Project Management and Engineering Economics
What to master
Cover project lifecycle, scope/WBS, scheduling (critical path method, float, dependencies), cost estimating and control (earned value: PV, EV, AC; CPI = EV/AC; SPI = EV/PV), risk management, and engineering economics (time value of money, NPV, IRR, payback, depreciation, benefit-cost). Understand contingency and its distinction from padding.
Traps
- Confusing CPI and SPI: CPI measures cost efficiency; SPI measures schedule efficiency. Values below 1 indicate problems.
- Mixing present and future values: discount all cash flows to a common date.
- Critical path errors: the critical path has zero float; delay there delays the project.
- Ignoring escalation and contingency: estimates must reflect risk exposure.
- Payback vs NPV: payback ignores cash flows after breakeven and time value; NPV is preferred for decisions.
Worked example
EV = 400k, AC = 500k, PV = 450k. CPI = 400/500 = 0.80 (over budget). SPI = 400/450 = 0.89 (behind schedule). Both indicate corrective action; forecast cost at completion ≈ BAC / CPI.
Rule of thumb
CPI or SPI below 0.9 warrants escalation; below 0.8 typically requires a recovery plan and management review.