Project variance analysis is an important technique that allows project teams to constantly compare planned performance with actual project data.
This analysis also assists the project manager and the project team in identifying and understanding the deviations in the project performances.
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In the context of project management, the concept of variance analysis is fundamental. The aim is clearly to determine the causes of a variation, which is, in simple words, the difference between an expected result and an actual result.
This type of analysis can help the project manager to accurately identify the factors that influence each element of the project.
The steps of the variance analysis
Analyzing the deviations, or variances, is not difficult, however it requires a great deal of discipline in the collection and interpretation of data.
To begin with, the project manager identifies the deviation in the basic performance, then establishes the causes of the deviations and assesses the severity of the impact.
The next step for the PM is to implement corrective actions in order to restore the project’s performance. Finally, another task is to propose preventive actions in order to avoid similar future events.
A well-structured analysis of variance should include the following aspects:
- Identify the relevant key performance indicators.
- Evaluate the extent of the deviation.
- Assess the degree of impact on project performance.
- Identify the causes of the variance change.
- Establish corrective action.
- Estimate the resources needed to implement the corrective action.
- Establish a time schedule for implementing the corrective action.
- Recommend preventive action.
Analysis of deviations in Project Management
In Project Management, the analysis of the deviations can be traced back to 4 fundamental steps. These are:
- Scope control
- Program control
- Cost control
- Risk control
Most projects undergo frequent changes to the purpose of the project.
Sometimes, the project teams cannot control the changes and, consequently, fail to verify their impact.
This uncontrolled expansion in the scope of the project, without changes to planning, budget, risks, and resources, is known as “scope creep“.
The steps to control changes to the project scope include mainly:
- Implementation of change control processes.
- The periodic review of the basic forecast of the project.
- Monitoring of project tracking on a regular basis in order to visualize changes to the project’s purpose.
The analysis of deviations as a program control technique is part of the Earned Value Management – EVM.
The EVM uses measures such as Schedule Variance (SV) and Schedule Performance Index (SPI) to indicate variances and performance efficiency.
However, there are many organizations that do not use EVM techniques to control project planning, but use similar techniques to measure deviations.
These techniques mainly include measurement changes on the planned start and end dates.
Without doubts, project cost control is a crucial aspect of monitoring and controlling any project.
Mainly in this case, the cost variance (CV), the cost performance index (CPI) and the completion variance (VAC) are used to establish the cost variances.
However, there are organizations that do not implement EVM techniques.
Therefore, these organizations implement procedures that track the actual expected costs on certain project activities.
The risk analysis of the project uses the data obtained from the analysis of the scope, program, and variance costs.
This not only helps the project manager and the project team to establish risk thresholds, but also to confront the existing ones.
Causes of project variances
The projects provide a unique product or service, however, they are subject to various changes during their life cycle.
Actual key performance indicators, therefore, can go against the desired project performance.
The key to successful project management lies in managing these changes and variances.
Refusing changes is not a solution. In fact, changes can also have a positive impact on project results. Rejecting them a priori would be counterproductive.
The factors responsible for changing the project’s performance may be different and here we have a list of them:
- Changes within the project triggered by the end user or project team in order to meet contractual obligations.
- Lack of resources, such as skilled labor, availability of equipment and material.
- Estimates of the duration of incorrect activities.
- Improper identification of critical activities.
- Reviews of improper and incorrect projects.
- Lack or poor implementation of project monitoring and control processes.
- Poor risk assessment.
- Not using change control procedures.
- Changes in the regulatory framework.
- Evolving business needs.
- Changes of the requirements by end users.
- Market factors such as changes in commodity prices, changes in exchange rates, etc.
The analysis of the deviations is therefore fundamental for the success of a project.
It is essential that these data are always monitored during the entire project cycle in order to avoid identifying a problem too late.
Clearly, the use of a project management software can help keep project values monitored as well as promptly visualize variances.
Especially with regard to complex projects involving different stakeholders, the use of a PM software can be fundamental in order not to loose sight of important and fundamental values.
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