Module 2 - Cost Management
Once construction starts, cost management becomes cost control: knowing where you are against plan, and being honest about where you will end up.
Earned value measurement is tested on the CCM exam, and the questions are usually straightforward if you know the three inputs cold.
Planned Value (PV) is the budgeted cost of the work you scheduled to have completed by this date. It is what the plan said you would have earned by now.
Earned Value (EV) is the budgeted cost of the work you actually completed. It is physical progress priced at budget rates, not at what it cost you.
Actual Cost (AC) is what you actually spent to complete that work.
The single most common error is treating EV as money spent. It is not. EV is progress, valued at the budget. AC is money spent. Keeping those separate is most of the battle.
Cost Variance is EV minus AC. Positive means you earned more value than you spent, so you are under budget. Schedule Variance is EV minus PV. Positive means you have earned more value than planned, so you are ahead of schedule.
Note what Schedule Variance is really measuring. It is expressed in dollars, not days, and it is a proxy. A project can show a positive Schedule Variance while the critical path slips, because the dollars earned early may be off the critical path entirely. The exam rewards knowing this limitation.
Cost Performance Index is EV divided by AC. Schedule Performance Index is EV divided by PV. For both, greater than 1.0 is favorable, and exactly 1.0 is on plan. Indices are more useful than variances for comparing across projects of different sizes, because they are ratios rather than absolute dollars.
Estimate at Completion, in its simplest and most-tested form, is Budget at Completion divided by CPI. The logic is that whatever efficiency you have demonstrated so far is the efficiency you will likely continue to demonstrate. Estimate to Complete is EAC minus AC, the money still required. Variance at Completion is BAC minus EAC, the projected overrun or underrun at the end.
A worked example. A project has a Budget at Completion of $10,000,000. At the reporting date, Planned Value is $4,000,000, Earned Value is $3,600,000, and Actual Cost is $4,200,000.
Cost Variance is 3,600,000 minus 4,200,000, which is negative $600,000. Over budget. Schedule Variance is 3,600,000 minus 4,000,000, which is negative $400,000. Behind plan. CPI is 3,600,000 divided by 4,200,000, which is 0.857. Unfavorable. SPI is 3,600,000 divided by 4,000,000, which is 0.90. Unfavorable. EAC is 10,000,000 divided by 0.857, which is roughly $11,670,000. VAC is 10,000,000 minus 11,670,000, which is roughly negative $1,670,000 projected overrun.
The exam will hand you three of these numbers and ask for a fourth, or hand you a CPI and ask what it means. Practice until the formulas are automatic, because under time pressure you do not want to be deriving them.
Where CPI describes efficiency so far, the To-Complete Performance Index (TCPI) describes the efficiency still needed on the remaining work to hit a cost target. Measured against the original budget, TCPI equals the work remaining (BAC minus EV) divided by the funds remaining (BAC minus AC). Using the worked example above: BAC minus EV is 10,000,000 minus 3,600,000, or 6,400,000; BAC minus AC is 10,000,000 minus 4,200,000, or 5,800,000; so TCPI is 6,400,000 divided by 5,800,000, or roughly 1.10. That means the remaining work must be performed about 10 percent more efficiently than plan just to finish on the original budget, a bar the project has not yet been clearing. A TCPI meaningfully above 1.0 combined with a CPI already below 1.0 is a strong signal that the original budget is no longer realistically achievable, which is exactly the kind of paired-metric scenario the exam likes to test.
Cost is incurred when work is performed. Cash flows when payment is made. The gap between the two is real and is tested. A project can be on budget and still create a cash crisis for the owner if the draw schedule is front-loaded or if retainage is released in a lump at the end. The CM builds a cash flow projection, typically an S-curve, so the owner can arrange funding to match the actual draw pattern.
Retainage is a percentage withheld from each progress payment, commonly 5 or 10 percent, released at substantial completion or later. It exists to give the owner leverage to secure completion and punch list work. Many public jurisdictions cap retainage by statute or require reduction at 50 percent completion, and the exam may test that a CM should know the governing requirement rather than apply a habit.
The exam's ethical spine on cost is this: the CM reports the forecast honestly and early. A CM who sees a trend toward overrun and waits for certainty before telling the owner has failed, because the owner's options narrow with every week of delay. When a question offers "continue monitoring and report next month" against "notify the owner now with the trend and the range," the second is nearly always correct.
Why this matters for the exam
Almost every EVM question is a plug-and-solve once you have PV, EV, and AC straight in your head, but the harder questions test the limitation behind the number: SV is a dollar proxy, not a day count; a CPI trend implies a TCPI requirement; and every trend, once it is clear, belongs in the owner's hands immediately, not at the next scheduled report.
1. Earned Value represents:
2. CPI of 0.92 indicates:
3. PV is $2,000,000, EV is $1,800,000, AC is $1,700,000. Cost Variance is:
4. Using the same figures, Schedule Variance is:
5. BAC is $8,000,000 and CPI is 0.80. The simple EAC is:
6. A project shows a favorable Schedule Variance while the critical path is slipping. This is possible because:
7. Retainage primarily serves to:
8. A CM identifies a clear trend toward a 6 percent overrun but lacks final confirmation. The CM should:
9. Cost is incurred when work is performed, but cash flows when payment is made. The CM addresses this gap by:
10. TCPI, measured against the original budget, is calculated as:
11. A project's CPI is 0.85 and its TCPI is 1.15. The most reasonable read is:
12. Estimate to Complete (ETC) is best defined as:
13. A public project's retainage is challenged because it exceeds the statutory cap for that jurisdiction. This is best handled by:
14. Why are CPI and SPI generally more useful than CV and SV when comparing performance across projects of different sizes?
Using the budget you built on Day 6, assume you are 40 percent through the schedule. Invent a PV, EV, and AC consistent with a project running modestly over budget and slightly behind schedule. Calculate CV, SV, CPI, SPI, EAC, VAC, and TCPI. Then write three sentences you would actually say to the owner in a monthly report, stating the trend, the projected final cost range, and the one decision you need from them.