cost management- BAC calculation

 The original cost baseline for a project is $600,000. There is a management reserve of $50,000. The project manager finds it necessary to use $20,000 of the management reserve. The value for Budget at completion, BAC is now:

Answer is given as $620,000

 

Can someone explain the concept?

 

 PM,s original bac was 600k, now to finish project he/she need extra 20 k..so total bac will be 620k. Specifying mgt reserve here is only extra information... 

for example I gets one apporoved cc and total cost for it is 20k. Now then we decides from where I will get this money, best way would be sponser approves another 20 k for the project but most of the time ;in real world we deplete mgt reserves. 

Fyip- evm calculations don't consider mgt reserves as they are not part of baseline for cost.

 Thank You !!!!

 

 You are welcome.

 In addition of Mr. Sandeep's explanation, few points :

this is a question of Original cost baseline and then a revised baseline.

 

Along with baseline - in running project other 2 lines also run - one is actual expenditure and second is funding line( stepped line)

Management reserve can be used as expenditure and funding line can have mangement reserve amount as always more than the cost base line. Till no revised baseline CV = EV - AC , will work there.

As soon revised baseline is framed new BAC will be there in place of EAC.

In present question key point is project is at completion with 20000 extra amount.

At completion always EAC will be termed as BAC of revised baseline.

please correct me , if there is any thing deviating from the PMBOK concepts.

 Thank You Sir

Formula#1

 Estimated cost + contingency reserve = Cost baseline

Formila#2

Cost baseline + management reserve = Budget at completion

 

We can use Formula#2

Budget at completion = Cost baseline + management reserve = 600,000 + 20,000 = $620,000 Ans

 

Thank You !!!

 


Hi,


I have to correct this info, as per the data here.http://en.wikipedia.org/wiki/Earned_value_management


Budget at completion (BAC): The total planned value (PV or BCWS) at the end of the project. If a project has a Management Reserve (MR), it is typically not included in the BAC, and respectively, in the Performance Measurement Baseline.


So, in the exam, if you need to find BAC, use the Cost Base line only, not the Cost Budget. But, Project funding requirements (stepped line) includes the management reserve. PMBOK 179.


In the above question asked, my interpretation is, once 20K is allotted , it becomes part of the BAC for further project planning.ie the revised EAC.


Renji