Variance analysis is a critical technique used in project management to compare planned performance against actual performance throughout the project life cycle. This quantitative assessment helps project managers identify deviations from the baseline and take corrective actions when necessary.
In…Variance analysis is a critical technique used in project management to compare planned performance against actual performance throughout the project life cycle. This quantitative assessment helps project managers identify deviations from the baseline and take corrective actions when necessary.
In the context of the Project+ certification, variance analysis is primarily applied during the Monitoring and Controlling phase of the project life cycle. It involves measuring the difference between what was planned (baseline) and what has actually occurred. The two most common types of variances examined are schedule variance and cost variance.
Schedule Variance (SV) measures whether a project is ahead of or behind schedule. It is calculated by subtracting the Planned Value (PV) from the Earned Value (EV). A positive result indicates the project is ahead of schedule, while a negative result shows it is behind schedule.
Cost Variance (CV) determines whether a project is under or over budget. It is calculated by subtracting Actual Cost (AC) from Earned Value (EV). A positive value means the project is under budget, whereas a negative value indicates cost overruns.
Project managers use variance analysis to identify trends early in the project, allowing for proactive decision-making. When variances exceed acceptable thresholds, corrective actions must be implemented. These actions might include reallocating resources, adjusting the project schedule, modifying scope, or requesting additional funding.
Variance analysis also supports stakeholder communication by providing objective data about project health. Regular variance reporting keeps sponsors and team members informed about progress and potential issues.
The technique integrates with Earned Value Management (EVM), which provides a comprehensive framework for measuring project performance. By consistently applying variance analysis throughout the project life cycle, managers can maintain control over project outcomes and increase the likelihood of delivering projects on time and within budget while meeting quality standards.
Variance Analysis in Project Management
What is Variance Analysis?
Variance analysis is a quantitative investigation technique used in project management to compare planned project performance against actual performance. It involves calculating the difference (variance) between what was expected to happen and what actually occurred in terms of cost, schedule, scope, and quality metrics.
Why is Variance Analysis Important?
Variance analysis is critical for several reasons:
1. Early Problem Detection: By regularly comparing planned versus actual performance, project managers can identify issues before they become major problems.
2. Informed Decision Making: Understanding where and why variances occur helps stakeholders make better decisions about corrective actions.
3. Performance Measurement: It provides an objective way to measure how well the project is progressing toward its goals.
4. Accountability: Variance reports create transparency and hold team members accountable for their deliverables.
5. Continuous Improvement: Analyzing variances helps organizations learn from past projects and improve future planning accuracy.
How Variance Analysis Works
The process follows these key steps:
Step 1: Establish Baselines Define the approved cost baseline, schedule baseline, and scope baseline at the start of the project.
Step 2: Collect Actual Data Gather real performance data as the project progresses, including actual costs incurred, work completed, and time spent.
Step 3: Calculate Variances Use formulas to determine the difference between planned and actual values: - Cost Variance (CV) = Earned Value (EV) - Actual Cost (AC) - Schedule Variance (SV) = Earned Value (EV) - Planned Value (PV)
Step 4: Analyze Results - Positive variance indicates better-than-planned performance - Negative variance indicates worse-than-planned performance - Zero variance means the project is exactly on track
Step 5: Take Corrective Action Based on the analysis, implement changes to bring the project back on track or adjust expectations accordingly.
Common Variance Types
- Cost Variance: Difference between budgeted and actual costs - Schedule Variance: Difference between planned and actual timeline - Scope Variance: Difference between planned deliverables and what was actually delivered - Quality Variance: Difference between expected quality standards and actual quality achieved
Exam Tips: Answering Questions on Variance Analysis
Tip 1: Memorize the Formulas Know that CV = EV - AC and SV = EV - PV. Remember that positive values are favorable, negative values are unfavorable.
Tip 2: Understand the Context Questions may present scenarios asking you to identify whether a project is over budget, behind schedule, or both. Read carefully to determine which type of variance is being discussed.
Tip 3: Connect to Corrective Actions Expect questions linking variance results to appropriate responses. A negative cost variance might require budget adjustments or scope reduction.
Tip 4: Know the Terminology Be familiar with terms like baseline, earned value, actual cost, and planned value. These appear frequently in variance-related questions.
Tip 5: Watch for Threshold Questions Some questions may ask about variance thresholds, which are the acceptable limits before corrective action is required. Understand that organizations set these based on risk tolerance.
Tip 6: Practice Calculations Work through sample problems before the exam. Being comfortable with the math will save time and reduce errors.
Tip 7: Remember the Purpose Variance analysis is a monitoring and controlling process. If a question asks when variance analysis occurs, it is during project execution to track progress against the plan.