Variance Analysis Project Management

Variance Analysis In Project Management
Variance Analysis To Monitor & Control Project Work

Project variance analysis is an important technique that allows project teams to constantly compare planned performance with actual project data. Hence, it assists project teams in identifying and analysing deviations in project performance .

Earned Value Management (EVM) system also offers mathematical equations to calculate variances. However, not all organizations use evm for project monitoring and controlling. Thus, variance analysis becomes an important tool to analyse project performance.

What is 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 the variation between plan and actual project performance. It further helps to identify causes and assess severity of deviation. Moreover, the planned performance is any project performance metrics like schedule, cost, scope and risk.

An important aspect of variance analysis is

As execution team accomplishes more work, the acceptable range of variance decreases.

Variance Analysis Steps

Analysing variances is not difficult, however, it requires a great deal of discipline in data collection and interpretation.

To begin with, project team identifies deviation in baseline performance. It further establishes causes of variances and assesses severity of impact. Thereafter, the team implements corrective actions to restore project performance. Finally, the team proposes preventive actions to avoid future occurrences.

A well structured variance analysis should include the following aspects.

  1. Identify the affected key performance indicators?
  2. Assess the quantum of deviation?
  3. Estimate the degree of impact on project performance?
  4. Identify the causes of variation?
  5. Establish the corrective action?
  6. Estimate the resources required to implement the corrective action?
  7. Establish time schedule required to implement the corrective action?
  8. Recommend preventive action?

Variance Analysis in Project Management

PMBOK 5th edition identifies variance analysis as one of the eleven analytical techniques. It is an effective tool to control the following aspects of project performance.

Variance Analysis Scope Control

Most of the projects suffer from frequent changes to project scope. At times project teams fail to control changes and consequently fail to ascertain impact of changes. Such uncontrolled expansion of project scope, without adjustments to schedule, budget, risks, and resources is known as scope creep.

PMBOK lists variance analysis as the only tool to control project scope. Steps to control scope changes mainly include the following;

  • Implement change control processes
  • Regular review of project scope baseline
  • Plotting project deliverables on S – curve and tracking progress on weekly basis can also help visualize changes to project scope.

Variance Analysis Schedule Control

Variance analysis as a schedule control technique is also part of earned value management methodology. So, EVM is also an analytical tool to control all three critical project performance indicators namely scope, schedule and cost.  EVM uses measures such as Schedule Variance (SV) and Schedule Performance Index (SPI) to indicate variances and performance efficiency.

There are organizations that do not use evm techniques for project schedule control. However, they use similar techniques to measure deviations. These techniques chiefly include measuring variation in planned start and finish dates. Additionally, it also involves comparing duration spent in achieving planned targets against a baseline plan. Thereafter, the team records this deviation for further analysis and formulating remedial actions.

Variance Analysis Cost Control

Undoubtedly, project cost control is the most crucial monitoring and control aspect of any project. Moreover, earned value management methodology facilitates easy assessment of project cost performance. It mainly uses Cost Variance (CV),  Cost Performance Index (CPI) and Variance at Completion (VAC) to establish cost variances.

However, there are organizations that do not implement earned value management techniques. Therefore, these organizations implement procedures that track actual cost booked on work packages or on various project activities. Thus comparing actual cost booked with approved budget gives the cost variance.

Variance Analysis Risk Control

Project risk analysis uses data obtained from variance analysis of scope, schedule, and costs. This not only helps project teams to set risk thresholds but also compare with existing ones. If risk variances exceed the desired threshold then project risk mitigation plans come into effect.

Causes of Variance in Projects

Projects deliver a unique product or a service. However, projects are subject to various changes throughout their life cycle. As a result, actual key performance indicators deviate from the desired project performance. Therefore, key to successful project management lies managing changes. Rejecting changes is not a solution because changes may have a positive impact on project outcome as well.

For factors responsible for variance in project performance refer to the following.

  1. Changes in project scope triggered by end-user or project team in order to meet the contractual obligations.
  2. Lack of resources such as skilled manpower, availability of equipments and material.
  3. Wrong activity duration estimates.
  4. Improper identification of critical schedule activities.
  5. Improper project reviews.
  6. Lack of or poorly implemented project monitoring and controlling processes.
  7. Poor risk assessment.
  8. Not adopting change control procedures.
  9. Changes in regulatory framework?
  10. Evolving business needs
  11. Modifications to end-user requirements?
  12. Market factors such as changes in raw material prices, exchange rate variations etc.

Variance Analysis Formula

The Guide to Project Management Body of Knowledge (PMBOK)® defines variance as:

A quantifiable deviation, departure, or divergence away from a known baseline or expected value.

In other words variance analysis involves calculating difference between planned and actual data. However, EVM project management system and tools like MS projects make good use of this quantitative technique. Moreover, MS project has dedicated mathematical equations to calculate variances.

For widely used variance analysis formulae refer to list below.

Earned Value Management Formula Variance Analysis

Variance analysis in earned value management consists of estimating schedule, cost variances and variance at completion. The following paragraphs enumerates various earned value analysis for variance calculations.

  • Schedule Variance (SV) indicates if the project is ahead or behind schedule.

Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)

  • Cost Variance (CV) specifies if the project is experiencing cost overrun or not

Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)

  • Variance At Completion (VAC) 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)

Earned Value Management Variance Analysis
Earned Value Management Variance Analysis

For more on earned value management please refer to the following posts.

Microsoft Projects Formula Variance Analysis

Microsoft Project calculates project variances using built-in mathematical functions.  Further, it facilitates presentation of data in graphical format. This not only simplifies data presentation but also makes data analysis a lot easier.

The following list consists of popularly used variances.

  • Start Variance : Start – Baseline Start
  • Finish Variance : Finish – Baseline Finish
  • Duration Variance : Duration – Baseline Duration

Variance Analysis Solved Example

In order to understand application of variance analysis in earned value management (evm) please refer to this post

You may access all EVM formulas from the resources page.

Conclusion

Finally, in this post we have seen application of variance analysis in scope, schedule and cost control. This technique also helps organizations that do not implement earned value management system. Further, Microsoft Project provides variation data for each activity in the schedule. However, MS project functions work only when project schedule has a baseline. This further asserts the importance of creating a baseline of project schedule to compare plan and actual data.

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