In my previous two blog posts, I have discussed the Earned Value Management (EVM) and its three basic elements; i.e. Planned Value (PV), Earned Value (EV), and Actual Cost (AC).
In this blog post, we will move a little further from the previous articles. Please make sure that you understand the concept of Earned Value Management (EVM) and its elements, otherwise it would be difficult for you to go further from here. Therefore, go back to my previous two posts (links are given above), read them and come back here again.
Now we’re going to discuss variances; i.e. Schedule Variance (SV) & Cost Variance (CV). The Variances tell us whether we are going in the correct direction, or not.
Schedule Variance (SV): The Schedule Variance tells us that how far behind or ahead of schedule we are. The Schedule Variance (SV) is a measure of schedule performance on a project.
Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)
i.e.
SV = EV – PV
The Schedule Variance becomes zero when the project is completed because all of the planned value will have been earned; i.e. PV=EV
Note:
- If the Schedule Variance (SV) is positive, this means we are ahead of schedule.
- If the Schedule Variance (SV) is negative, this means we are behind schedule.
Cost Variance (CV): The Cost Variance tells us that how much we are over or under budget. The Cost Variance (CV) is a measure of the cost performance of the project.
Cost (CV) = Earned Value (EV) – Actual Cost (AC)
i.e.
CV = EV – AC
Note:
- If the Cost Variance (CV) is positive, this means we are under budget.
- If the Cost Variance (CV) is negative, this means we over budget.
Tip: Keep in mind for both variances; positive is always good and indicates that we are going in the correct direction, and negative indicates that something is wrong.
Example:
You have a project to be completed in 12 months and the total cost of the project is $100,000. Six months have passed and $60,000 is spent but on closer review you find that only 40% of the work is completed so far.
Find the Schedule Variance (SV) and the Cost Variance (CV) for this project.
Given in question:
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Schedule Variance (SV) = EV – PV
= $40,000 – $50,000
= –$10,000
Hence,
Schedule Variance is -$10,000, and
- Since the Schedule Variance is negative, we are behind schedule.
Cost Variance (CV) = EV – AC
= $40,000 – $60,000
= –$20,000
Hence,
Cost Variance is -$20,000, and
- Since the Cost Variance is negative, we are over budget.
This was all about the Schedule Variance and the Cost Variance. In the next blog post, we will discuss the performance indexes; i.e. Schedule Performance Index (SPI), and Cost Performance Index (CPI).
image credit => jscreationzs / FreeDigitalPhotos.net
Reply to Mr. Ravindra’s Comment:
I miscalculated it.
Please find the correct calculation as follows:
Cost Variance is lower than the Schedule Variance; i.e.
CV < SV
EV – AC <EV – PV (in my earlier explanation I miss-typed it as EV – PV < EV – AC)
-AC < -PV
AC > PV
Hence, A can not be correct. C is the correct answer.
It was really helpful and it helped me in grasping the concept of variances , thnkyou for sharing
You are welcome.
Fahad,
Can you help answering this test question:
What would be the best explanation for the following: both the cost variance and schedule variance are negative, but the cost variance is lower than the schedule variance.
A) the project activities look longer than expected, but costs were lower
B) the project over spent due to increased costs and yet completed some activities faster
C) the project underspent because all work was not completed but overspent for work that was done.
D) the project underspent because costs were lower than planned and activities were easier to complete than planned.
As per your first statement, both variances are negative, it means your project is over budget and you are behind your schedule.
Now come to second point.
Cost Variance is lower than Schedule Variance; i.e.
CV < SV
EV – PV < EV – AC
- PV < – AC
AC < PV
It means that Actual Cost is less than the Planned Cost.
Now we can say that, project is behind the schedule or taking longer time than than expected and actual costs were lower than the planned cost.
Therefore, in your given option, I think that ‘A’ is correct answer.
I had come to the conclusion of ‘A’. Unfortunately the correct answer was “C”. Following was the given explanation :
Remember, for variances, negative is bad. In this situation, both the variances are negative. To answer the question, first look at which of the four choices exhibit negative variances for both cost and schedule. Since the project underspent because all work was not completed, but overspent for work that was done, both the cost and schedule variances are negative.
I miscalculated it.
Please find the correct calculation as follows:
Cost Variance is lower than the Schedule Variance; i.e.
‘CV < SV'
'EV - AC
'-AC < -PV'
'AC > PV’
Hence, A can not be correct. C is the correct answer.
Sorry for giving you wrong answer.
(Anyway, if the Cost Variance would have been more than the Schedule Variance then “A” was the correct answer.)
I just noticed that content of this comment is not appearing as I have written. Some text are gone missing causing whole text confusing.
I tried to correct it but failed; therefore, I am posting my this comment at the bottom of the post. Please go at bottom of this blog post and find correct text.
Hey Ravindra,
if you have the correct response for an answer but you do not understand it, I think the clean way to act is to make the open consult of your doubt providing with the complete information to the expert.
Please, let me know if you agree, thank you.
Arturo
Can anyone explain me this scenario.
Planned Star Date = 1 March 2013
Planned End Date = 10 March 2013
Actual Start Date = 5 March 2013
Actual End Date = 15 March 2013
In both condition the time taken in 10 days only, but will this be considered in Schedule Variance as we have delayed the delivery? Kindly provide a concrete solution.
Based on these parameters, Schedule Variance can not be calculated.