In a construction project using Earned Value Management (EVM) at a particular review date, the following data is available: • Planned Value (PV) = Rs. 40 lakh • Earned Value (EV) = Rs. 36 lakhs • Actual Cost (AC) = Rs. 48 lakhs Which of the following statements is correct?
- AThe project is ahead of schedule and underbudget
- BThe project is behind schedule and overbudgetCorrect
- CThe project is behind schedule but underbudget
- DThe project is ahead of schedule but overbudget
Solution
Concept
Earned Value Management performance analysis
Formula
SV = EV - PV; CV = EV - AC
Step-by-step solution
1. Given data: - Planned Value (PV) = Rs. 40 lakh - Earned Value (EV) = Rs. 36 lakh - Actual Cost (AC) = Rs. 48 lakh 2. Calculate Schedule Variance (SV): SV = EV - PV = 36 - 40 = -4 lakh. Since SV < 0 (EV < PV), the project is behind schedule. 3. Calculate Cost Variance (CV): CV = EV - AC = 36 - 48 = -12 lakh. Since CV < 0 (EV < AC), the project is overbudget. 4. Therefore, the project is behind schedule and overbudget (option B). Answer: B
Explanation
In Earned Value Management (EVM), Schedule Variance is SV = EV - PV = 36 - 40 = -4 lakhs (< 0), indicating the project is behind schedule. Cost Variance is CV = EV - AC = 36 - 48 = -12 lakhs (< 0), indicating the project is overbudget. Therefore, the project is behind schedule and overbudget.
Why the other options are wrong
A) Incorrect because both SV and CV are negative. C) Incorrect because the project has spent 48 lakhs for 36 lakhs of work, making it overbudget. D) Incorrect because EV (36) is less than PV (40), so the project is behind schedule.
Shortcut
EV < PV -> Behind schedule; EV < AC -> Overbudget.
Common mistake
Comparing Actual Cost with Planned Value directly (AC vs PV) rather than evaluating performance against Earned Value (EV).
Correct answer: B) The project is behind schedule and overbudget