Fixed-Price Project Profitability and EVM Analysis: ₹10 Lakh Revenue vs ₹8 Lakh Cost Budget

1 – Project Scenario

Fixed-price software project with ₹10 lakh revenue, ₹8 lakh cost budget, planned profit ₹2 lakh, and 6-month duration.

A software company signs a fixed-price project worth ₹10,00,000 with a planned duration of six months. The company approves an internal delivery-cost budget (BAC) of ₹8,00,000, expecting to earn a ₹2,00,000 profit with a 20% margin. At the end of Month 3, the project should be 50% complete, but only 30% has been completed. Meanwhile, the company has already spent ₹4,50,000—equivalent to 56.25% of its internal cost budget.

2 – Contract Price and Cost Budget

Contract Price: ₹10,00,000
BAC: ₹8,00,000
Planned profit: ₹2,00,000 (20% margin).

3 – Budget at Completion (BAC)

BAC is the approved internal cost baseline (₹8 lakh). It is not revenue or profit.

4 – Monthly Planned Checkpoints

Progress evenly distributed across 6 months: 16.7%, 33.3%, 50%, 66.7%, 83.3%, 100%.

5 – Month‑3 Performance Position

Planned 50% vs actual 30%. Actual cost ₹4.5 lakh. Behind schedule and over budget.

6 – Planned Value (PV)

PV = BAC × Planned Progress = ₹4,00,000.

7 – Earned Value (EV)

EV = BAC × Actual Progress = ₹2,40,000.

8 – Actual Cost (AC)

AC = ₹4,50,000 (56.25% of BAC consumed).

9 – EVM Summary at Month‑3

BAC: ₹8,00,000 | PV: ₹4,00,000 | EV: ₹2,40,000 | AC: ₹4,50,000.

10 – Schedule Variance (SV)

SV = EV − PV = −₹1,60,000 (behind schedule).

11 – Schedule Performance Index (SPI)

SPI = EV ÷ PV = 0.60 (poor schedule efficiency).

12 – Cost Variance (CV)

CV = EV − AC = −₹2,10,000 (over budget).

13 – Cost Performance Index (CPI)

CPI = EV ÷ AC ≈ 0.53 (poor cost efficiency).

14 – Complete Month‑3 Health Check

30% complete vs 50% planned. 56.25% budget consumed. SPI 0.60, CPI 0.53.

15 – Forecasted Final Cost (EAC)

EAC = BAC ÷ CPI ≈ ₹15,00,000.

16 – Estimate to Complete (ETC)

ETC = EAC − AC = ₹10,50,000.

17 – Variance at Completion (VAC)

VAC = BAC − EAC = −₹7,00,000 (overrun).

18 – Forecasted Project Duration

Forecasted duration = 10 months (4-month delay).

19 – Planned Profitability

At initiation: Revenue ₹10,00,000, Cost budget ₹8,00,000, Profit ₹2,00,000, Margin 20%.

20 – Forecasted Profit or Loss

Forecasted cost ₹15,00,000. Revenue unchanged at ₹10,00,000. Forecasted loss = −₹5,00,000.

21 – Forecasted Profit Margin

Forecasted margin = −50%. Planned margin 20% → deterioration of 70 percentage points.

22 – Planned vs Forecasted Commercial Position

Planned: Profit ₹2,00,000, Margin 20%, Duration 6 months.
Forecasted: Loss ₹5,00,000, Margin −50%, Duration 10 months.

23 – Why a Profitable Project Can Become Loss‑Making

Causes include underestimated effort, scope creep, rework, poor requirements, vendor delays, low productivity, and weak change control.

24 – Monthly Management Checkpoints

Track delivery performance, cost performance (BAC, PV, EV, AC, SV, CV, SPI, CPI, EAC, ETC, VAC), commercial metrics, quality, risks, and recovery actions.

25 – Recommended Recovery Plan

Steps: Validate progress, root‑cause analysis, re‑estimate remaining work, control scope, protect critical activities, reduce rework, review commercial options, reforecast regularly.

26 – Client Report vs Internal Report

Client report: RAG status, milestones, risks, change requests, forecasted delivery.
Internal report: Resource costs, CPI, EAC, VAC, profit/loss, margin deterioration, commercial exposure.

27 – Common Calculation Mistakes

Examples: Using revenue as BAC, miscalculating percentages, using revenue for EV, mixing budget overrun with commercial loss, using rounded CPI for forecasts.

28 – Final Project Summary

At Month 3: 30% complete vs 50% planned, 56.25% budget consumed, SPI 0.60, CPI 0.53, EAC ₹15,00,000, forecasted loss ₹5,00,000, margin −50%, duration 10 months.

29 – Final Conclusion

The project was planned for ₹2 lakh profit at 20% margin but is now forecasted to deliver a ₹5 lakh loss at −50% margin. Lesson: Revenue shows client payment, BAC shows delivery cost, EVM shows efficiency, profitability shows commercial sense.