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Calculate schedule and cost variances

Two variances must be calculated in order to evaluate a project: the schedule variance and the cost variance.

We now know these data about the project:

  • BCWS = £430
  • BCWP = £365
  • ACWP = £450

Schedule variance is defined as BCWP – BCWS. It is a comparison of the amount of work performed during a given period of time with what was scheduled to be performed. A negative variance means the project is behind schedule. The example project is therefore behind schedule:

\[{\rm{Schedule\ variance}} = £365 – £430 = £-65\]

Cost variance is defined as BCWP – ACWP. It is a comparison of the budgeted cost of work performed with the actual costs to that moment. A negative variance means the project is over budget. The example project is therefore over budget:

\[{\rm{Cost\ variance}} = £365 – £450 = £-85\]

Now, the project can be represented in this matrix:

graph with Schedule variance (BCWP-BCWS) plotted against Cost variance (BCWP-ACWP). Schedule variance negative and Cost variance negative: Behind schedule over-budget; Schedule variance positive and cost variance negative: Ahead of schedule over-budget; Schedule variance negative and cost variance positive: Behind schedule and under budget; Schedule variance positive and Cost variance positive: Ahead of schedule under-budget.

This matrix is a great tool to communicate the condition of your project to any stakeholder. The example project is in the worst condition: it is late and over-budget.

Project performance can also be calculated using the Schedule Performance Index (SPI) and the Cost Performance Index (CPI). For the SPI, an index of 1 is on schedule and an index less than 1 is behind schedule. For the CPI, an index of 1 indicates the project is on budget and an index less than 1 indicates an overspend against budget.

\[\rm{SPI} = \rm{BCWP}/\rm{BCWS} = £365/£430 = 0.85\] \[\rm{CPI} = \rm{BCWP}/\rm{ACWP} = £365/£450 = 0.81\]

The Cost Schedule Index (CSI) is defined as SPI × CPI and is a measurement of the overall efficiency of the project. The more the CPI is below 1, the harder will be to recover the project. In the example project, the has a CSI of is 0.69. The Project value company event example file below shows you how to make these calculations.

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This article is from the free online course:

Business Fundamentals: Project Management

The Open University