Monitoring and Controlling of project work requires constant review of planned vs actual data of project work. Earned Value (EVM) project management technique offers mathematical equations for arriving at schedule and cost variance but there are many organizations that do not use earned value management techniques for project monitoring and controlling. Whether a project deploys evm techniques or not, it is necessary that the present performance of the project is compared against the expected project performance.
What is Variance Analysis?
PMBOK definition of Variance Analysis:
The Guide to Project Management Body of Knowledge (PMBOK)® defines variance analysis as
A technique for determining the cause and degree of difference between the baseline and actual performance.
In simple terms variance analysis is an analytical technique used to quantify the difference, assess causes for this difference and the severity of the assessed difference between the planned performance and the actual performance of the project. The planned performance could be any the important project performance metrics like schedule, cost, scope and risk. Once the causes and severity of the variances have beed identified corrective and preventive actions can be established and implemented by the project team.
Steps Involved in Variance Analysis
Variance analysis is an analytical tool implementation of which requires a great deal of discipline in data collection and interpretation.A well structured variance analysis should reveal the following aspects.
Variance Analysis Steps
Which key performance indicator is being affected?
What is the quantum of variation?
What is the degree of impact on the project performance?
What are the causes of variation?
What is the corrective action?
What resources will be required to implement the corrective action?
How long will it take to minimize/eradicate the impact of the variation?
What is the preventive action?
Variance Analysis in Project Management
Variance analysis is identified as one of the eleven analytical techniques in PMBOK 5th edition and is an effective tool to control the following aspects of project performance.
Project Scope Control
Most of the projects suffer from regular changes to project scope, sometimes these changes are uncontrolled and the impact of these changes are not accounted for to schedule, cost and resources. Such uncontrolled expansion of project scope without adjustments to project schedule, budget, risks and resources is known as scope creep.
Variance analysis is the one and only tools & techniques listed in PMBOK for controlling project scope. Implementation of scope change control processes, regular review of project scope baseline with respect to the actual scope being delivered can assist in controlling the project scope. Plotting the project deliverables on a S – curve and tracking the deliverables on a weekly basis can also help in visualizing the changes to project scope.
Project Schedule Control
While reviewing the project progress, the project manager and the project team puts in a great deal of efforts in assessing the overall schedule performance of the project. The amount of work completed is measured against the planned targets and deviation in schedule progress recorded for working out remedial actions. Variance analysis as a schedule control technique is part of earned value management methodologies which is used for controlling all three critical project performance indicator viz; scope, schedule and cost. Schedule Variance (SV) and Schedule Performance Index (SPI) are the two evm metrics that measure deviation in baseline schedule and actual schedule progress.
Even though even if evm techniques are not being used for project schedule control, many organizations use techniques to measure the deviation in project schedule which predominately includes measuring variation in planned start and finish dates. Microsoft Project scheduling tool has inbuilt functions to calculate variations in planned start / finish and actual start and finish dates of each activity. The three variances that I use in my MS Project schedule are start, finish and duration variances. I represent these variances in graphical form using red, amber and green indicators and this technique helps me a lot in tracking the schedule. Addition of graphical indicators also makes the presentation of project progress and analysis of schedule easier.
Project Cost Control
Cost control is undoubtedly the most important project performance indicator which is monitored and controlled with great fervour. EVM Cost Variance (CV), Cost Performance Index (CPI) and Variance at Completion VAC) are easy to use analytical techniques to identify variances in project cost performance. Once again there are organizations that do not implement earned value management techniques but do implement procedures to track budgeted cost and actual cost booked on work packages or on various project activities.
Project Risk Control
The data generated during the variance analysis of scope, schedule and cost can be used for risk analysis of the project. The impact of these variances can be used to set the threshold limits of the project risk or can be compared with existing risks thresholds. If the variances exceed the desired threshold then the risk mitigation plans can be put into effect.
Causes of Variance
As projects are unique and are intended to deliver a new product or a service are bound to be subjected to various changes throughout the life cycle of the project. These changes affect the key performance indicators of the projects which in turn results in deviation from the desired project performance. The skill lies in controlling and managing these changes analysing the impact of these changes, and not rejecting them as at times changes may have a positive impact on the project outcome as well. A list of some factors that cause variance in project performance is enumerated below.
Factors Affecting Project Performance
Changes in project scope which may be triggered by the end-user or the project team in order to meet the contractual obligations.
Lack of resources like skilled manpower, availability of equipments and material.
Wrong estimation of activity durations.
Improper identification of critical schedule activities.
Improper project reviews.
Lack of or poorly implemented project monitoring and controlling processes.
Poor risk assessment.
Improper change control procedures.
Changes in regulatory frame-work?
Changes in business needs
Changes in requirements of end-user?
Market factors like changes in raw material prices, exchange rate variations etc.
Variance Analysis Formula
The Guide to Project Management Body of Knowledge (PMBOK)® defines the term variance as:
A quantifiable deviation, departure, or divergence away from a known baseline or expected value.
From the above definition we can conclude that variance involves comparing planned and actual data and calculaitng the difference between the two. However, EVM project management technique and project mangement scheduling and planning tools like MS projects make good use of this quantitative technique and have dedicated matematical eqautions to calcualte variances. Widely used formulae that help in variance analysis are enumerated below.
Earned Value Management
- Schedule Variance (SV) : It indicates if the project is ahead or behind schedule.
Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)
- Cost Variance (CV) : It specifies if the project is experiencing cost overrun or not
Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
- Variance At Completion (VAC) : It indicates if the project will be over or under budget at the time of completion.
Variance At Completion (VAC) = Budget at Completion (BAC) – Estimate at Completion (EAC)
For more on earned value management please refer to the following posts
- EVM Techniques To Forecast Project Cost PerformanceProject Monitoring Using Cost, Schedule Variance & EVM Performance Indicators
- Project Monitoring Using Cost, Schedule Variance & EVM Performance Indicators
- Earned Value Management: An Integrated Approach To Performance Measurement
- Start Variance : Start – Baseline Start
- Finish Variance : Finish – Baseline Finish
- Duration Variance : Duration – Baseline Duration
Variance Analysis Example
Mathematically variance can be expressed as planned performance minus actual performance data. Earned value management system uses variance analysis for schedule and cost control extensively. For solved example of earned value management technique please refer to my post
Variance analysis is an analytical technique used to identify the extent of variation, assess the degree of impact of identified variation on project performance and workout remedial actions to put the project back on track. Project management tools like MS project aid in providing the variation data for each activity in the schedule which needs to be further analysed to decide the best course of action. MS project functions work only when the project schedule has a baseline. This reiterates the importance of having a baseline of the MS project schedule for comparison of planned vs actual data.
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