HKSM

Variance analysis is a technique that compares actual results to planned baselines to quantify deviations and understand their causes. It helps teams decide if action is needed and what to adjust to stay within approved limits.

Key Points

• Compares actual performance to approved baselines to find deviations in cost, schedule, scope, and quality.
• Expresses variance as absolute values, percentages, or indices (e.g., CV, SV, CPI, SPI in earned value management).
• Uses predefined thresholds to trigger escalation, corrective actions, or change requests.
• Focuses on root causes and impacts, not just the variance numbers.
• Supports forecasting and replanning (e.g., updating EAC/ETC and schedules).
• Works best when done regularly and trended over time to see patterns.

Purpose of Analysis

• Monitor performance against the baselines and detect issues early.
• Prioritize where to intervene to protect scope, schedule, cost, and quality objectives.
• Inform decisions on corrective or preventive actions and potential changes.
• Improve forecasting accuracy and stakeholder communication.
• Capture lessons that strengthen future planning and control.

Method Steps

• Confirm the current approved baselines (scope, schedule, and cost) and variance thresholds.
• Collect and verify actual performance data for the same period and scope of work.
• Calculate variances (e.g., EV vs PV and AC; SV = EV − PV; CV = EV − AC; indices like SPI = EV/PV, CPI = EV/AC).
• Assess magnitude and trend of variances; compare against thresholds to judge significance.
• Identify root causes using techniques such as 5 Whys, Pareto, or cause-and-effect diagrams.
• Select and plan responses (corrective, preventive, or change requests), with owners and due dates.
• Update forecasts and plans as needed, communicate results, and track action effectiveness.

Inputs Needed

• Approved baselines: scope baseline, schedule baseline, and cost baseline (including performance measurement baseline for EVM).
• Work performance data: actual costs, actual effort, completed work (EV), and planned work (PV).
• Measurement methods, data collection procedures, and reporting calendar.
• Variance thresholds, tolerances, and escalation rules from the project management plan.
• Change log, assumptions, constraints, and risk information that may explain deviations.

Outputs Produced

• Variance reports with figures, trends, and concise root-cause summaries.
• Updated forecasts (e.g., EAC, ETC) and revised schedule projections.
• Recommended corrective or preventive actions and related change requests.
• Updates to plans, baselines, performance thresholds, and reporting cadence when justified.
• Lessons learned entries to improve future measurement and control.

Interpretation Tips

• Cost variance (CV) and schedule variance (SV): negative values indicate problems (over budget or behind schedule); positive values indicate favorable performance.
• Indices: CPI or SPI less than 1.0 mean unfavorable performance; greater than 1.0 mean favorable performance.
• Consider both magnitude and trend; small consistent variances can signal growing risk.
• Analyze at the right level (WBS work packages) to locate the real source of variance.
• Distinguish true variances from approved scope changes or data timing differences.
• Communicate with clear visuals and plain language to aid decision-making.

Example

A project review shows PV = 200, EV = 180, AC = 210 (same units). Then SV = EV − PV = −20 (behind plan), CV = EV − AC = −30 (over budget), SPI = 0.90, CPI = 0.86. Thresholds are SPI < 0.9 or CPI < 0.9. Since CPI is below threshold, the team investigates causes (e.g., overtime, rework, vendor rates), implements corrective actions (renegotiate rates, reduce rework), updates EAC, and tracks results in the next cycle.

Pitfalls

• Comparing against outdated or unapproved baselines.
• Confusing variance with approved changes or scope growth.
• Overreacting to one-time anomalies while ignoring long-term trends.
• Focusing on numbers without identifying and addressing root causes.
• Inconsistent data collection, leading to misleading conclusions.
• Gaming the metrics (e.g., deferring work) to make variances look better.

PMP Example Question

A project review shows EV = 400, AC = 510, and PV = 390. What should the project manager do first?

1. Request an immediate budget increase to cover the shortfall.
2. Investigate the causes of the cost variance and plan corrective actions.
3. Update the cost baseline to match actual spending.
4. Wait for the next reporting cycle to see if the variance corrects itself.

Correct Answer: B — Investigate the causes of the cost variance and plan corrective actions.

Explanation: CV = EV − AC = −110 indicates significant overrun; the appropriate first step is root-cause analysis and corrective action planning, not baseline changes or delays.