Saturday, March 15, 2008

Analyzing Schedule and Cost Variances

Have you ever had difficulty meeting a project deadline? Variance analysis can be used during the schedule-monitoring process to compare target dates with actual start and finish dates, thereby detecting any deviations from the plan and allowing you to implement corrective solutions.

Variance analysis is widely used to measure the performance of a project's cost, schedule, resources, quality, scope, and risk. A variance in any of these areas is the difference between what is planned and what actually happens.

Variance analysis in project scheduling is most often used to measure deviations in cost and schedule from the planned budget.

Cost variance analyzes any deviations from the planned dollar budget. Schedule variance analyzes any deviations from the planned completion dates of an activity. Cost and schedule variances are both calculated based on costs and are represented as a function of cost.

When applying variance analysis, figures are obtained from the performance measurement information in project plans and work results. The three key areas for calculating variance are: earned value (EV), actual cost (AC), and planned value (PV).

Earned value (EV) is all the budgeted costs for an activity completed during a period of time. It includes any overhead costs.

Cost variance (CV) examines an activity by comparing the difference between its estimated cost and the actual cost.

Planned value (PV) is all the approved, estimated costs for the work scheduled to be completed for an activity during a period of time.

If the cost variance shows a negative value, the activity costs more than what was estimated. If the schedule variance shows a negative value, the activity is behind the estimated schedule. Depending upon the threshold or contingency, the negative values may be a cause for concern and must be reported. If contingencies were created in the budget to handle cost overruns, then a negative value in scheduling or in costs may not be a cause for concern.

When monitoring a project schedule, you can use variance analysis to identify any deviations from the plan and to ensure that your project does not fall behind schedule.

3 comments:

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rlabey said...

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Professional Management Education