Intro to Project Management: Project Cost Management - Variance Analysis, CV, SV, CPI, SPI

What This Is

Variance analysis is a critical tool for project managers to measure and control project performance. It helps identify deviations from the planned project schedule, budget, and scope. By analyzing these variances, project managers can take corrective actions to get the project back on track. For example, imagine building a new highway. The project manager has planned a budget of $10 million and a completion date of 12 months. However, after 6 months, the actual cost is $12 million, and the project is 80% complete. The project manager uses variance analysis to identify the reasons for the cost overrun and takes corrective actions to prevent further delays and cost increases.

Key Terms & Formulas

• CV (Cost Variance): CV = EV - AC (Cost Variance = Earned Value - Actual Cost). Measures the difference between the earned value and the actual cost.
• SV (Schedule Variance): SV = EV - PV (Schedule Variance = Earned Value - Planned Value). Measures the difference between the earned value and the planned value.
• CPI (Cost Performance Index): CPI = EV / AC (Cost Performance Index = Earned Value / Actual Cost). Measures the efficiency of cost management.
• SPI (Schedule Performance Index): SPI = EV / PV (Schedule Performance Index = Earned Value / Planned Value). Measures the efficiency of schedule management.
• EV (Earned Value): EV = % complete × BAC (Earned Value = percent complete times Budget at Completion). Measures the value of work completed.
• AC (Actual Cost): The total cost incurred to complete the work.
• PV (Planned Value): The total budget allocated for the work.
• BAC (Budget at Completion): The total budget allocated for the project.
• VAC (Variance at Completion): VAC = BAC - EV (Variance at Completion = Budget at Completion - Earned Value). Measures the remaining variance at completion.
• EAC (Estimated At Completion): EAC = BAC + VAC (Estimated At Completion = Budget at Completion + Variance at Completion). Estimates the total cost at completion.

Step-by-Step / Process Flow

1. Identify and measure variances: Calculate the CV, SV, CPI, and SPI for each project task or activity.
2. Analyze the causes of variances: Identify the reasons for the variances, such as scope changes, delays, or cost overruns.
3. Develop corrective actions: Based on the analysis, develop corrective actions to address the variances, such as adjusting the project schedule, budget, or scope.
4. Implement corrective actions: Implement the corrective actions and monitor their effectiveness.
5. Monitor and control: Continuously monitor and control the project performance to ensure that the variances are within acceptable limits.

Common Mistakes

• Mistake: Failing to calculate the EV and AC correctly.
• Correction: Ensure that the EV is calculated using the correct formula (EV = % complete × BAC) and that the AC is updated regularly.
• Mistake: Not considering the impact of variances on the project schedule and budget.
• Correction: Analyze the variances and develop corrective actions to address their impact on the project schedule and budget.
• Mistake: Failing to communicate the variances and corrective actions to stakeholders.
• Correction: Communicate the variances and corrective actions to stakeholders regularly to ensure that they are informed and aligned with the project plan.

Exam Tips

• Tip: Be prepared to calculate variances and CPI/ SPI for different scenarios.
• Tip: Understand the differences between CV, SV, CPI, and SPI and how they are used to measure project performance.
• Tip: Be able to analyze the causes of variances and develop corrective actions.

Quick Practice Questions

1. If the CPI is 0.8, is the project under or over budget? Answer: Under budget. Explanation: A CPI of 0.8 indicates that the project is completing work efficiently, and the actual cost is less than the planned cost.
2. If the SV is -10%, is the project ahead or behind schedule? Answer: Behind schedule. Explanation: A negative SV indicates that the project is behind schedule.
3. If the EV is $100,000 and the BAC is $150,000, what is the VAC? Answer: $50,000. Explanation: The VAC is calculated as BAC - EV, which is $150,000 - $100,000 = $50,000.

Last-Minute Cram Sheet

• CV = EV - AC (Cost Variance = Earned Value - Actual Cost).
• SV = EV - PV (Schedule Variance = Earned Value - Planned Value).
• CPI = EV / AC (Cost Performance Index = Earned Value / Actual Cost).
• SPI = EV / PV (Schedule Performance Index = Earned Value / Planned Value).
• EV = % complete × BAC (Earned Value = percent complete times Budget at Completion).
• AC (Actual Cost): The total cost incurred to complete the work.
• PV (Planned Value): The total budget allocated for the work.
• BAC (Budget at Completion): The total budget allocated for the project.
• VAC (Variance at Completion): VAC = BAC - EV (Variance at Completion = Budget at Completion - Earned Value).
• EAC (Estimated At Completion): EAC = BAC + VAC (Estimated At Completion = Budget at Completion + Variance at Completion).
• CPI and SPI are not the same as CV and SV.
• VAC is not the same as EAC.
• BAC is not the same as PV.