Defining Project Variance

Project Variance is when there is a change against the standard or project baselines.

Project Variance is when there is a change against the standard or project baselines. These are measurable. In the project management world, variance is a measurable change from a known standard or baseline. In simple terms, it is the difference between what was expected and what really happened.

Baseline variances are the differences between what was expected to happen on a project (as planned and documented in the Project Plan) — be it costs incurred or time taken — and what did happen. The differences may not be particularly reliable indicators of success or failure at the start of a project, when most project tasks are still to ‘get going.’ However, as the project advances, these differences, and consequent performance predictions are likely to become more accurate.

A project baseline provides a manager with the means to assess project performance and to work out values for the Earned Value Management calculations (EVM). Earned value shows how much of the budget and time should have been spent with regard to the amount of work done so far based on a metric performance indicator.

The assessed baseline variance can be positive or negative.

Positive values are of more concern for Project Managers they indicate that the cost is over the baseline budget, or the number of hours taken on a task is longer than the baseline estimate. They suggest that managerial intervention is needed if the project is to stay on track.

Conversely, negative values indicate that better progress is being made than was planned in the baseline data. Also, if the value of the SPI (Schedule Performance Index) — which is calculated by dividing the Earned Value by the Planned Value—is more than 1.0, the project is ahead of schedule.

If the baseline variance is zero (0) it may mean that the task is on track with what was planned. But, if values are consistently zero for all calculations, it may mean that there is no baseline.

Planning for variances: Establish baselines

To determine project variances, you need to put a stake in the ground as your starting point: this is your baseline. Without this, you are chasing and attempting to control a moving target. Two key baselines to establish before you can put variance tracking and reporting into play are cost and schedule. But before you can get there, you'll want to nail down the project scope.

After you have established scope, schedule, and cost baselines, create the steps the team will take to manage variances for these plans. This information becomes your project change management plan. This plan defines when you determine a project change request (PCR) is required, how to document variances and submit for approval, and what happens after a change request is approved.

A project baseline is a collection of base data or values for a project. Typically, this will include the planned budget, the original start and finish dates for a project and the expected effort (e.g., the number of hours). For analysis of baseline variances to be meaningful, baseline values need to be as accurate as possible, as they are the measure against which performance is measured.

Variance calculations are used to determine if a PCR is needed and if the project schedule or cost baselines will be changed. Variances may be either positive or negative:

A positive variance indicates that the project is ahead of schedule or under budget. Positive scenarios might enable you to reallocate money and resources to those in the negative territory.

A negative variance is your indicator that the project is behind schedule or over budget and that you need to take action. You might have to increase your budget or accept reduced profit margins.

Variance thresholds are an important component of any project change management plan. They constitute the material changes to the project, and therefore necessitate documentation and approval in a PCR. Not all PCRs will result in reestablishing scope, schedule, or budget. This is a significant task, one that can require considerable time to complete, and you'll be obliged to get approval up and down the project organization.

Tracking cost and schedule variances throughout the life cycle of the project helps you identify weak spots - areas with repeared changes - and respond accordingly. For example, if you see that the testing team is encountering continual delays, you may need to assign additional resources to stay on.