Question

Part 1: If you were sponsoring a project, would you want to be updated in terms of cost and schedule variance or cost and performance indexes? Why?

Part 2: Give two examples of why a project might be terminated early for cause and two examples of why a project might be terminated early for convenience.

Answer 1

Cost variance is the difference of earned value and actual cost. Schedule variance is the difference of earned value and planned value. If cost variance is negative then the project is over budget. If schedule variance is negative then the project is behind schedule.

Cost Variance (CV):
Cost variance is basically related with the budget of the project. Cost variance is the difference of the actual cost and the expected cost. Cost Variance is calculated by taking the difference of the Earned Value and the Actual Cost.

Schedule Variance (SV):
Schedule variance basically related with the scheduled time for the project. Schedule variance is the measurement of deviation of consumed time from the scheduled time. Scheduled Variance is calculated by taking difference between Earned Value and Planned Value.

Schedule Variance (SV)

It is imperative for you to keep your project on schedule and Schedule Variance helps you complete on time. It enables you to avoid unnecessary cost overruns due to slip of schedule. Costs increase as you go over the stipulated time.

For example, you have rented some equipment for a specific duration of time and you may end up paying more if you need this equipment for longer. You may need to rent this equipment from other suppliers on an urgent, short-term contract at a higher price.

Schedule Variance is a vital analytical tool, it lets you know if you are ahead of schedule or behind schedule in dollars.

The Formula for Schedule Variance (SV)

You can calculate Schedule Variance by subtracting Planned Value from Earned Value.

Schedule Variance = Earned Value – Planned Value

SV = EV – PV

From the above formula, we can conclude that:

• You are ahead of schedule if the Schedule Variance is positive.
• You are behind schedule if the Schedule Variance is negative.
• You are on schedule if the Schedule Variance is zero.

When the project is complete, the Schedule Variance becomes zero because all Planned Value has been earned.

Schedule Variance (SV)

It is imperative for you to keep your project on schedule and Schedule Variance helps you complete on time. It enables you to avoid unnecessary cost overruns due to slip of schedule. Costs increase as you go over the stipulated time.

For example, you have rented some equipment for a specific duration of time and you may end up paying more if you need this equipment for longer. You may need to rent this equipment from other suppliers on an urgent, short-term contract at a higher price.

Schedule Variance is a vital analytical tool, it lets you know if you are ahead of schedule or behind schedule in dollars.

The Formula for Schedule Variance (SV)

You can calculate Schedule Variance by subtracting Planned Value from Earned Value.

Schedule Variance = Earned Value – Planned Value

SV = EV – PV

From the above formula, we can conclude that:

• You are ahead of schedule if the Schedule Variance is positive.
• You are behind schedule if the Schedule Variance is negative.
• You are on schedule if the Schedule Variance is zero.

When the project is complete, the Schedule Variance becomes zero because all Planned Value has been earned.

Cost Variance (CV)

Cost Variance is as important as Schedule Variance. You must complete your project within the approved budget. Exceeding the planned budget is bad for you and your stakeholders.

Everything is about the money. Clients are very cautious about spending; because any deviation from the cost baseline can affect their profit. In the worst case, they may have to put more money into the project to complete it. This is detrimental if the contract is fixed price.

Cost Variance deals with the cost baseline of the project. It provides you with information on whether you are over or under budget, in dollar terms. Cost Variance is a measure of the cost performance of a project.

The Formula for Cost Variance (CV)

Cost Variance can be calculated by subtracting the actual cost from the Earned Value.

Cost Variance = Earned Value – Actual Cost

CV = EV – AC

We can conclude the following from the above formula:

• You are under budget if the Cost Variance is positive.
• You are over budget if the Cost Variance is negative.
• You are on budget if the Cost Variance is zero.

Two examples of why a project might be terminated early for convenienceare the project profit becomes significantly lower than expected, due to too high project cost or too lowproject revenue, and requirements or specifications change fundamentally so that the underlying contract cannot be changed accordingly.

A termination for cause can only take place if one party cannot completely fulfill their contractual duties. An example of this would be a contractor terminating their contract forcause because the owner failed to pay them in the time that was determined in the contract.

Possible reasons for early termination include: the PI has expended all of the awarded funding in compliance with the award terms and conditions, and has submitted all projectdeliverables; the PI is leaving U-M and theproject will not be transferred or assigned a new PI; and the sponsor has requested anearly

Project termination (or close-out) is the last stage of managing the project, and occurs after the implementation phase has ended. ... A review is then undertaken with the client and other project stakeholders, during which theproject outcomes are evaluated against theproject's stated aims and objectives.