- Explore techniques for analyzing variances between planned and actual project performance.
- Learn how to interpret variance analysis results and take appropriate corrective actions.
Variance analysis is a technique used in project management to assess and analyze the differences (variances) between planned and actual project performance. It helps project managers understand why the project may deviate from the original plan and take corrective actions as needed. Here’s a detailed explanation of variance analysis with examples:
Techniques for Analyzing Variances
1. Schedule Variance (SV):
SV measures the difference between the earned value (EV) and the planned value (PV) for the work performed. It assesses whether the project is ahead of or behind schedule.
- Formula: SV = EV – PV
- Interpretation:
- Positive SV: The project is ahead of schedule.
- Negative SV: The project is behind schedule.
2. Cost Variance (CV):
CV measures the difference between the earned value (EV) and the actual cost (AC) for the work performed. It assesses whether the project is under or over budget.
- Formula: CV = EV – AC
- Interpretation:
- Positive CV: The project is under budget.
- Negative CV: The project is over budget.
3. Schedule Performance Index (SPI):
SPI measures the efficiency of schedule performance by comparing the ratio of EV to PV. It helps determine if the project is ahead or behind schedule.
- Formula: SPI = EV / PV
- Interpretation:
- SPI > 1: The project is ahead of schedule.
- SPI < 1: The project is behind schedule.
4. Cost Performance Index (CPI):
CPI measures the efficiency of cost performance by comparing the ratio of EV to AC. It helps determine if the project is under or over budget.
- Formula: CPI = EV / AC
- Interpretation:
- CPI > 1: The project is under budget.
- CPI < 1: The project is over budget.
Interpreting Variance Analysis Results
Positive Schedule Variance (SV): A positive SV indicates that the project is ahead of schedule. This can be a favorable outcome, but it might also mean that resources are underutilized, which can affect costs.
Negative Schedule Variance (SV): A negative SV suggests that the project is behind schedule. Project managers should investigate the causes of the delay and take corrective actions to bring the project back on track.
Positive Cost Variance (CV): A positive CV indicates that the project is under budget, which is generally a positive outcome. However, it might also mean that quality is compromised if cost savings are achieved by cutting corners.
Taking Corrective Actions
Once variances are identified and interpreted, project managers should take appropriate corrective actions, which may include:
- Revising the project schedule: Adjusting timelines and resource allocation to address schedule variances.
- Modifying the budget: Managing costs, reallocating resources, or seeking additional funding to address cost variances.
- Resource allocation: Ensuring that resources are effectively utilized to optimize both schedule and cost performance.
- Quality assurance: Ensuring that quality is maintained or improved while addressing cost or schedule issues.
In summary, variance analysis is a critical tool in project management for assessing and interpreting differences between planned and actual performance. It provides project managers with insights into schedule and cost performance, enabling them to take timely corrective actions to keep the project on track and within budget.
