Variance at Completion (VAC) is an important predictive metric in Earned Value Management (EVM) that forecasts the anticipated budget variance upon the project's completion. It is calculated using the formula **VAC = BAC - EAC**, where **BAC** is Budget at Completion, representing the total budgete…Variance at Completion (VAC) is an important predictive metric in Earned Value Management (EVM) that forecasts the anticipated budget variance upon the project's completion. It is calculated using the formula **VAC = BAC - EAC**, where **BAC** is Budget at Completion, representing the total budgeted cost for the project, and **EAC** is Estimate at Completion, which is the current projection of the total cost to complete the project based on performance to date.
A positive VAC indicates that the project is expected to be under budget at completion, suggesting cost efficiencies or savings that have been realized or are anticipated to continue. This could be due to cost-saving initiatives, lower-than-expected expenses, or increased productivity. Conversely, a negative VAC signals that the project is projected to exceed its budget, highlighting potential financial overruns that need to be addressed. Such overruns may arise from scope changes, cost escalations, delays, or unanticipated expenditures.
VAC is vital for long-term financial planning and resource management, providing stakeholders with foresight into the project's financial trajectory. It allows project managers to evaluate whether the current cost performance is sustainable and to make strategic decisions such as adjusting project scopes, negotiating additional funding, or implementing cost-control measures. Monitoring VAC helps in aligning expectations among stakeholders and in making informed decisions to ensure the project's financial objectives are met.
Interpreting VAC accurately requires a realistic assessment of future project performance and consideration of all factors that could influence costs moving forward. It should be used in conjunction with other EVM metrics like Cost Performance Index (CPI) and Schedule Performance Index (SPI) for a comprehensive analysis. By effectively utilizing VAC, project managers can proactively manage financial risks and guide the project towards successful and cost-effective completion.
Variance at Completion (VAC): Guide for PMI-SP Preparation
Understanding Variance at Completion (VAC) for PMI-SP Certification
VAC is a critical project management metric that measures the expected budget variance at the completion of a project. It represents the difference between the Budget at Completion (BAC) and the Estimate at Completion (EAC).
What is Variance at Completion (VAC)?
VAC = BAC - EAC
Where: - BAC (Budget at Completion): The total approved budget for the project - EAC (Estimate at Completion): The expected total cost of completing all work
A positive VAC indicates the project is expected to finish under budget. A negative VAC indicates the project is expected to finish over budget.
Why VAC is Important
1. Forecasting: VAC helps project managers anticipate final budget standings.
2. Decision Support: It enables informed decisions about resource allocation and scope adjustments.
3. Stakeholder Communication: VAC provides a clear metric to communicate financial performance expectations to stakeholders.
4. Performance Measurement: It serves as a key indicator of cost management effectiveness.
In this example, the project is forecasted to finish $10,000 under budget.
VAC is typically calculated at regular intervals throughout the project lifecycle to monitor trends and make adjustments as needed.
VAC and Other Earned Value Metrics
VAC is part of the Earned Value Management (EVM) system and works alongside other key metrics:
- Cost Variance (CV): Difference between earned value and actual costs to date - Schedule Variance (SV): Difference between earned value and planned value - Cost Performance Index (CPI): Ratio of earned value to actual costs - Schedule Performance Index (SPI): Ratio of earned value to planned value
While CV and SV represent current variances, VAC projects the variance at completion.
Exam Tips: Answering Questions on Variance at Completion (VAC)
2. Interpret the sign: Positive VAC is favorable (under budget), negative VAC is unfavorable (over budget).
3. Understand EAC calculation methods: Be familiar with the various ways to calculate EAC: - EAC = AC + (BAC - EV) when variances are atypical - EAC = AC + (BAC - EV)/CPI when variances will continue - EAC = AC + (BAC - EV)/(CPI × SPI) when schedule impacts cost - EAC = AC + Bottom-up ETC for new estimates
4. Practice calculations: Work through sample problems to build confidence with the math.
5. Apply in context: Be prepared to explain what VAC means for project outcomes and possible corrective actions.
6. Connect with other metrics: Understand how VAC relates to other EVM metrics and what they collectively tell you about project health.
7. Time considerations: Remember that VAC is a forecast of the final budget status, while CV tells you the current budget status.
8. Multiple-choice strategy: For exam questions, calculate VAC and then match your answer to the options. Pay attention to the signs and units.
9. Scenario analysis: For scenario-based questions, focus on what VAC tells you about the project and appropriate management responses.
By mastering VAC concepts and calculations, you'll be well-prepared to tackle this important aspect of the PMI-SP certification exam.