Performance Measurement: Variance Analysis and Reporting

1. Performance Measurement: Variance Analysis and Reporting Felix Sanchez Project Management for ARA Engineers and Scientists

2. Desired Learning Objectives • Be able to calculate schedule variances (SV) and cost variances (CV) and appreciate their application for tracking and controlling projects • Understand the process to evaluate variances, questions to ask to understand why there is a variance and recognize plausible explanations that can be provided to the customer

3. When a Variance Occurs • It may mean: • The original plan was not appropriate or “stuff” happened • The measurement technique was not appropriate • Resource charges were incorrect • It does mean: • Something needs attention • Good analytical techniques need to be employed • Analysis is not complete until knowledgeable action is taken Management focuses their primary attention on exceptions to your plan

4. Variances • If on critical path high risk to the project • Should you spend additional resources to get back on schedule? Impact your budget? • No on low risk tasks • No if slack (float) on critical path • Yes – depends on your assessment, your management reserve or your unallocated budget • Overruns • Typically not recoverable • Usually deteriorate unless you mitigate

5. Recall Performance Measurement Terms Planned (BCWS) Actual (ACWP) Hours/Dollars Accomplished (Earned) (BCWP) Time

6. Greatest Benefit of EVM? Cost Efficiency Rates Cost Variance = Earned Costs – Actual Costs (BCWP – ACWP) Schedule Variance = Earned Costs – Planned Costs (BCWP – BCWS) Planned (BCWS) Schedule Variance Hours/Dollars Actual (ACWP) Cost Variance Accomplished (Earned) (BCWP) Time

7. Variances What is the Cost Variance? 60K Planned (BCWS) 50K Hours/Dollars ACWP 40K BCWP Time

8. Cost of Variances CV = BCWP – ACWP CV = 40K – 50K = -10K 60K BCWS 50K Hours/Dollars CV ACWP 40K BCWP Time

9. Variances What is the Schedule Variance? 60K BCWS 50K Hours/Dollars ACWP 40K BCWP Time

10. Cost of Variances CV = BCWP – ACWP SV = BCWP – BCWS CV = 40K – 50K = -10K SV = 40K – 60K = -20K 60K BCWS SV 50K Hours/Dollars CV ACWP 40K BCWP Time

11. Unique Variance Display for Customers Quarterly Progress Shown Figure M-17 EVMS progress on ASP Program is available in “real time” to DNDO

12. Cost Performance Index (CPI) • The cost efficiency with which work has been accomplished • The work accomplished versus what it costs to accomplish it = 75% = 0.75 CPI = BCWP ACWP 75 100 =

13. Schedule Performance Index (SPI) • The schedule efficiency with which work has been accomplished • The work accomplished versus what was scheduled to be accomplished = 80% = 0.80 SPI = BCWP BCWS 80 100 =

14. Variance Analysis Reporting • Determine Root Cause • Evaluate Problem • Analyze Efficiency • Determine Impacts • Cost • Schedule • Design Corrective Actions • Seek Management Assistance • Update the Estimate at Completion (if required by the customer) Variance

15. Estimate at Completion (EAC) EAC = Actual Cost of Work Performed (ACWP) + Estimate to Complete (ETC) (Note: Most respected method to forecast the final cost results is to assume project continues at the same Cost Performance Index (CPI) with narrow positive or negative range.) Customers want and the CDRLs usually require EAC

16. Who Uses EACs? • Program Manager evaluates cost position • Improvements in performance must come from the future • Must exert more aggressive effort to influence the remaining work and have a plan to complete on budget • Contracts notifies customer of funding requirements, if applicable, and Limitation of Funds statement • Teams/Task Leader assess their cost performance

17. Customer Reports or CDRLs Requiredon Large Complex Projects • Cost Performance Report (CPR) – Summery Level Status • Format 1: CWBS • Format 2: Organization • Format 3: Baseline • Format 4: Staffing • Format 5: Variance Analysis • Cost/Schedule Status Reports (C/SSR) • Contract Fund Status Report (CFSR) • Contract Cost Data Report (CCDR)

18. Summary: Our PM Process Must • Define the work • Assign work responsibility • Establish budgets • Control costs and schedule • Measure performance of the project • The Plan – budgeted work scheduled • Accomplishment – budgeted work completed • Actual – actual cost of completed work • Budget at Completion (BAC) • Estimate at Completion (EAC)/Latest Revised Estimate (LRE) • Measure cost and schedule variances – corrective actions • Explain corrective actions

19. Summary (cont.) • Customers (and your boss) want to know how you are doing on schedule and cost – what is the variance from your budgeted values? • Thorough Variance Analysis Reporting essential for good project management • EVM is a “Management by Exception” concept Helps you Manage the Future