I have discussed earned value management and its three basic elements in my previous blog posts.
I suggest you read them first if you have not read these blog posts, then come back to this post. I will discuss Schedule Variance and Cost Variance in this post, which is determined with the help of earned value, planned value, and actual cost.
Schedule Variance and Cost Variance are two essential parameters in earned value management; helps you to analyze the project’s progress, i.e., how are you performing regarding schedule and cost.
Let us start with an example:
Assuming you are managing a construction project, and the client asks you to update him about the current status and progress of the project.
What does the client mean by asking for the status and progress of the project?
How will you get this information?
The client is asking about the cost incurred to date, work completed, and how the project is performing regarding cost and schedule. Put more simply; the client is asking you to provide him with the project’s earned value, planned value, actual cost, Schedule Variance, and Cost Variance.
Earned value is the value of the work completed to date, the planned value is the money you should have spent as per the schedule, and actual cost is the amount spent on the project to date.
Schedule Variance helps to determine if you are behind or ahead of schedule, and Cost Variance helps determine if you are under budget or over budget.
These variances give you essential information about the project’s progress. It is your job to monitor these variances regularly.
Variance analysis is key to the success of any project. A successful project must finish on time and within the approved budget. You can easily monitor your project performance and take corrective action whenever required with the help of these variances. Variance analysis will inform you if you are going in the correct direction or not.
Schedule Variance (SV)
It is imperative for you to keep your project on schedule. Not only does it help you complete your project on time, but it also enables you to avoid unnecessary cost overruns due to slippage of schedule because your costs start rising exponentially as you go over the stipulated time.
For example: you have rented some equipment for a specified duration of time. However, you may end up paying more if you need this equipment for some additional time, because the equipment may not be available at the previously negotiated price, or you may need to rent this equipment from other suppliers on an urgent, short-term contract at a higher price.
Schedule Variance is a vital analytical tool for you. This tool gives you the information needed to determine if you are ahead of schedule or behind schedule concerning dollars.
The formula for Schedule Variance (SV)
Schedule Variance can be calculated by subtracting planned value from earned value.
Schedule Variance = Earned Value – Planned Value
SV = EV – PV
From the above formula, we can conclude that:
Schedule Variance becomes zero when the project iscompleted because at the end of the project all Planned Value has been earned.
Example of Schedule Variance (SV)
You have a project to becompleted in 12 months and the budget of the project is 100,000 USD. Six months have passed and 60,000 USD has been spent, but on closer review you find that only 40% of the work has been completed so far.
Find the project’s Schedule Variance (SV), and determine if you are ahead of schedule or behind schedule.
Given in the question:
Actual Cost (AC) = 60,000USD
Planned Value (PV) = 50%of 100,000
= 50,000 USD
Earned Value (EV) = 40%of 100,000
= 40,000 USD
Now,
Schedule Variance =Earned Value – Planned Value
= 40,000 – 50,000
= – 10,000 USD
The project’s Schedule Variance is -10,000 USD. You are behind schedule since it is negative.
Cost Variance (CV)
Cost Variance is as important as Schedule Variance. You must complete your project within the approved budget. Exceeding the planned budget is bad for you and your stakeholders.
It is all about the money, and clients are very cautious about what they are spending. Organizations are sensitive towards it because any deviation from the cost baseline can affect their profit, and, worst case, they may have to put more money into the project to complete it. This is especially detrimental if the contract is a fixed price.
Cost Variance deals with the cost baseline of the project. It provides you with information about whether you are over budget or under budget, concerning dollars. Cost Variance is a measure of cost performance of a project.
The formula for Cost Variance (CV)
Cost Variance can be calculated by subtracting the actual cost from earned value.
Cost Variance = Earned Value – Actual Cost
CV = EV – AC
We can conclude the following from the above formula:
Example of Cost Variance (CV)
You have a project to becompleted in 12 months, and the budget of the project is 100,000 USD. Six months have passed, and 60,000 USD has been spent, but on closer review you find that only 40% of the work has been completed so far.
Find the project’s Cost Variance (CV), and determine if you are under budget or over budget.
Given in the question:
Actual Cost (AC) = 60,000USD
Earned Value (EV) = 40%of 100,000 USD
= 40,000 USD
Now,
Cost Variance = Earned Value – Actual Cost
CV = EV – AC
= 40,000 – 60,000
= –20,000 USD
Hence, the project’s Cost Variance is -20,000 USD, and you are over budget since it is negative.
Summary
ScheduleVariance and Cost Variance are great tools to analyze project health. If both variances are positive, this means that your project is progressing well. However, something is wrong if either variance is negative and you have to take corrective action to bring the project back on track.
This concludes my review of Schedule Variance and Cost Variance. If you have something to add, you can do so through the comments section below.
