Question on EVM

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Question on EVM

Postby nagarwal Fri Aug 29, 2014 12:27 pm

You has a project with a total estimated cost of $5,000,000 and it has to be completed within 1 year. So far, you are 60% through the project and have spent $3,500,000. You are now considering whether to continue with this project. Which of the following should NOT be considered?

1. The project has a cost overrun of $500,000.
2. Project schedule
3. The opportunity cost of selecting another project if giving up this project.
4. If the project's total cost should be adjusted.
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Re: Question on EVM

Postby saket Fri Aug 29, 2014 3:50 pm

i would say option 3, though portfolio group may take that as input in review but in general opportunity cost is considered while selecting the project not while monitoring....

Please share your view on question so we can discuss more that area rather than the questions options
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Re: Question on EVM

Postby umeshbww Fri Aug 29, 2014 6:10 pm

I will select option 3 : (but question should say least considered)

Project was already selected and committed by your organization/sponsor based on opportunity cost etc. Question only gives inputs work data; not information. To understand project performance - we need to calculate work information and create report/impact. Later, sponsor will also consider the opportunity cost of selecting another project if giving up this project.
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Re: Question on EVM

Postby signor_rk Sat Aug 30, 2014 5:23 am

But one solution says that we need to choose the Option # 1. The project has a cost overrun of $500,000. The explanation is something like this:

Since the project is 60% completed, so with the original budget, the earned value for the work that has been done should be 60% *$5,000,000 = $3,000,000.
The cost overrun = $3,500,000-$3,000,000=$500,000 which is an expended cost, that is, a sunk cost.
Therefore , it should NOT be considered when determining whether to continue with the project.
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