Variance Analysis in the construction industry is the process of evaluating the differences between planned and actual project performance, particularly in terms of costs and schedules. This analysis helps identify the causes of deviations from the budget and the project timeline, enabling project managers to implement corrective actions.
Key Components:
- Cost Variance (CV): The difference between the budgeted cost of work performed and the actual cost. Cost Variance=Budgeted Cost of Work Performed (BCWP)−Actual Cost of Work Performed (ACWP)
- Schedule Variance (SV): The difference between the planned progress and the actual progress. Schedule Variance=Budgeted Cost of Work Performed (BCWP)−Budgeted Cost of Work Scheduled (BCWS)
- Variance at Completion (VAC): The projected difference between the budget at completion (BAC) and the estimate at completion (EAC). Variance at Completion=Budget at Completion (BAC)−Estimate at Completion (EAC)
Benefits:
- Control and Oversight: Provides project managers with insights into deviations from the plan, allowing for timely corrective actions.
- Improved Financial Management: Helps in tracking budget performance and controlling costs by identifying areas of overspending.
- Enhanced Operational Efficiency: Allows for adjustments in resource allocation and workflow to improve efficiency and reduce delays.
- Increased Project Success: Regular variance analysis increases the likelihood of project success by keeping the project on track and within budget.
Process:
- Data Collection: Gather actual performance data, including costs incurred and work completed.
- Comparison: Compare actual performance data against the project plan and budget.
- Variance Calculation: Calculate variances for cost and schedule to determine the extent of deviations.
- Root Cause Analysis: Identify the underlying causes of variances by analysing project activities and external factors.
- Corrective Actions: Develop and implement corrective actions to address negative variances and mitigate future risks.
- Monitoring: Continuously monitor project performance and update variance analysis regularly to keep the project on track.
Applications in Construction:
- Budget Management: Helps in monitoring and controlling project costs to avoid budget overruns.
- Schedule Management: Assists in tracking project timelines and ensuring that milestones are met on schedule.
- Performance Measurement: Provides a basis for evaluating project performance and making data-driven decisions.
- Risk Management: Identifies potential risks and issues early, allowing for proactive risk mitigation.
