Leading practices for applying variance data to future projects

By Jane Suchan, PMP

Last fall, I remodeled my kitchen, spending a lot of time working with a contractor to estimate the cost of cabinets, flooring, appliances, lighting, and fixtures.    He poked around in the attic and examined my outdated fuse box. After that, he presented a detailed work plan and estimate for labor and materials. His figures were right around what I wanted to spend. He could get started in a month, and it would be done before the holidays. I signed the contract. We were in business.

Then I started talking with friends who remodeled their homes: "Plan on going way over your budget; at least 50 percent over." "Who knows what they'll find when they start tearing out walls and flooring." "Your house will be a mess for months."

My contractor came highly recommended by a close friend, and I chose him from several that I interviewed. Maybe checking references and looking through his portfolio wasn't enough. Maybe I didn't ask the right questions.

A project manager should know better

What I should have asked were questions about the original time and cost estimates for other projects the contractor had managed, what they ended up costing, and how long they took. In project management terms, I should have asked about the variances between the baseline schedule and cost, and the actual schedule and cost for his past projects. A variance is the difference between what you expected and what you actually received.

As any good project manager would agree, those who ignore history are bound to repeat it. There are volumes written on the topic of project retrospectives and the importance of documenting lessons learned, and for good reason. Once you move on to a new project, it becomes difficult to remember what you learned in your previous project so that you can apply those lessons in the future.

Focusing on collecting and analyzing variance data for your current project will help you develop better time and cost estimates on future projects. By doing so, you can avoid time consuming and costly change requests.

Determine the best variance data

Consider these leading practices for collecting variance data:

  • Invest in the future by collecting variance data.    Decide very early in the planning process which variance data to collect. This may seem obvious, but all too often project metrics are defined with short-term goals in mind, and collecting data for long-term benefits (such as better estimates) is often dismissed. Incorporate the data you decide to collect into your project success criteria and metrics: quantitative measurements to assess, calculate, or determine progress performance in monetary units, schedule milestones met, or quality results. Variance data is a subset of the project metrics.
  • Work with stakeholders to determine which variances to track.    Involve your project sponsor and team members in establishing which variances to capture and what level of detail. The more you know about your variance information, the more information you can build into your project schedule and budget. The robustness of your reporting and tracking mechanisms has a direct correlation to how well these detail are met. In addition, invest the time needed to win the support of your team your project demands. You may need to ask your sponsor to champion this goal.
  • Focus on planned versus actual for schedule and cost.    Planned versus actual is the variance data most project managers focus on.
    • Schedule variance is the difference between actual progress and the project schedule. This variance can be tracked at the project, phase, milestone, or task level.
    • Cost variance is the difference between the actual costs of work performed and the project budget. It, too, can be measured at the project, phase, milestone, or task level, depending on the cost baseline.

These variances are the difference between the baseline data and the data collected as the project is executed. By comparing planned to actual, you can see how things change as the project progresses. This variance data should be incorporated, in regular status reports, to your project sponsor and stakeholders.

  • Track cost and schedule estimates versus plans.    This data is the difference between the cost and schedule estimates that won approval for the project, and the cost and schedule when the project plan is finalized or initiated. If, after developing your baseline schedule and cost, you find that it looks like you will need additional time or funding, the earlier you speak up, the better. Those looking at this variance — even at a high level  — will see the need to invest in preproject planning. What you avoid is estimates based on best guesses, created without detailed planning or any input from the people who will do the work.

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Apply what you learn from variance data

One of the most useful things you can do is look at variance data and ask yourself why the differences occur. Changes may be brought on by the project team, the customer, vendors, or a shift in the environment such as new regulations. Whatever the cause, you'll want to analyze changes to identify issues and develop mitigation strategies for future projects. The more you know about the reasons for variances, the easier it will be to avoid the pitfalls the next time.

  • Brainstorm ideas to avoid future variances.    Get input from the project team about variances. Stick with the data and facts and avoid assigning blame.
  • Ask your team to quantify the effects of variances.    You may not have visibility into every area, but you can broaden your awareness by gathering better information.
  • Include all your variance information in your project retrospective.    Make your insights available to colleagues, so they, too, can benefit.
  • Use the variance data as a baseline for estimating your next project.    This baseline data is especially valuable if the projects are similar or if you'll be working with the same project team members again. Your new project estimates will be much more accurate.
  • Use variance data to qualify your estimates for future projects.    When you create a preliminary schedule or cost estimate, you will no doubt encounter a stakeholder or sponsor who wants the project done quickly and for less money. Having data that backs up your estimates will give you what you need to execute the project successfully, without having to rely on heroics.

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Use strategy, not luck, to ensure success in the future

How did my kitchen remodel turn out? It was done on time and only slightly over budget. I guess I got lucky. But you shouldn't count on luck for your projects. To ensure success now and in the future, establish variance tracking early. Collect the data throughout the project life cycle, analyze it as part of your retrospective, and then apply the lessons learned to your next project.

By incorporating these leading practices of collecting and applying variance data into your project management methodology, you will get better estimates, identify and avoid circumstances that lead to variances, and have fewer project changes.

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About the author     Jane Suchan is a program manager with experience managing enterprise business initiatives and developing project management methodologies. Jane lives in Seattle, Washington.
 
 
Applies to:
Project 2007