Cost Variance (CV) and Schedule Variance (SV) are essential earned value management (EVM) metrics used to assess a project’s performance. Calculating and interpreting these variances helps IT project managers understand how the project is progressing compared to the planned budget and schedule. Here’s how to calculate and interpret CV and SV:
- Cost Variance (CV):
- Formula: CV = Earned Value (EV) – Actual Cost (AC)
- Interpretation:
- A positive CV indicates that the project is under budget, meaning the value of work completed (EV) is higher than the actual cost incurred (AC).
- A negative CV indicates that the project is over budget, meaning the actual cost (AC) exceeds the value of work completed (EV).
- CV of zero signifies that the project is exactly on budget.
- Schedule Variance (SV):
- Formula: SV = Earned Value (EV) – Planned Value (PV)
- Interpretation:
- A positive SV indicates that the project is ahead of schedule, meaning the value of work completed (EV) is higher than the planned value (PV) at this point in the project timeline.
- A negative SV indicates that the project is behind schedule, meaning the value of work completed (EV) is less than the planned value (PV) at this point.
- SV of zero means that the project is exactly on schedule as per the plan.
Interpreting these variances involves understanding whether the project is performing better or worse than planned in terms of cost and schedule:
- Positive Variance (CV or SV): Indicates favorable performance. For example, a positive CV suggests that the project is under budget, while a positive SV suggests the project is ahead of schedule.
- Negative Variance (CV or SV): Indicates unfavorable performance. For instance, a negative CV indicates the project is over budget, while a negative SV suggests the project is behind schedule.
- Magnitude of Variance: The magnitude of the variance is also crucial. A small variance might not be alarming, but larger deviations might require immediate attention and corrective actions.
- Trend Analysis: Examining trends in CV and SV over time provides insights into whether performance is improving, deteriorating, or remaining consistent.
By calculating and interpreting cost and schedule variances, project managers gain valuable insights into how the project is performing against the planned budget and schedule, enabling them to take corrective actions or make informed decisions to keep the project on track.
