Variance and Trend Analysis

In the previous chapters we took a look at some of the tools and techniques used in monitor and control risks process like Risk Audit, Risk Reassessment, Reserve analysis etc. The topic for discussion in this chapter is “Variance and Trend Analysis” which is a valuable tool for any Risk Manager.

Purpose: To forecast any potential cost and/or schedule deviations in the project at completion

In the chanter on inputs for the monitor and control risks process, we saw that we will be need performance related data like Work Performance Info and Performance Reports for this process. We will be using those inputs in this process. We take all the performance data related to our project so far and then:

• The risk management team examines trends in the team’s performance
• Identifies variances by comparing planned vs. actual data
• Identifies any potential delays or bottlenecks with respect to the completion of the Project.

So, the next logical question here would be – how will we analyze the data gathered so far?

We will be using Earned Value Analysis to do all that. Though Earned Value isn’t an actual topic as part of the PMI RMP syllabus, it would be a good idea to revisit the following two chapters to refresh your memory:

a. Cost Management during Monitoring & Controlling the Project
b. Measuring Project Performance

I am pretty sure that you did not revisit those chapters because; I would’ve probably done the same. So, let’s quickly cover the basics of Earned Value Analysis so that we know what we need to know for the PMI RMP Exam.

The basic idea of Earned Value Analysis is to integrate project, cost and scope measures to assess the project performance and progress as of date.

The following are the EVM Terms we will need to know:

Planned Value (PV) – The value that signifies how much work must have been completed so far
Earned Value (EV) – The value that signifies how much work has actually been completed so far
Actual Cost (AC) – The value that signifies how much money/cost we have spent on our project so far

Based on these 3 numbers we can calculate the following:

Schedule Variance (SV) – The deviation between the actual schedule progression and the planned schedule
Cost Variance (CV) – The deviation between the actual cost spent on the project and the planned project budget

Cost Performance Index (CPI) – The Numeric Representation of the Project’s cost performance – A number between 0 and 2.
Schedule Performance Index (SPI) – The Numeric Representation of the Project’s schedule performance – A number between 0 and 2.

In either case we would expect the performance index value to be greater than 1 which means we are ahead of schedule or within cost.

Estimate To Complete (ETC) – The amount of funds required to complete the project from the current status/point

Estimate At Completion (EAC) – The amount of funds the project is expected to utilize as a whole, throughout its life when the completion stage is reached.

If you are already a PMP certified manager, you must remember those confusing formulas EV/PV, EV/AC etc. that we would’ve memorized for the PMP Exam. Thankfully, for the RMP Exam, we need not remember all those formulae. That is why; I haven’t given any of the formulas in our quick recap. For the exam, we need to understand the concept and what each of these Earned Value terms signify which I believe, we do by now, don’t we??


Prev: Workarounds and Reserve Analysis

Next: Estimation Techniques & Cost Benefit Analysis

Monitoring And Controlling the Project

The following are the important themes that you must remember from the PMI Perspective with respect to the Monitoring & Controlling Phase of the Project.

1. Project changes should be expected, planned for, and well managed.
2. Out-of-scope work (gold-plating) adds no value to the project and should be avoided.
3. Scope verification ensures that the work product is formally accepted. Quality assurance ensures the correctness of the work product.
4. Lessons learned are important resources for planning and future projects. Maintaining the lessons learned during project control is important.
5. All change-control systems should include guidance on the following factors;
o How to influence the factors that cause change
o How to detect when a change has occurred
o How to obtain agreement on a change activity
o How to manage the change
6. Earned value is the preferred project controlling and performance reporting technique.
7. Cost variance (CV) = earned value – actual costs (EV – AC)
8. Cost Performance Index (CPI) = earned value / actual costs (EV / AC)
9. Schedule variance (SV) = earned value – planned value (EV – PV)
10. Schedule Performance Index (SPI) = earned value / planned value (EV / PV)
11. Estimate at completion (EAC) = budget at completion (BAC) / CPI
12. Estimate to complete (ETC) = EAC - actual costs (AC)
13. Variances are always “earned value” minus something. Performance indexes are always “earned value” divided by something.
14. Performance indexes of less than 1 are unfavorable. Nearer the index is to ‘1’ the better.
15. Practically speaking maintaining the SPI or CPI at exactly ‘1’ is very difficult. Most practical managers expect to maintain it around 0.95 to 1.05
16. Quality control focuses on measurement. Quality assurance focuses on all the planned and systematic quality activities within the project.
17. The key quality control tools and techniques are control charts, pareto analysis (80/20 rule), Ishikawa diagrams (cause and effect, fishbone), trend analysis, and statistical sampling.
18. Preventing a risk event is always preferred to mitigating a risk event.
19. A key goal of effective risk management is to have a response plan ready (that is, a mitigation strategy) to be implemented if the risk event occurs.
20. Risk management may require re-planning, developing alternate strategies, and re-baselining the project, depending on the severity of the new risk that was identified.

Exam Trivia:

Gold Plating or Value Addition is something that large IT company’s expect its employees to do as a mandatory activity during project work. But, from PMI’s perspective Gold Plating is prohibited and project managers and team members are not supposed to do stuff that is not part of the Project Scope. Though you might be asked to do so by your management and you may do it as part of your work, you must not select that as a choice in the exam.

Other PMI Themes:

General PMI Themes
Project Framework
Project Initiation
Project Planning
Project Execution
Project Closure
Ethics & Professional Responsibility