Cost Management: Estimation Techniques, Budgeting and Earned Value Management (EVM) Basics Questions

Q: Explain CPI and SPI and interpret values.

**CPI = EV/AC** and **SPI = EV/PV**. CPI>1 under budget; CPI 1 ahead of schedule; SPI<1 behind schedule.

Q: Write short note on why EVM is useful.

EVM integrates **scope, schedule and cost** into one system. It gives early warning through CV/SV and CPI/SPI, helping management take timely corrective actions.

Question 1

What is cost management?

Accepted Answer

**Cost management** includes estimating, budgeting and controlling project costs to stay within budget.

Question 2

Define cost baseline.

Accepted Answer

**Cost baseline** is the approved time-phased budget used for control.

Question 3

Expand EVM.

Accepted Answer

**Earned Value Management**.

Question 4

What is PV?

Accepted Answer

**PV (Planned Value)** is the budgeted cost of work scheduled.

Question 5

Write formula for CV.

Accepted Answer

**CV = EV − AC**.

Question 6

If CPI is greater than 1, what does it mean?

Accepted Answer

**CPI > 1** means the project is **under budget** (cost efficient).

Question 7

Differentiate cost estimation, budgeting and cost control.

Accepted Answer

**Estimation** predicts activity/resource costs, **budgeting** allocates approved costs over time to form a baseline, and **cost control** monitors actuals and takes corrective action to manage overruns.

Question 8

Explain analogous, parametric and bottom-up estimation (brief).

Accepted Answer

**Analogous** uses similar past projects (fast, less accurate). **Parametric** uses rate × quantity (needs good data). **Bottom-up** estimates at work-package level and rolls up (most accurate but time-consuming).

Question 9

Explain PV, EV and AC in EVM.

Accepted Answer

**PV** is planned budget for scheduled work, **EV** is budgeted value of work actually completed, and **AC** is the real cost spent. Comparing them shows cost/schedule performance.

Question 10

Explain CV and SV and interpret their signs.

Accepted Answer

**CV = EV − AC** (cost variance) and **SV = EV − PV** (schedule variance). If CV>0 project is under budget; CV<0 over budget. If SV>0 ahead of schedule; SV<0 behind schedule.

Question 11

Explain CPI and SPI and interpret values.

Accepted Answer

**CPI = EV/AC** and **SPI = EV/PV**. CPI>1 under budget; CPI<1 over budget. SPI>1 ahead of schedule; SPI<1 behind schedule.

Question 12

Write short note on why EVM is useful.

Accepted Answer

EVM integrates **scope, schedule and cost** into one system. It gives early warning through CV/SV and CPI/SPI, helping management take timely corrective actions.

Question 13

Explain cost estimation techniques with a comparison table.

Accepted Answer

### **Explain cost estimation techniques with a comparison table**

Cost estimation predicts the money required for project activities/resources.

**Techniques**:
- **Analogous**: uses similar past project cost (fast, less accurate)
- **Parametric**: uses rate × quantity (needs reliable data)
- **Bottom-up**: estimates at work package level and rolls up (high accuracy)
- **Three-point**: uses O/M/P to handle uncertainty

| Technique | Speed | Accuracy | Best use |
|---|---|---|---|
| **Analogous** | fast | low-medium | early estimate |
| **Parametric** | medium | medium-high | good historical rates |
| **Bottom-up** | slow | high | detailed planning |

Thus the technique is chosen based on project stage and data availability.

Question 14

Explain EVM terms and formulas with a worked example.

Accepted Answer

### **Explain EVM terms and formulas with a worked mini example**

**Core terms**:
- **PV**: Planned Value
- **EV**: Earned Value
- **AC**: Actual Cost
- **BAC**: Budget at Completion

**Formulas**:
- **CV = EV − AC**
- **SV = EV − PV**
- **CPI = EV / AC**
- **SPI = EV / PV**

| Metric | Good sign |
|---|---|
| CV | positive |
| SV | positive |
| CPI | > 1 |
| SPI | > 1 |

Mini example: PV=100, EV=80, AC=90
- CV = 80−90 = **−10** (over budget)
- SV = 80−100 = **−20** (behind schedule)
- CPI = 80/90 = **0.89**
- SPI = 80/100 = **0.80**

Thus EVM quickly shows cost and schedule health.

Question 15

Explain cost baseline and cost control using EVM with a flowchart.

Accepted Answer

### **Explain cost baseline and cost control using EVM (flow)**

**Cost baseline** is the approved time-phased budget used for monitoring and control.

Cost control steps:
- collect **actual costs (AC)**
- compare with plan using **PV** and progress using **EV**
- compute variances/indexes (CV, SV, CPI, SPI)
- take corrective action (reduce cost, re-plan scope/schedule)

```text
Estimate → Budget/Cost baseline → Track AC + EV → Compute CV/SV/CPI/SPI → Corrective action
```

Thus baseline + EVM enables objective cost control and early warning.

Cost Management: Estimation Techniques, Budgeting and Earned Value Management (EVM) Basics

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