## Project Cost Situation

Your sponsor asked you for the projection of budget deficit or surplus at the completion of the project you manage (VAC). The future work will be completed at the planned rate, so the Budget at Completion is $10 million , the Actual Cost is $5 million and the Earn Value is $4 million. Which of the following statements is correct about your project?

A. Your project is under planned cost.

B. Your project is on planned cost.

C. Your project is over planned cost.

D. You need more information to find out about the cost situation.

PMP Solution 71

Variance at Completion is the projection of the amount of budget deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion.The formula to calculate VAC is VAC = BAC – EAC. We know BAC but not EAC. If the future work will be accomplished at the planned rate, use; EAC = AC+BAC-EV; EAC=5M + 10M – 4M = 11M. So VAC= 10M – 11M = -1M. If VAC is positive then the project is under planned cost, if neutral on planned cost and if negative over planned cost. Therefore, the right choice for this question is C. [PMBOK 6th edition, Page 267] [Project Cost Management]

Cheers

A

Very well explained. Thank you. What actions can we do to improve the situation? Or is it just a fact on the cost performance?

Can we directly find the CPI using EV/AC = 4/5 <1.. So the answer is C

Hi Anish,

Thanks for your comment, yes you can also get to the answer through EV/AC.

Cheers

Hi Dannie,

Thanks for your comment. It is a fact that cost are over planned.The CV is particularly critical because it indicates the relationship of physical performance to the costs spent. Negative CV is often difficult for the project to recover. Equation: CV = EV – AC.

Cheers

C