Class Exercises Answers

Activity
Activity Duration range
PERT Dur. Variance
S.D. at 68%
Activity O ML P (Mean)
confidence
O+(4xML) + P {(P-O)/6}2
(P-O)/6 level
6
20.83
30 6.250 20.83 +/- 2.50
A 15 20 2.50
15+80+30 2.50 x 2.50) 18.33 to 23.33
6

20.00+/- 3.33
B 10 20 30 20.0 3.33 11.088
16.67 to 23.33

20.16 +/- 2.83

C 12 20 29 20.16 2.83 8.008
17.33 to 22.99

5.034
25.346
(Sq. Rt of 60.99 +/-5.034
For Path (Total
60.99 25.346
Level Activity
which is 55.965 to
A+B+C Variance for
Variances 66.024
A+B+C)
of A+B+C
Standard Deviation

Q A path has 3 activities A, B and C.

Activity Optimistic Most Likely Pessimistic

A 15 20 30
B 10 20 30
C 12 20 29

Q1.1 Find the PERT duration and standard deviation for the three activities
Q1.2 Find the PERT duration and standard deviation for the path A, B and C
Q1.3 Calculate a duration range to complete each activity and the complete project at about 68%
confidence factor.
 Class Exercises Answers

Q. EV1 A project has 4 activities – A, B, C and D. At review point this was the position in man-
hours.

Activity Budgeted % Complete Actual

Man-hours of activity Man-hours

A 160 90 150
B 200 50 140
C 100 60 50
D 300 75 225
------- -------
760 565

EV1.1 What is the earned value for each activity and the project at review point?
EV1.2 What is the overall % complete of the project?
EV1.3 What is the current cost efficiency?
EV1.4 What are the man-hours the project is likely to take to be completed based on the
current cost efficiency.

1.1 EV for A = 144 (BCWS x % complete)

EV for B = 100

EV for C = 60

EV for D = 225

EV for the project = 529 Man-hours

1.2 Overall % complete of the project is: 69.6% (EV / BAC) = (529/760) = 69.6%

1.3 Current cost efficiency of the project is: 93.6% (EV/AC) = 529/565 = 0.936

1.4 Expected man-hours (EAC) based on current performance = 812 Man-hours (BAC/CPI)
 Class Exercises Answers

Earned Value – 2

Q The Project budget is Rs. 1,00,000 and is planned to be completed in 12 months.

Month PV (BCWS) EV (BCWP) Actual Cost (ACWP)

1 7000 2000 2500
2 14000 6000 9000
3 22000 10000 15000
4 30000 14000 21000

Q. What is the schedule variance at month 4?

Ans. Schedule variance = EV – PV (BCWP – BCWS)
= 14000 – 30000
= -16000

Cost variance = EV – AC (BCWP – ACWP)

= 14000 – 21000
= -7000

Q. Cost of completion at end of 4th month is?

Ans. EAC = BAC / CPI
= 100,000 (14000/21000)
= 100,000 / .666
= Rs.1,50,000

Q. Estimate likely time of completion of project if efficiency remains same.

Ans. = Planned time to complete / SPI
= 12 months / (BCWP/BCWS)
= 12 (14,000/30,000)
= 12 / .4666
= 25.71 months

Q. Estimate likely time for completion of project if efficiency becomes 100% from month 5.
Ans. = Current month + Backlog months + Remaining months
( for backlog months compare BCWS with BCWP)
=4+2+8
= 14 months at 100% efficiency
 Class Exercises Answers

Earned Value – 3

Activit Res. Duration Depend. Budget Week 4 Week 8

y
M/wk PV % Actual % Actual
Comp AC Comp
A 2 6 - 12 80 12 100 17
B 4 4 A 16 0 0 40 8
C 6 5 - 30 60 20 100 35

EV3.1 Find the total EV at week 4 and week 8.

EV at week 4 = 27.6 A = 9.6 (12x.8) Budget x % Complete

B=0
C = 18 (30x.6)

EV at week 8 = 48.4 A = 12x100% = 12 Budget x % Complete

B = 16x40% = 6.4
C = 30x100% = 30

EV3.2 What is the % complete at week 4 and week 8.

% complete at Week 4 = 47.5% EV/BAC = 27.6/58 = 47.5%
Week 8 = 83.4% 48.4/58 = 83.4%

EV3.3 What is the efficiency at week 4 and week 8.

Efficiency at Week 4 = 86% EV/AC = 27.7/32 x 100 = 86.25%
Week 8 = 81% EV/AC = 48.4/60 x 100 = 80.66%

EV3.4 Draw a Resource histogram

Resource histogram

Act. A 2 2 2 2 2 2
Act. B 4 4 4 4
Act. C 6 6 6 6 6

Weeks 1 2 3 4 5 6 7 8 9 10
Wkly 8 8 8 8 8 2 4 4 4 4
Resources
Cum. 8 1 2 32 40 42 4 50 54 58
Resources 6 4 6
 Class Exercises Answers

Earned Value 4

Following are details of a project that is planned to be completed in 12 months at a total

cost of Rs.1000. The project is being reviewed at the end of month 4.

