What is schedule variance and cost variance?

+1
vote
Explain what schedule variance (SV) and cost variance are (CV), the difference between the two, and what do they both mean for the project and the project manager.
asked 5 years ago edited 5 years ago

0
Both schedule variance and cost variance are EVM metrics used in PM to determine the health of the project.

Schedule Variance tells us how much, in dollar figures (I know this really doesn't make sense), we are ahead or behind the schedule. A schedule variance of 0 means we are on schedule, a negative SV means we are behind of the schedule, and a positive SV means we are ahead of the schedule.

Cost variance tells us how much, also in dollar figures (this time it does make sense), we are over budget or under budget. A cost variance of 0 means that we are on budget, a negative CV means we are over budget, and a postive CV means we are spending less than planned.

Schedule variance and cost variance can be calculated using the following way:

SV = EV - PV (where SV is Schedule Variance, EV is Earned Value, and PV is Planned Value)

CV = EV - AC (where CV is Cost Variance, EV is Earned Value, and AC is Actual Cost)

Now since:

AC = ACWP (Actual Cost of Work Performed)
EV = BCWP (Budgeted Cost of Work Performed)
PV = BCWS (Budgeted Cost of Work Scheduled)

We can say that:

- SV = BCWP - BCWS
- CV = BCWP - ACWP

Let's assume that we are working on an IT project that has a total budget of \$1,000,000. When the project was supposed to be 25% done, it was only 15% done and we have already spent \$400,000. Let's calculate both SV and CV.

SV = EV - PV (but we don't know what EV and PV are)
CV = EV - AC

EV = BAC x % of work done = \$1,000,000 x 15% = \$150,0000 (to know more on how to calculate EV and PV, see: http://www.projectmanagementquestions.com/1576/what-the-difference-between-earned-value-and-planned-value )

PV = BAC x % of work planned =  \$1,000,000 x 25% = \$250,0000
AC = Actual Cost = \$400,000

So:

SV = \$150,000 - \$250,000 = -\$100,000 (we are \$100,000 behind schedule)
CV = \$150,000 - \$400,000 = -\$250,000 (the project is over budget by \$250,000)

Now, SV doesn't make sense a lot because it's a schedule variance and yet it's in dollars. So, we can calculate the SV% (Schedule Variance Percentage), which tells us how much, in percent, is the project behind or ahead of schedule. The formula is:

SV% = SV/PV = (-\$100,000/\$250,000) x 100 = -40%. This means that we are 40% behind schedule (a negative value of SV% means that we are behind schedule)

There's also a CV% (which is more or less the same concept), which is: CV% = CV / EV = (-\$250,000 / \$150,000) x 100 = -166% . We are 166% above budget (this project is in serious trouble!)
answered 5 years ago by (46,940 points)

+1
vote
1
+1
vote
2