Schedule Variance (SV) and Cost Variance (CV) in Project Cost Management

Schedule Variance (SV) and Cost Variance (CV) are two essential parameters in Earned Value Management. They help you analyze the project’s progress, i.e., how you are performing in terms of schedule and cost.

Assume you are managing a construction project. The client asks you to update them with the current status and progress of the project.

What do they mean by asking for these metrics?

How will you get this information?

The client is asking for information on the cost incurred to date, work completed, and how the project is performing in terms of cost and schedule.

You will get this information with the help of Earned Value Management. Earned Value Management has three basic elements: Earned Value, Planned Value, and Actual Cost.

Earned Value is the value of the work completed to date. Planned Value is the money you should have spent as per the schedule. Actual Cost is the cost spent on the project to date.

These basic elements help you find Schedule Variance and Cost Variance. Schedule Variance helps to understand if you are behind or ahead of schedule. Cost Variance helps determine if you are under or over budget.

Variance analysis is the key to the success of any project, which is finished on time and within the approved budget. Variance analysis helps monitor your project performance, allowing you to take corrective action as soon as required, and it lets you know if you are going in the correct direction or not.

Schedule Variance (SV)

It is imperative for you to keep your project on schedule and Schedule Variance helps you complete it on time. It enables you to avoid unnecessary cost overruns due to a slip of schedule. Costs increase as you go over the stipulated time.

For example, you have rented some equipment for a specific duration of time and you may end up paying more if you need this equipment for longer. 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, it lets you know if you are ahead of schedule or behind schedule in dollars.

The Formula for Schedule Variance (SV)

You can calculate Schedule Variance by subtracting Planned Value from Earned Value.

Schedule Variance = Earned Value – Planned Value

SV = EV – PV

From the above formula, we can conclude that:

  • You are ahead of schedule if the Schedule Variance is positive.
  • You are behind schedule if the Schedule Variance is negative.
  • You are on schedule if the Schedule Variance is zero.

When the project is complete, the Schedule Variance becomes zero because all Planned Value has been earned.

Example of Schedule Variance (SV)

You have a project to be completed in 12 months and the budget of the project is 100,000 USD. 6 months have passed and 60,000 USD has been spent, but on a closer review, you find that only 40% of the work has been completed.

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) = 60,000 USD

Planned Value (PV) = 50% of 100,000

= 50,000 USD

Please note that in the question, the Planned Value is not specifically given but the question says that half of the time has passed. In such a situation, you can assume that the budget was evenly distributed, so the planned value will be 50%.

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.

Everything is about money. Clients are very cautious about spending; because any deviation from the cost baseline can affect their profit. In the worst case, they may have to put more money into the project to complete it. This is detrimental if the contract is fixed price.

Cost Variance deals with the cost baseline of the project. It provides you with information on whether you are over or under budget, in dollar terms. Cost Variance is a measure of the cost performance of a project.

The Formula for Cost Variance (CV)

Cost Variance can be calculated by subtracting the actual cost from the Earned Value.

Cost Variance = Earned Value – Actual Cost

CV = EV – AC

We can conclude the following from the above formula:

  • You are under budget if the Cost Variance is positive.
  • You are over budget if the Cost Variance is negative.
  • You are on the budget if the Cost Variance is zero.

Example of Cost Variance (CV)

You have a project to be completed in 12 months, and the budget of the project is 100,000 USD. 6 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

Schedule Variance and Cost Variance are great tools for analyzing project health. As a project manager, you should monitor these variances for any deviations. 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.

How are you using Schedule Variance and Cost Variance in your project? Please share your experience in the comments section.

This blog post is the third in a series of seven on Earned Value Management and project forecasting. Please read through my previous two posts before reading this post if you’re coming here from a search engine or a referral.

The following are the links for other blog posts: