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Variance

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6 views4 pages

Variance

Uploaded by

Leon jr
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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VARIANCE

Key Project Management Formulas: A Comprehensive Guide

This document provides a clear and concise overview of essential formulas used in project management
for effective tracking and forecasting of project performance.

1. Budget at Completion (BAC)

 What it is: The total budget allocated for the project.

 Formula:

 BAC = Total Planned Budget

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 Example:
Let's say the total planned budget for a project is $500,000.

 BAC = $500,000

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2. Estimate at Completion (EAC)

 What it is: The expected total cost of the project when completed.

 Formulas:

o Formula 1 (When past performance is expected to continue):

o EAC = BAC / CPI

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o Formula 2 (When the original estimate is considered flawed):

o EAC = AC + New Estimate for Remaining Work

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 Example:
Assume the BAC is $500,000, the Actual Cost (AC) incurred so far is $250,000, and the Cost
Performance Index (CPI) is 0.8. Using Formula 1:

 EAC = $500,000 / 0.8 = $625,000


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3. Estimate to Complete (ETC)

 What it is: The estimated cost to complete the remaining project work.

 Formulas:

o Formula 1 (When past performance is expected to continue):

o ETC = EAC - AC

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o Formula 2 (When the original estimate is considered flawed):

o ETC = New Estimate for Remaining Work

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 Example:
Continuing the previous example, with an EAC of $625,000 and an AC of $250,000 (using
Formula 1):

 ETC = $625,000 - $250,000 = $375,000

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4. Variance at Completion (VAC)

 What it is: The expected difference between the planned budget and the estimated total cost at
completion.

 Formula:

 VAC = BAC - EAC

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 Example:
Using the BAC of $500,000 and the EAC of $625,000:

 VAC = $500,000 - $625,000 = -$125,000


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(A negative value indicates a projected cost overrun.)

5. To-Complete Performance Index (TCPI)

 What it is: Indicates the required performance level to complete the project within the budget
(BAC) or the estimated cost (EAC).

 Formulas:

o Formula 1 (Based on BAC):

o TCPI = (BAC - EV) / (BAC - AC)

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o Formula 2 (Based on EAC):

o TCPI = (BAC - EV) / (EAC - AC)

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 Example:
If the BAC is $500,000, the Earned Value (EV) is $200,000, and the AC is $250,000 (using Formula
1):

 TCPI = ($500,000 - $200,000) / ($500,000 - $250,000) = 1.2

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(A TCPI greater than 1 indicates that the remaining work needs to be performed more efficiently than
planned to stay within budget.)

Putting it all Together: A Practical Example

Let's consider a project with the following values:

 BAC: $500,000 (Total Planned Budget)

 AC: $250,000 (Actual Cost to date)

 EV: $200,000 (Earned Value)

 CPI: 0.8 (Cost Performance Index)

Based on these figures, we can calculate the following:


 EAC: $625,000

 ETC: $375,000

 VAC: -$125,000

 TCPI: 1.2

These calculations provide valuable insights into the project's performance, empowering project
managers to make data-driven decisions to ensure the project stays on track and within budget.
Remember to choose the appropriate formulas based on the specific context of your project.

This comprehensive guide equips you with the essential knowledge and tools to effectively manage your
projects and ach

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