A project has actual costs of $450,000 against a budget of $420,000, with 80% completion. What is the projected cost at completion using the current cost performance?
Correct Answer
A) $562,500
Cost Performance Index (CPI) = Budgeted Cost of Work Performed ÷ Actual Cost = ($420,000 × 0.80) ÷ $450,000 = $336,000 ÷ $450,000 = 0.747. Projected cost at completion = Budget ÷ CPI = $420,000 ÷ 0.747 = $562,500.
Why This Is the Correct Answer
Option A correctly applies Earned Value Management principles. The Cost Performance Index (CPI) is calculated as Budgeted Cost of Work Performed divided by Actual Cost: ($420,000 × 0.80) ÷ $450,000 = 0.747. The projected cost at completion is then Budget at Completion divided by CPI: $420,000 ÷ 0.747 = $562,500. This assumes current cost performance trends will continue throughout the project.
Why the Other Options Are Wrong
Option B: $540,000
This answer incorrectly assumes the project will finish exactly at budget ($420,000) plus the current overrun ($450,000 - $336,000 = $114,000), totaling $534,000. However, this doesn't account for the poor cost performance continuing through project completion and rounds to $540,000.
Option C: $480,000
This answer appears to simply add the current cost overrun ($30,000) to the original budget ($420,000 + $60,000 = $480,000). This linear projection ignores the Cost Performance Index methodology and doesn't properly account for the deteriorating cost performance trend.
Option D: $525,000
This answer likely uses an incorrect CPI calculation or applies a different forecasting method. It's close to the budget multiplied by 1.25 ($420,000 × 1.25 = $525,000), but doesn't follow the standard EVM formula for estimate at completion using current performance trends.
Memory Technique
Remember 'CPI Predicts Performance': Cost Performance Index = Earned Value ÷ Actual Cost, then Estimate at Completion = Budget ÷ CPI. Poor performance (CPI < 1.0) means higher final costs.
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