Concepts
There’s a key focus on the ability to analyze variances and trends in numerous areas (costs, schedule, quality, and risks). This is done by comparing actual and forecasted values with planned values to identify corrective actions or opportunities.
Let’s delve deeper into understanding this subject.
I. Understanding Cost Variance
Cost variance refers to the quantitative measurement of the financial performance of a project. It’s computed by subtracting the planned/budgeted costs from the actual costs. A negative variance signals that the project costs are over the budget, while a positive variance indicates the project is under budget.
For instance, if a project was budgeted $20,000 and the actual cost was $25,000, the cost variance is $-5,000, suggesting the project went over budget by $5,000.
II. Analyzing Schedule Variance
Schedule variance focuses on project timelines, comparing what was initially planned with actual progress over a defined period. It’s calculated by subtracting the planned schedule from the actual achievement.
Suppose a project was planned to get completed in 5 months, but actually took 7 months to complete, the variance is -2 months, indicating a delay in project delivery.
III. Evaluating Quality Variance
Quality variance involves examining the difference in planned product/service quality against the actual quality achieved. This could be assessed through customer satisfaction surveys, product testing, or a review of market response.
For instance, if the planned quality level was 95% (based on testing or customer surveys) and the actual quality level achieved was 90%, the quality variance would be -5%, signifying a failure in meeting the anticipated quality levels.
IV. Risk Variance Analysis
Risk variance involves the identification and evaluation of any deviations from the planned risk management strategies. These may arise from unknowns that were overlooked during risk planning or from changes in project conditions.
For example, if a project planned for 10 potential risks and ended up confronting 15 actual risks, the risk variance would be 5, highlighting that the project faced more risks than initially anticipated.
V. Corrective Actions and Opportunities
All these variances provide invaluable data about project performance, which initiates a basis for making decisions on needed corrective actions or identifying opportunities.
Cost variance might necessitate budget adjustments or expense cuts, schedule variance may require revising project timelines or resources allocation, quality variance could require changing processes or retraining personnel, while risk variance may call for revising risk management strategies or contingency plans.
Variance analysis, therefore, is vital in PgMP for informed decision-making geared towards efficient program management. It’s a proactive measure that alerts management about deviations, potential problems, or opportunities that could impact a project’s successful delivery.
Hence, PgMP candidates must meticulously understand variance analysis to enhance their capabilities in cost control, schedule management, quality assurance, and risk management. This understanding will, in turn, optimize project performance and lead to successful project delivery within stipulated parameters.
Answer the Questions in Comment Section
True or False: One of the key responsibilities in program management is to analyze variances and trends in costs, schedule, quality, and risks.
- True
- False
Answer: True
Explanation: In program management, it is necessary to monitor, analyze, and understand the differences and trends in costs, schedules, quality, and risks to make informed decisions and implement appropriate actions.
In terms of program management, the term ‘variance’ refers to which one of the following?
- A) The difference between forecast values and actual outcomes
- B) The degree of variation of costs and risks
- C) The comparison of actual results to planned values
- D) The potential effect of risks on a project
Answer: C) The comparison of actual results to planned values
Explanation: ‘Variance’ in program management pertains to the difference between what was planned and what is actually occurring. This helps in identifying where corrective actions might be needed or opportunities lie.
Which of the following is NOT a method for analyzing cost variances?
- A) Cost Variance (CV)
- B) Cost Performance Index (CPI)
- C) Variance at Completion (VAC)
- D) Earned Value Management (EVM)
- E) All of the above are methods for analyzing cost variances
Answer: E) All of the above are methods for analyzing cost variances
Explanation: All mentioned options CV, CPI, VAC, and EVM are tools used to examine and analyze cost variances in project management.
The process of trend analysis involves comparing:
- A) Actual performance to forecast performance
- B) Past performance to future performance
- C) Forecast performance to planned performance
- D) Actual performance to planned performance
Answer: D) Actual performance to planned performance
Explanation: Trend analysis involves comparing actual performance against planned performance to identify any shifts or trends that might impact project outcomes.
Variance analysis is best carried out:
- A) At the beginning of the project
- B) Throughout the project
- C) At the end of the project
- D) Only when issues arise
Answer: B) Throughout the project
Explanation: Conducting a variance analysis periodically throughout the project allows for real-time adjustments and corrective actions, ensuring the project stays on track.
True or False: Corrective actions should only be identified when there is a significant variance between the actual and the planned values.
- True
- False
Answer: False
Explanation: In program management, corrective actions should always be identified regardless of the size of variance. Even small variances can cumulatively lead to major issues if not attended to.
Cost Variance (CV) is a useful indicator because:
- A) It determines whether costs are under or overrun.
- B) It helps in scheduling the project.
- C) It helps determine the project’s risks.
- D) It aids in forecasting future project variables.
Answer: A) It determines whether costs are under or overrun.
Explanation: Cost Variance (CV) is a measure of the cost performance of a project, indicating whether the project is under or over budget.
True or False: In order to analyze variances and trends, the actual values must be compared to the forecast and planned values.
- True
- False
Answer: True
Explanation: To analyze variances and trends, actual values need to be compared to both planned and forecasted values. This helps in identifying areas requiring attention or adjustment.
The aim of comparing actual and forecast to planned values is to:
- A) Maintain the initial project plan
- B) Identify and take corrective actions or spot opportunities
- C) Avoid any risks in the project
- D) Ensure project costs don’t increase
Answer: B) Identify and take corrective actions or spot opportunities
Explanation: The aim of analyzing variance is not just to stick to the original plan, but also to adjust plans, if necessary, and seize opportunities to optimize project results.
True or False: The trend analysis can only indicate potential problems, not opportunities.
- True
- False
Answer: False
Explanation: While trend analysis is generally used to identify potential problems, it can also help identify opportunities for improvements or efficiencies that may not have been apparent at the start of the project.
Great insights on analyzing variances and trends! This helps a lot for my PgMP prep.
How do you factor in qualitative risks when comparing actuals to forecasted values?
Could you provide an example of corrective action taken due to variances in schedule?
Appreciate the detailed explanation!
Can you compare SPI and CPI for tracking project performance?
How often should trend analysis be conducted during a program?
Thanks for the useful tips!
What are the best tools to use for comparing actual and forecasted values?