Topic 11.5: Cost and schedule variance
Returning to our graph, we can see that our actual cost is less than our earned value, which is another way of saying that our project is under budget.
In other words, relative to our original project plan, the work we have completed (or earned) is worth more than we have spent.
How far are we under budget?
Well our cost variance can be calculated using the following formula:
CV = EV – AC
Therefore in our example, earned value is $2,750 and the actual cost of work performed is $2,300. So at this point we are $450 under budget.
And look – on our graph, $450 is the distance between our earned value and actual cost!
Note that the relationship between actual cost and planned value is not a meaningful guide to project performance.
Think about it for a moment – at a given point in the project we might have spent $5,000 versus a planned value of $10,000.
This might look like a good thing, but if we have only done the equivalent of $1,000 worth of work (EV), we should actually be quite concerned!
Don’t fall into this trap!
Cost variance is always the difference between earned (not planned) value and actual cost.
Our graph also shows that earned value is greater than planned value – this suggests that we are ahead of schedule.
Schedule variance is an expression of the relationship between earned value and planned value.
In other words, how much have we completed (earned) versus what we planned to do at this point?
Therefore the formula is:
SV = EV – PV
In our example, Monday’s earned value is $2,750 versus a planned value of $2,500, so the schedule variance is $250. And yes, looking at our chart confirms this.
We could also use the schedule variance method to say that we have earned 1½ days’ value versus one day of planned value, meaning that we are half-a-day ahead of schedule.
And, what do you know, that relationship is also graphically evident!
Having said that, though, you usually refer to schedule variance in dollars, for reasons that we will explain shortly.