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What is Variance Analysis?
Variance analysis is really important because you’ll come across it not only in your projects but also throughout the PMP exam. What we’re doing is we’re reviewing the differences or the “variances” between the planned and the actual results of our project. That performance could be in our Cost or it could be in the Time or the Schedule, where we’re going along with our project. You can see duration estimates, cost estimates, resources and technical performance of our project and other activities and metrics. All of these things will differ from the way that we have planned – we can’t see the future unfortunately (no matter how hard we try) so the best we can do is plan up front and then track those actual results and see the variance between those results. And that’s where variance analysis comes in.
With variance analysis we might have examples such as Schedule Variance, where we’ve got our Earned Value (EV) minus our Planned Value (PV). Let’s say we’ve earned a hundred thousand dollars worth of value in our project and but we had actually planned say 150 thousand dollars worth of value. Then ultimately we are fifty thousand dollars behind in our in our project at the moment.
Likewise, the Schedule Performance Index (SPI) is Earned Value divided by the Planned Value. Let’s give ourselves another example – if we’ve earned seventy thousand dollars worth of value but we had actually planned a hundred thousand dollars (this is a nice easy one) then obviously 70 divided by 100 we’re looking at seventy percent, or point seven for the Schedule Performance Index.
As you can see, if we’re less than one we are behind schedule, if we are over one then we are ahead of schedule – we’ve delivered more value than what we were expecting.
We’ll go into these in more detail as we go into Project Cost Management and Project Schedule Management, but this is a really broad overview.
Cost variance and Cost Performance Index are similar to the schedule variance and SPI. When we’re looking at the Earned Value – let’s say that’s seventy thousand dollars again, minus the actual cost (let’s say we’ve only spent fifty thousand dollars) then all of a sudden we are twenty thousand dollars ahead in that scenario.
For the Cost Performance Index, if it’s under one then we’ve delivered less value so we are over budget. While this is a little bit confusing, if we’re over 1 for our Cost Performance Index then we are under budget because we’ve delivered more value than 1, which would be the normal amount.
These are a few examples of Variance Analysis, and you will come across more as we go through Schedule Management and Cost Management and the other project management processes in the project management body of knowledge. I hope this has helped, I’ll see you next time.
– David McLachlan