You can now move on to my next blog post on the Schedule Performance Index and Cost Performance Index.
If you are interested in learning all the mathematical formulas for the PMP exam, you can try my PMP Formula Guide.
Hello Fahad,
Thank you for the PMP blog. This has been very helpful and is easy to understand.
While going through the Project Budget formula under Cost Management and the EVM formulae from the Formula guide I got confused with the Planned Value, BAC, Cost Baseline and Project Budget.
Project Budget = Cost Baseline + Management Reserve
I understand that:
BAC = Total Planned Value (without Management Reserve)
Now Cost Baseline = Project Cost + Contingency Reserve
However, in the guide, I see the following statement:
“The project budget is also known as the Budget at Completion and denoted by BAC.”
So how is Project Budget the same as BAC as BAC does not include Management Reserve?
Should BAC = Cost Baseline?
Appreciate your feedback.
thank you,
Mukund
Budget = BAC = Cost Baseline + Management Reserve
Thank you so much Mr. Fahad for explaining in simple words.
You are welcome Aziz.
Hello Fahad,
Request to let know the difference between control account and Performance Measurement Baseline. As per definition it seems near same. is both of them same?
Thank you
Mehul Parekh
As per the PMBOK Guide, A control account is a management control point where scope, budget, actual cost, and schedule are integrated and compared to earned value for performance measurement.
While schedule and cost baselines are performance measure baselines.
Hi
I need some inputs on below:
During what point of the time of the project we need to perform EVM to know the CV and SV? or project health
Once the project starts you will have to look for it continuously as mentioned in the project plan.
if you calculate your SPI to be 1.065, how can you interpret this result?
As it is greater than one, you are ahead of schedule.
https://pmstudycircle.com/2012/05/schedule-performance-index-spi-and-cost-performance-index-cpi/
How to calculate the Schedule variance in % using dates?
Can I showcase it as per below formulae in Completion report
Schedule Variance = (Actual days – Planned days)/Planned days
Is it correct?
You can use schedule performance index.
Which aspect should we improve normally if a project is OVER BUDGET and BEHIND OF SCHEDULE?
Kindly share some viewpoints on this matter. Thank you.
In this case you will need to find the exact cause of it. If there is problem with project plan or any unidentified risk has occurred caused you delay in schedule and cost.
Based on the issue, you will take corrective action.
In MS Project when you have used a rate to define a schedule cost and the task is completed ahead of time how do you factor this in as this will mean less cost calculated.
It will be added to the float. However, if the activity is on critical path and many activities are completing before actual completing time, you need to review the schedule.
ASSALAM -O-ALAIKUM
THANKS FOR GIVING SUCH A SIMPLE AND UNDERSTANDABLE CONTEXT.
Walaikum Assalam,
You are welcome Iqra.
Hello Fahad,
Many thanks for the good work you are doing.
Please can you take a look at this question i found at one of your recommended links to the pool of pmp questions.
On your current project, EV = $45,000, AC = $50,000, PV = $40,000. What is the schedule variance as a percentage of the work accomplished at this point in time?
Suggested solution
the formula for schedule variance is SV = EV – PV. Therefore the schedule variance as a percentage of the work accomplished is PV/EV or +88.8%
Link to the question.
http://edwel.com/Free-Resources/PMP-Certification-Final-Exam.aspx
It is question number 2
Earned Value is 45,000 USD and Planned Value is 40,000 USD.
So the schedule variance will be 1.125.
No idea why did they take inverse of it and come up with 88%.
I suggest you can contact them and if you get a reply, please update here as well.
Thanks Fahad
Well explained in simplest form. Thank you
You are welcome Hetal.
Really helpful. Well explained.
Thanks Apoorva.
In the 1st question, how did you arrive at PV = 50% of 100,000$ in six months? its not necessary that planned value (PV) is uniformly distributed over the period.
You are right. However if this data is not given in the question, you can safely assume that it is evenly distributed in each month.
Fahad,
thanks for your clear and great explanations and thank you for all your efforts!
Regards from Bulgaria.
You are welcome Iva.
May I know the formula for % of schedule and cost variance.
Once you have have the EV and CV you can calculate the % of completion.
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.
Why Not?
I’m having the same dilemma…
In fact once the task is completed, this means all planned value has been earned; i.e. schedule variance will be zero.
I agree with Fahad there is no schedule variance in this case.
-Akhilesh
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 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 texts are gone missing causing it confusing.
I tried to correct it but failed; therefore, I am posting this comment again at the bottom of this post. Please go there and find the correct explanation.
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 you please elaborate on how answer is C. I understood the calculation but am not able to apply the same to these set of choices. I am not able to understand how we chose C based on equation AC > PV.