Month PV in Rs AC in Rs EV
1 100 100 50
2 200 250 150
3 300 400 201
4 400 550 300

1 Calculate the schedule variance at month 4.

Schedule Variance = EV - PV = 300 - 400 = -Rs. 100

2 Calculate the cost variance at month 4.

Cost Variance = EV - AC = 300 - 550 = -Rs. 250

3 What is the cost efficiency of the project?

Efficiency is 54.5% (CPI i.e. EV/AC)

4 What is the status of the project?

The project is over budget by Rs. 250 and behind schedule by 25%

5 Forecast the time when the project can be expected to be completed

based on the current performance.
Forecasted completion date = OD/SPI = 12 / .75 = 16 months

6 Forecast the expected cost of the project based on the current performance.
Expected cost of project as per current performance is Rs 1833.
BAC / CPI = 1000/54.5

7 Forecast the expected cost of the project if the efficiency becomes 50% from 5th month.
Expected cost of project if efficiency is 50% from month 5 is Rs. 1950
AC + BAC-EV = 550+ (700 /.5) = 1950
.5
8 Forecast the expected cost of project if efficiency becomes 100% from 5th month.
Expected cost of project if efficiency is 100% from month 5 is Rs. 1250
AC + BAC-EV = 550 + 700 = 1250
1
9 Forecast the time when the project can be expected to be completed assuming 100%
efficiency from month 5 onwards.
Project can be expected to be completed in 13 months.
(current month + backlog months + remaining months) = 4 + 1 + 8 = 13 months
 Class Exercises Answers

NPV - 1

------------------------------------------------------------------------------------------------------------------------------------
Year Discount Cash Flow A PV A Cash Flow B PV B
Factor (Rev.-Exp.) (Cash Flow x DCF) (Rev.- Exp.) (Cash Flow x DCF)
(Rs) (Rs) (Rs) (Rs)
------------------------------------------------------------------------------------------------------------------------------------
1 .90 3000 2700 3000 2700

2 .80 5000 4000 10000 8000

3 .70 10000 7000 15000 10500

4 .60 10000 6000 20000 12000

5 .50 10000 5000 10000 5000

---------- ---------
24,700 38,200
---------- ----------

Less Initial investment 20,000 40,000

NPV for option A = 24,700 - 20,000 = Rs. 4,700

NPV for option B = 38,200 - 40,000 = Rs. -1,800

Option A is the better option.

The NPV of option B is negative so one should go for option A.

Note: (A higher NPV is better. If NPV negative then one should not go ahead with project.)
 Class Exercises Answers

NPV – 2

-------------------------------------------------------------------------------------------------
Year Discount Cash Flow in Rs PV Rs
Factor (Anticipated annual return) (Cash Flow x Discount Factor)
or cash flow
-------------------------------------------------------------------------------------------------
1 .909 2000 1818
2 .826 2000 1652
3 .751 2000 1502
4 .683 2000 1366
--------- -------
6338
Less Initial investment - 7500
--------
NPV = - 1162

or

NPV = (2000/1.101 + 2000/1.102 + 2000/1.103 + 2000/1.104 ) - 7500

= 2000/1.10 + 2000/(1.10x1.10) + 2000/(1.10x1.10x1.10) +
2000/(1.10x1.10x1.10x1.10)
= (2000/1.10 + 2000/1.21 + 2000/1.331 + 2000/1.464) - 7500
= (1818 + 1652 + 1502 + 1366) - 7500
= 6338 - 7500 (initial investment) NPV = -1162

Ans. 2.2 Project is not viable as the NPV is negative.

--------------------------------------

IRR-1
Ans.

Year Cash Flow Discount Factor Present Value

@ 8%
0 (149,500) 1.0 (149,500)
1 39,995 .926 37,035
2 40,000 .857 34,280
3 40,000 .794 31,760
4 40,000 .735 29,400
5 25,000 .681 17,025
Net Present Value 0

IRR for the project is 8%

Cost Plus Incentive Fee (CPIF)

 Class Exercises Answers

Contract details are:

Target Cost 2,10,000
Target Fee 25,000
Target Price 2,35,000
Share Ratio 80/20 (Buyer/Seller)
Minimum Fee 20,000
Actual Cost 2,00,000
Contractor’s Fee =
210,000 - 200,000 (Target Cost minus Actual cost)
10,000 x 20% = 2000 (20% of cost saving)
25,000 + 2000 = 27,000
Final Price of contract = Actual cost + Contractor’s fee
= 2,00,000 + 27,000 = 2,27,000/-
-------------------------------------------
CPIF Example 2
Contract details are:
Target Cost 2,10,000
Target Fee 25,000
Target Price 2,35,000
Share Ratio 80/20 (Buyer/Seller)
Minimum Fee 20,000
Actual Cost 2,50,000

Contractor’s Fee =
210,000 - 250,000 (Target cost minus Actual cost)
-40,000 x 20% = -8000 (20% of extra cost)
25,000 - 8000 = 17,000 (Target fee less share of cost overrun)
Contractor fee = 20,000/- (Minimum Fee assured is 20,000)
Final Price of contract = Actual cost + Contractor’s fee
= 250,000 + 20,000 = 2,70,000/-

Fixed Price Incentive Fee (FPIF) contract

Example 1
Target Cost 1,00,000
 Class Exercises Answers

Target Fee 10,000

Target Price 1,10,000
Share Ratio 75/25
Price Ceiling 20,000 (Max. payout)
Actual Cost 90,000

Contractor Fee
= 10,000 x .25 (share ratio of cost savings -Target cost less Actual cost)
= 2,500 + 10,000 (cost saving share + Target fee)
= 12,500
Final Price
= 90,000 + 12,500 (Actual cost + contractor Fee)
= 1,02,500
---------------------------------------------------------------------------
FPIF Example 2
Target Cost 1,50,000
Target Fee 10,000
Target Price 1,60,000
Share Ratio 80/20
Ceiling Price 1,75,000
Actual Cost 1,70,000
Contractor’s Fee
[(150,000 – 170,000) (.20) = -4000 Fee reduction
= 10,000 - 4000 (10,000 less 4000) Target fee after adjusting for 20% excess
cost
= 6000 – 1000 = 5000 (Reduced due to ceiling)
Final Price
170,000 + 5000
= 1,75,000 (Limited to ceiling)