Variance Analysis | The Basics of Monitoring & Controlling for New Project Managers

What is the best approach to monitoring and controlling a project? Variance Analysis is a simple but powerful approach for monitoring the project schedule, scope and cost.

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No matter what methodological approach is being used to manage a project, some form of monitoring and controlling activities are applied. Building it into the project management process is an important part of making sure things are done right. For new project managers, it can be a particular challenge to find the right approach.
“Monitoring & Controlling” is the name of the Project Management Institute (PMI) process group in which the processes required to track, review, and regulate project performance are conducted. According to the PMBOK Guide (6th Edition), Monitor & Control Project Work is defined as,
“The process of tracking, reviewing, and reporting the progress to meet the performance objectives defined in the project management plan.”
Simply put, the process involves watching to see that things are going according to plan and taking corrective actions to fix them when they are not. The general goal is to end up at the end of a project with what was intended from the start.

There are different formal approaches to address monitoring & controlling activities. One approach, according to PMI, is Earned Value Management. This technique examines scope, schedule, and resource measurements during a projects lifetime in order to assess the progress and performance of these areas of the project. EVM is extremely useful and very effective, but it has its drawbacks. First, it is not the easiest way to examine project progress, particularly for new project managers. Second, it is a heavy technique to apply to small projects that don’t necessitate a very high level of technical measurement.

Sometimes, a simple approach is the best approach. When it comes to monitoring project progress, variance analysis can serve as the tool of choice. It allows a project manager to examine the areas to measure in a scalable way. It can be applied in as simple or as complex of a way as an individual project demands. The process involves looking at the difference between the planned and actual results of the area examined – the variance. Once that variance is identified, the project manager can decide if that variance is within an acceptable range or if any corrective action needs to be taken.

Variance analysis is easy to apply to the main areas normally measured in project management: Schedule, Cost, Scope, and Quality. These are the four areas of the classical version of the triple-constraint model (The Magic Triangle). It is applied in a slightly different way depending on which areas are being addressed.

The first two areas, time and cost, are objective areas of measurement. With these areas, it is clear to observe, measure, and state if a project is behind, on, or ahead of schedule or budget. The best way to measure and analyze the variance for these areas is with a simple four column chart. The first column states the item being analyzed. The second column states the planned, or target, value for that area. The third column records the actual value for the area. The fourth, and final, column reports the calculation of the variance between the planned and actual values.


Example 1: Schedule Variance

Example 1 illustrates how this works for a schedule analysis. As it shows, Milestone 1 is planned for delivery on December 1. Since the actual completion date is also on December 1, the variance (measured in days) is zero. Milestone 2 is planned for completion on December 3, but completed one day ahead of schedule on December 2, so the schedule variance is -1, or one day ahead. Milestone 3 is planned for completion on December 5, but not actually accomplished until December 7, leaving a variance of +2 days.


Example 2: Cost Variance

Example 2 illustrates the process for cost variance. All three cost items have a planned cost of $2,000. Cost Item 1 has an actual cost of $2,000, so the variance is zero. Cost Item 2 has an actual cost of $1,750, so this item is $250 ahead of budget. The actual cost of Cost Item 3 is $2,500, so this item is $500 over the budgeted amount.

Both of these areas can be applied and used as desired; measuring individual items, stages, phases, or even the entire project. They can also be elaborated to include totals or percentages of tolerance for identified variance.

Scope and quality measurements have a somewhat different assessment procedure because of the often-subjective nature of these areas. Just as with the objective items, a basic four column chart can be utilized. The first column once again states the area being analyzed. The next two columns provide space for a check box or mark – one if the item is completed/achieved and the other if it is incomplete/not achieved. The final column provides a place for notes on the item.


Example 3: Scope & Deliverable Analysis

Example 3 provides an illustration of how this analysis can be conducted for scope and deliverable items.

The first item, a production target of 85 items is achieved. Therefore, it is marked as achieved and noted as such. The next two items, new contract signed and all tickets sold, are not achieved. Notes about the reason for the items ending as incomplete are marked in the analysis form.

This type of table is similarly useful for monitoring the status on quality criteria, as well as any other area of measurement that can be a mix of objective and subjective items.

This technique covers the “monitoring” activity, but the “controlling” actions still need to be taken. This is an area that will be individual to each different project and the requirements of that project. By applying the monitoring techniques mentioned here, a project manager will have a better understanding of the project status and a more informed position from which to judge whether or not intervention is necessary to keep the project on track. As is often said, you have to measure it before you can manage it.

Variance analysis in project monitoring has a number of advantages. It can be applied to most methodological approaches to project management, both structured and unstructured. It’s easy to do, even for novice PM’s. It’s scalable, making it useful for large projects, small projects, and anywhere in between. Finally, it’s easy to communicate status to stakeholders who you are working with. Someone who isn’t a professional in the field of project management might have a difficult time understanding the significance of an earned value ratio. But, just about everyone will understand the issues surrounding being over budget or behind on the schedule.

About the Author: Mark Romanelli ([email protected]) is a full-time lecturer in the Sports, Culture, and Events Management program at the University of Applied Science Kufstein Tirol (FH Kufstien Tirol) in Kufstein, Austria. He is a member of the Project Management Institute and a Certified Associate in Project Management.

 
 


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