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Variance Analysis

Assessing differences between planned and actual performance.

5 minutes 5 Questions

Variance Analysis is a critical technique in project management for understanding differences between planned and actual performance. It involves measuring, examining, and comparing deviations from the baseline schedule to assess project health. In PMI Scheduling Professional contexts, variance an…

Concepts covered
Schedule Variance (SV)Variance at Completion (VAC)Estimate at Completion (EAC)To-Complete Performance Index (TCPI)Variance ThresholdsVariance AnalysisSchedule Variance Percentage (SV%)Cost Variance Percentage (CV%)Cost Variance (CV)
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PMI-SP - Variance Analysis Example Questions

Test your knowledge of Variance Analysis

Question 1

When calculating the EAC in a project where cost variances are increasing exponentially, which key component should you adjust in your formula?

Correct Answer: The cumulative Cost Performance Index (CPI)

When dealing with exponentially increasing cost variances in a project, the Cumulative Cost Performance Index (CPI) is the most critical component to adjust in the EAC formula.

This is because:
1. The CPI reflects the cost efficiency of work completed to date
2. With exponentially increasing variances, historical CPI trends become crucial predictors
3. CPI adjustments help account for the accelerating nature of cost overruns

The other options are less suitable because:
The BAC with management reserves represents the total budget but doesn't address performance trends.
The PMB with risk adjustments focuses on baseline and risks but doesn't capture the exponential cost behavior.
Using the total project budget with earned value percentage is too simplistic and doesn't account for the exponential cost variance pattern.

The cumulative CPI provides the most accurate indicator for future cost performance when variances are increasing exponentially, making it the essential component to adjust in EAC calculations.

Question 2

In a project where both ETC and AC metrics show substantial deviations from planned values, which key element most affects the reliability of your EAC calculation?

Correct Answer: The consistency of performance patterns over time

The consistency of performance patterns over time is crucial for reliable EAC (Estimate at Completion) calculations when both ETC (Estimate to Complete) and AC (Actual Cost) show significant deviations.

Here's why:

When performance patterns remain consistent, even if they deviate from the plan, we can make more accurate predictions about future performance. This consistency allows project managers to apply appropriate performance indices and trends to forecast the final cost.

Consistency in patterns helps determine whether recent performance is more indicative of future results than cumulative performance, which is essential for selecting the right EAC formula.

The other options are less critical for EAC reliability:

Resource allocation adjustments mainly impact short-term variations rather than overall EAC accuracy.

Earned value measurements correlation is important but secondary to pattern consistency in determining future performance.

Current cost variances and projected trends are components of the analysis but rely on pattern consistency for meaningful interpretation.

Question 3

During a major IT implementation project, your stakeholders request an explanation of why your EAC has three different values. Which statement best describes the purpose of calculating multiple EACs?

Correct Answer: EAC variations help assess project performance through different future scenarios and risk profiles

EAC (Estimate at Completion) variations are calculated to help project managers and stakeholders assess different possible outcomes based on various performance scenarios and risk profiles. This is crucial for making informed decisions.

The correct answer is the most comprehensive and accurate because:
- It emphasizes the purpose of scenario planning
- It acknowledges the role of risk assessment in forecasting
- It aligns with best practices in project management

The other options are incorrect because:
- Combining all historical indices with future trends would create an overly complex and potentially misleading forecast
- PMI standards do not mandate multiple EACs; it's a best practice but not a requirement
- Using only prior month results is too limiting and fails to consider broader performance patterns and future scenarios

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