Also i am unable to understand these choices including choice C. Can these choices be explained a little in detail please.
I have explained it at the below of my blog post. You can read it at the end of this blog post.
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 < SVEV - PV < EV - AC- PV < - ACAC < PVIt 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.
hi,
you have interchanged the formula for CV and SV
CV = EV- AC
SV = EV-PV
Cost Variance is lower than Schedule Variance; i.e.
CV < SV
EV-AC < EV-PV
-AC<-PV
PV<AC
planned value is less than actual cost so the answer should be B
Hello Tejal,
There was some error with the commenting system causing signs to appear wrongly, that is why I have written this comment again, just after the end of the blog post. You can check it at the end of this blog post.
It was really helpful and it helped me in grasping the concept of variances , thnkyou for sharing
You are welcome.
I dont think that at completion SV = 0, in your example, at month 6, 40% of the work was done but it should be 50%, so we got SV = -10,000.
What would happen if at month 9, 100% of the work was completed? EV=100,000 and PV=75,000 then SV = 25,000 at completion!
Also if at month 12 only 70% of the work is done, we’ll have PV= 100,000 and EV=70,000 then SV=-30,000!
Could you please clarify?
(would I receive an email with the answer? or do I have to come here everyday?)
Once the project is completed, this mean all planned value has been earned,
i.e. EV = PV
The rest you can calculate with substituting data in the formula.
Dear Fahad,
I have a query here. Why will EV be = to PV. Planned Value is what we expected & Earned is what has happened. So in the 1st example where 100% work is done in 9 months, EV is 100000 but since we planned to complete 75%, PV is 75000. So SV = 25000 which means as put forth in theory we have completed project ahead of schedule & months wise we have saved 3 months. At the same time it means we have not really calculated well since we considered 3 more months for completion. Ideal scenario would have been if we would have completed this work in 12 months. EV would have been equal to PV then. Isn’t this the way it should be.
EV can’t be equal to PV in most cases and that is what we intend to find. This 25000 gives us that clarity. So why should we have EV = PV if project has been completely done or why is that even really required. Planned value has been earned since Planned is less than Earned here but the purpose is to find the issue & then target why there was a variation. So why compel EV to be equal to PV when ideally it is +ve.
Like if it would have been reverse eg :EV = 90000 in 12th month but PV = 120000. Then we would say SV = -30000 which would have meant we are behind schedule & would take 2-3 months more to finish the project.
Can you please guide !!
Regards,
Reshma
When the project end how much value is remain to be earned? Nothing, this means all project work is complete and everything is earned. That is why when the project ends, EV = PV.
Completely disagree. Your argument makes no sense mathematically which in turn makes no sense from a PMP perspective.
What is your point?
He is correct. Earned value is derived from how much work was actually completed. $100 task, 40% complete = $40 EV.
So while SV looks like currency, it is really just an evaluation on how far along you are in a task / project versus what you planned at any given time. The AC will almost NEVER = PV
SV must equal 0 upon completion regardless of the where the budget is.
What you are all missing is you can’t achieve 110%.
If the project has completed all tasks, the project is complete.
Fahad is correct.
my question is on the effect of CV. The blog says is CV > 1 then its Under Budget. Lets see if the below makes sense:
BAC (Total Budget) = 10,000 USD.
As of now the project is completed with a total cost of 9,000 USD. So AC = 9,000.
Since 100% of work is completed, EV = (100%) * BAC = BAC = 10,000
CV = EV – AC = 1,000. In layman terms, I budgeted for 10,000 and finished the wok in 9,000 which is good and I save 1,000. Shouldn’t this mean, my Budget Estimate was more than the actual. And so if CV > 1 is actually good.
Sorry, somehow, I am unable to digest how the CV > 1 is not always good and means under budget
This means your budget calculation was wrong and you must correct it as soon as you discover it.
Technically speaking, an under budget project (CV>1) is a good thing. But, as a planner, it is a bad thing that you kept more budget for a project which actually costed less. In this way, you are actually showing bad estimation and planning capability.
Besides, you have to understand that under budget or over budget is the status of the project at that certain point of evaluation of status. If you are saving a thousand dollars from a project, it is a good thing for the sponsor but bad thing for you as a person who keeps his estimates on a higher end with too much buffer.
If you are consistently very under budget this means something wrong with your estimate and you need to re-look it.
Hi fahad,
what happened if the prices of the materials decreases after starting the project and you based your estimates on the previous prices.
If it is beyond tolerance, you may need to update your cost baseline.
Pretty useful. I have never seen previously scary arithmetic concepts made so simple. Indeed simply demystefied
Thanks. I doff my hat.
And come to think of it? Its free and I have paid a lot of money to learn these concepts at the Masters Level?
I’m glad Clem I could be of some help to you.