Variance Analysis: Definition, Formula, Example

Project managers use variance analysis to identify and correct problems with their projects. By comparing the planned budget against the actual budget, they can spot areas where costs are over or under budget. This information can help them make necessary changes to keep the project on track. It is crucial to identify variances early on so that corrective measures can be taken before the project gets too far off course.

In this article, we will talk about what Variance Analysis is, how it works, and how you can use it to improve your project management.

What is Variance Analysis

Variance analysis is the process of comparing the actual results of a project with the planned results. This comparison can be used to identify variances, which are differences between the two sets of results. Variances can be positive or negative, and they can occur in any area of the project.

How Does Variance Analysis Work

There are three steps to variance analysis

  1. Collecting Data

The first step is to collect data from the project. This data can come from a variety of sources, including project reports, financial reports, and meeting minutes. It is important to collect as much data as possible so that the full picture can be seen.

  1. Comparing Data

The second step is to compare the actual data against the planned data. This can be done in several ways, depending on the type of data being analyzed. For numerical data, a simple comparison can be made. For more qualitative data, a more in-depth analysis may be necessary.

  1. Identifying Variances

The third and final step is to identify any variances that exist between the actual and planned results. Variances can be positive or negative, and they can occur in any area of the project. Once variances have been identified, they can be further analyzed to determine their cause and impact.

Many different types of variances can occur in a project. Some of the most common include

  1. Schedule variance: This is the difference between the planned schedule and the actual schedule. It can be caused by delays in the project, changes to the scope of the project, or other factors.
  2. Cost variance: Another common type of variance, cost variance is the difference between the planned budget and the actual budget. It can be caused by overspending, underspending, or changes to the scope of the project.
  3. Performance variance: This type of variance occurs when the actual performance of the project does not meet the expectations set in the plan. It can be caused by delays, poor quality work, or other factors.
  4. Quality variance: This is the difference between the planned and actual quality of the project. It can be caused by poor quality work, defects, or other factors.
  5. Time variance: This is the difference between the planned and actual amount of time required to complete the project. It can be caused by changes to the scope of the project, delays, or other factors.

What is the difference between Planned and Actual Numbers

Planned numbers are the numbers that are expected to be achieved based on the project plan. Actual numbers are the numbers that are achieved during the execution of the project.

Variances occur when there is a difference between the planned and actual numbers. Variances can be positive or negative, and they can occur in any area of the project.

Understanding the difference between the planned and actual numbers is an important part of variance analysis. By understanding where the discrepancies are occurring, project managers can take corrective action to bring the project back in line with the plan.

Conclusion

As you can see, variance analysis is a useful tool for understanding the results of a project. By comparing the actual data against the planned data, project managers can identify any variances that have occurred. This information can be used to make corrective action and improve the outcome of the project. So every project manager needs to understand variance analysis and how to use it.

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