
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so, SPI is 1
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Option B is also TRUE.
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Option C says ...
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Schedule Variance is negative.
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SPI is 1. So,
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Schedule Variance will be zero, not negative.
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Option C is FALSE
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Let's look at Option D also.
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CPI of the project is less than 1
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We know that the project was over budget
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by 13%
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CPI should indeed be less than 1
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D is also TRUE
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We are looking for a statement that is NOT TRUE
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A, B, D are TRUE
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so, C is our choice
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Let's look at the next problem ...
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You have approached the management
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for additional funding for your project.
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In your presentation,
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you have captured these critical parameters.
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BAC = $120,000
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PV = $40,000
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AC = $40,000
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CPI = 0.8
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But, one person in the audience
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requested for Cost Variance.
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What should be your response?
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A. CPI and Cost Variance
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are related parameters.
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As we already know CPI, we don’t need Cost Variance.
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B. The information in the presentation
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is not enough for calculating Cost Variance.
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Cost Variance will be presented in the next meeting.
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C. The Cost Variance of the project
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is related to CPI.
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The Cost Variance is minus $8,000
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D. Schedule Variance is also an important parameter.
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Schedule Variance and Cost Variance will be presented
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in the next meeting after detailed analysis
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Please try to solve the problem yourself.
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The management wants to know the Cost Variance.
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Let’s find the best response.
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We will start with option A.
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CPI and Cost Variance are related parameters.
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That’s right.
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Both these parameters
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check the project cost performance.
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We know the CPI.
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But does that mean we don’t need the cost variance?
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CPI tells us how much work is done
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per dollar spent.
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It gives us a relative assessment of the cost deviation.
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On the other hand cost variance gives us
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the cost gap
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in terms of dollars.
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Both these parameters are important
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and provide us with different perspectives.
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Option A is incorrect.
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Option B, Option C and Option D
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all talk about cost variance.
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Option D also talks about Schedule Variance.
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This is a little strange.
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The request is for Cost Variance.
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This option is unlikely to be correct.
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Still let’s check carefully.
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We will focus on Cost Variance.
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Cost variance equals Earned Value minus Actual Cost.
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Actual Cost is dollar 40,000
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What about the Earned Value?
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CPI is 0.8
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CPI is Earned Value by Actual Cost.
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Therefore, Earned Value is
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$32,000
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EV is $32,000
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AC is $40,000
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so, Cost Variance is
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minus $8000
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B and D are incorrect.
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C is the correct choice.
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How many of these 5 problems did you get right?
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Please let me know in the comments.
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All the best with your PMP!
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