Cost Data Calculations and Formulas

Financial Management allows users to capture and track planned and actual cost information for their projects, giving visibility into project performance from a financial standpoint. Basic cost information can be captured on projects and tasks in the areas defined by Table 5-1. Cost data items and associated formulas.

Some cost data is derived from a project's active baseline work plan. For information about baselines, see the Project Management User’s Guide.

Table 5-1. Cost data items and associated formulas

Item

Definition

Formula

Planned Labor Cost

Cost of a work item (typically a task), which is a measure of the amount of scheduled effort on a task. This amount is task-specific and is rolled up to the project level.

Planned Labor Cost = Sum of (Scheduled Effort * Rate determined by cost rule for each task)

Planned Non-Labor Cost

Cost of non-labor items needed to complete a work item. This is not a direct measure of the effort to be spent on a work item. This figure is task-specific and is rolled up to the project level.

Manually entered

Planned Cost

Total planned cost represented by a work item.

Planned Cost = Planned Labor Cost + Planned Non-Labor Cost

Baseline Labor Cost

Labor cost for a work item in the active baseline taken of a project work plan.

Baseline Labor Cost = Planned Labor Cost at time of Baseline

Baseline Non-Labor Cost

Non-labor cost for a work item in the active baseline taken of a project work plan.

Baseline Non-Labor Cost = Planned Non-Labor Cost at time of Baseline

Baseline Cost

Total cost represented by the active baseline taken of a work item.

Baseline Cost = Baseline Labor Cost + Baseline Non-Labor Cost

Actual Labor Cost

Cost of the work performed on a work item.

Actual Labor Cost = Sum of (Actual Effort * Rate determined by cost rule for each work item)

Actual Non-Labor Cost

Total of all non-labor costs accrued in completing a work item.

Manually entered

Actual Cost

Total cost incurred in completing a work item.

Actual Cost = Actual Labor Cost + Actual Non-Labor Cost

Planned Value (PV)

Planned Value can be calculated one of two ways, depending on how the
PV_USE_ACTIVE_BASELINE_DATES server.conf parameter is set. If necessary, contact your PPM system administrator to verify this setting.

 

By default, the PV_USE_ACTIVE_BASELINE_DATES parameter is set to false. Therefore, by default, Planned Value is calculated by the portion of the Baseline Cost planned to be spent between the project's start date and the current date.

PV = Baseline Cost * [(Today's Date – Start Date) / (Finish Date – Start Date)]

If the PV_USE_ACTIVE_BASELINE_DATES parameter is set to true, Planned Value is calculated using a project's active baseline dates instead of its scheduled dates.

Note: When the Project Planned Value Update service runs for the first time after PV_USE_ACTIVE_BASELINE_DATES is enabled, projects with scheduled dates and active baseline dates that are both completely in the past are not calculated.

PV = Baseline Cost * [MIN (Today's Date, Baseline Finish Date) –Baseline Start Date] / (Baseline Finish Date – Baseline Start Date)

Earned Value (EV)

Earned Value can be calculated one of two ways, depending on how the
EV_ALLOW_PRORATING server.conf parameter is set. If necessary, contact your PPM system administrator to verify this setting.

 

By default, the EV_ALLOW_PRORATING server.conf parameter is set to true. Therefore, by default, Earned Value is calculated by the portion of the Baseline Cost for the entire project that has theoretically been spent by the current date, measured as a function of the amount of work performed thus far.

EV = Baseline Cost * % Complete

If the EV_ALLOW_PRORATING server.conf parameter is set to false, Earned Value is only acknowledged when a task or project is 100% complete. That is, if the task or project is less than 100% complete, the EV calculation is 0. When the task or project is 100% complete, the EV calculation is equal to the Baseline Cost of the task or project.

If % Complete < 100, EV = 0

If % Complete = 100, EV = Baseline Cost

Cost Performance Index (CPI)

Cost efficiency ratio of Earned Value to Actual Cost. CPI is used to calculate Projected Actual Cost for a project and predict the size of possible cost overrun.

CPI = EV / Actual Cost

Schedule Performance Index (SPI)

Schedule efficiency ratio of Earned Value to Planned Value. SPI describes what portion of the work plan or planned schedule has been accomplished in terms of its cost.

SPI = EV / PV

Cost Variance

Difference between the earned value and the actual cost for the project or task. Earned value compared with the actual cost incurred for the work performed provides an objective measure of planned and actual cost. Any difference is called a cost variance.

CV = EV – AC

Schedule Variance

Difference between the earned value and the planned value of the project or task. Planned value compared with earned value measures the dollar volume of work planned against the equivalent dollar volume of work accomplished. Any difference is called a schedule variance.

SV = EV – PV

Projected Actual Cost

Ratio of total cost represented by the latest baseline taken of a work item and the cost performance index (CPI).

Projected Actual Cost = Baseline Cost/CPI

Estimation At Completion (EAC)

The estimated cost of the project at the end of the project.

There are three methods to calculate EAC:

Variances are Typical - This method is used when the variances at the current stage are typical and are not expected to occur in the future.

Past Estimating Assumptions are not valid - This method is used when the past estimating assumptions are not valid and fresh estimates are applied to the project.

Variances will be present in the future - This method is used when the assumption is that the current variances will continue to be present in the future.

The calculation formulas for the three methods are as given below. You can select a desired formula in Project Settings to determine how the project calculates the EAC.

EAC = AC + ( BAC - EV ) / (SPI * CPI )

EAC = AC + ( BAC - EV )

EAC = BAC / CPI

To Complete Performance Index (TCPI)

To Complete Performance Index is an index showing the efficiency at which the resources on the project should be utilized for the remainder of the project. This can be calculated using the following formula:

TCPI = (BAC - EV) / (BAC - AC)

Note: Note the following:

  • All cost information utilizing a formula is calculated automatically by Project Management.

  • Calculations for SPI use the expected baseline cost of a project and do not involve Actual Cost.