Variance Reporting
If you work in an earned value management environment, or are going through the process for system certification, you’ll be familiar with the idea of variance reporting. It’s a requirement of the EIA-748 guidelines which expect project teams to identify variances, put plans in place to address them and then implement the plans.
Variance reporting is a crucial component of project performance management and an essential part of every project manager or controls professional’s toolkit. But what goes into a variance analysis report (VAR)?
Here are the 9 items we suggest you include.
1. Current cost
2. Cumulative cost
3. Cost variance
4. Schedule variance
The variances can represent the current variance and variance at completion (VAC) if this is different so you get a sense of the scale of the problem. This is used to illustrate the gap between the original baseline and current performance.
These first four items can be included in a standard format and are often pulled directly from the earned value management software into a template report. This can be set up to run automatically in the case of a variance, so don’t worry about having to calculate this information manually. We’re big on not duplicating effort, so use tools like Deltek to generate the figures for you.
5. Problem analysis
Use this section of the report to discuss the root cause of the problem. This is a narrative section, normally completed by the Control Account Manager (CAM). They use the space to provide the background to the problem that created the variance.
6. Impact
This is another narrative section. The Control Account Manager inputs text that explains the impact of the cost or schedule variance on the control account and the integrated baseline. For example, a delay may affect the critical path, or an overspend may affect the amount of resource available in the next phase for a different area of the project.
If the impact on the estimate to complete is known, it can be included here.
7. Corrective Action Plan
If there is a variance, it’s often because something didn’t go to plan. Regardless of the cause, the objective is often to get the project back on track by taking considered action. The action plan section sets out what actions are required to bring the project back under control.
If it is not possible to bring the project back to a level of performance that is considered acceptable and within tolerance, then other actions can be noted here, such as updating baselines and going through the change control process.
Activities that form part of corrective action plans often include process changes, risk management activities and training.
8. Impact on Estimate to Complete
Estimate to Complete (ETC) is such a critical metric in earned value management that the variance report specifically calls out the impact on it.
If there is a change required to the ETC, this is the space to explain why. If there isn’t, specifically state that and explain why the variance has not generated a requirement to change the ETC. There should be a documented change process to follow if a change is required, so you can reference that here.
The point of calling out the requirement so specifically is that any variance can have an impact on other metrics or parts of the program. For example, Estimate At Completion (EAC) may need to be updated. If the variance is as a result of poor estimating or incorrect assumptions, that work might need to be reviewed in light of new information, resulting in more changes to schedule and budget. Documenting it all in a VAR template means no section is overlooked and the project manager has insight into what needs to happen as a result of the change.
9. Sign off
VARs should be approved through whatever channel you have documented as the correct route. Normally this would involve the project manager signing off the report alongside the person who wrote it. Many approval processes are digital these days, so ‘sign off’ may be a system-generated workflow that you can authorized with a click.
Variance reports should not be a headache to write. Much of the data is driven by inputs to the earned value management tools, so it’s available to the team and the CAM easily. The narrative sections should simply involve writing up conversations with the team and the output of the root cause analysis and action planning sessions. The VAR is just the formal documentation of activities that have already happened and should not take too long to pull together.
Read next: What to do with variances as a project manager
The whole point of project performance management is to compare actual performance to forecasted performance in the form of the baseline. We create a baseline to measure against and hope that actual cost and schedule performance are in line with what we expected. The challenge is that in real life things often interfere with our ability to hit those forecasted expectations. Whether it’s the cost of steel, energy price rises, a changing dynamic in the workforce, extreme weather events or something else, however good your planning and risk management it is normal to see some fluctuation against the baseline.
The process of variance identification and reporting helps surface those fluctuations so the team can correct course and get back on track with the support of all stakeholders.