Activity Variance in Project Management: Meaning and Best Practices
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Generally speaking, activity variance defines the degree of uncertainty or risk towards each activity planned for the project. Matters such as the completion date and budget can fluctuate significantly if activities in a project are delayed and carried out over a significant period of time.
It is important for project managers to analyze any activity variance that may arise in order to ensure the project will be completed on time, with an appropriate budget allocation.
In this guide, we will look at the term “activity variance” and how it is defined in project management, what effects it has on a project, and some best practices for project managers to manage such risk in their projects.
What is Activity Variance?
Activity variance can be described as the difference between what is planned and what has actually transpired in a project. Activity variance may also be defined as the difference between actual progress of a project and its expected progress.
In an instance that activity variance occurs, this would necessitate for a change in the original plan offered to clients by the project management team and usually it is up to the program / project manager to decide how this variance would be dealt with.
For instance, in a project where the original plan envisaged the item not being delivered by a certain date, the project manager may decide to push the delivery date back further in order to complete this item.
Another example of this is if the budget allocated for an item has decreased and needed to be revised down, then this is also considered as a project activity variance because of what will ultimately transpire in terms of cost. The actual budget that will be received in cash or payment evidences this.
Major Causes of Activity Variance
There are different factors that contribute to the occurrence of activity variance. These include:
- Inaccurate estimates and forecasts can lead to a significant discrepancy between what has been anticipated and what has actually transpired. This would then necessitate for changes in plans thereby causing a higher deviation in project schedules and budgets.
- Poor planning and management of resources leads to activity variance. This may occur when the project activities do not fall into place as per the coordinated efforts of project managers for example.
- The human factor is another cause for activity variance. Project managers might not give the best possible attention to their projects if they are involved in other activities at the same time which can then lead to delays in progress and activities being carried out at a lower quality than initially planned.
Types of Activity Variance: Positive, Negative, Standard
There are two main types of activity variance in project management:
- positive, which indicates that the amount of work being done has increased, or
- negative, which indicates that work has slowed down and it is taking more labor hours to complete tasks.
Negative activity variance is often the result of changes in scope or the project duration. When changes are made to scope, the work required becomes longer and more labor hours will be allocated to complete a task. Similarly, when a project’s duration is extended, it will take more labor hours to complete the same tasks.
Positive activity variance results from increases in workload. When an activity is started, the actual completion time of the task can vary, reducing the amount of time taken to complete the activity. It can take longer to complete tasks because more effort is needed to complete them or because more resources are required.
Activity standard variance is a form of negative activity variance whereby the amount of work required is not consistent and therefore requires more labor hours to complete tasks.
Activity standard variance can be defined as the deviation between the individual or collective amount of work that a team or individuals must complete throughout a project. This includes tasks such as keeping on track, managing team members, completion of quality control tests, etc.
In project management, for example, activity standard variance is calculated by dividing the total number of labor hours required to complete a task by each team member and then multiplying this figure with every team member’s contribution to the overall task.
Product / Project managers need to be aware of activities that have a history of negative variance and they should also choose activities with a history of positive variance to manage under uncertainty.
Activity variance is also related to the project risk. When the activity variance is high, the degree of uncertainty or risk will be high and vice versa. An activity variance of zero indicates that there is no risk associated with the concrete activity.
This can be done manually or automatically, depending on circumstances. For example, if there are many tasks with large positive variances it is useful to convert these into buffers to identify individual tasks with large negative variances.
How Project Managers Analyze Activity Variance
The reason for project variance is dependent on the type of activity variance. For positive activity variance, it will depend on whether the variation was planned or not. If it was planned then the project manager can rely on effective project control techniques to deal with it. However, if the activity variance is negative, then this professional should use techniques like auditing and implementation of change control whenever required as this recognizes that progress is slower than estimated.
Here are several tips to deal with variances:
- First, it is important that all the tasks are broken down into their smallest possible units (see work breakdown structure). This will then allow the management team to better analyze the real progress of projects and be able to identify and analyze variances more accurately in advance.
- Second, project managers should be aware of the fact that buffer variances work best in estimating activity variances especially when actual progress is below the expected pace or negative variance.
- Lastly, it is important that the project team and all stakeholders have a common understanding of the variances so as to avoid any confusion or conflict.
To understand why we need to use variance analysis in project management and how it is used here are some examples:
- The selection of activities in a project may be changed from the original plan due to changes in scope, time or cost. Thus, an insufficient amount of time may be allocated for carrying out tasks if there are too many changes. Activity variance is a tool that enables project managers to monitor and control those changes.
- Once the tasks are broken down into smaller units, it becomes easier to determine variances in each unit. This can assist in determining whether more work is required for a certain task or whether the amount of work for a certain task has been completed.
- Whenever there is a deviation from the original time and cost estimates, this may have an effect on resources and their allocation to various tasks. This can affect the project’s ability to reach the goal. This is why we need to be more specific in determining the problem and take corrective measures in advance.
- It would be difficult to measure and monitor changes in scope, obstacles etc. that may impact project activities thus resulting in deviation from plan due to project manager’s inability to anticipate these changes early enough.
- Late or incomplete performance of tasks can also result in a large variation in variances as well as lead to completion delays which affect the planned output deadline.
There are several ways to evaluate and address activity variance such as:
- Activity variance can be manually recorded by the project manager and then analyzed to determine if the desired goal has been achieved.
- Automatic calculation of activity variances through statistical analysis can be used in which a database of historical data is created. The data is then analyzed to determine the occurrence of project activity variance and its causes.
- Lastly, there are application tools that do this for you automatically for a reasonable fee that may be less than using your own database or hosting company.
Calculating Activity Variance
The activity variance is calculated as:
Actual = Planned – Variance
Note: “+” sign means positive variance and “-” sign means negative variance which should be controlled by management.
Activity Variance and Schedule Variance
While activity variance measures the deviation between actual and planned progress, schedule variance measures the difference in how much time has been allotted for any given task or for a whole project to complete its activities between the baseline schedule and the current schedule.
However, these two variances can be used in tandem to achieve comprehensive insight into all possible project variances and are extremely useful for planning projects, as well as for maintaining and controlling them.
Project managers who use schedule variance perform a number of activities. They start by quantifying the actual progress, performing a root-cause analysis and assigning responsibility for any deviations from plan. They then keep track of the variances throughout the project and monitor the remaining activities to be completed.
The number of deviations that are shown as negative is an indication of how much work is left to be done, whereas positive numbers indicate how much work has already been completed.
The main focus is to reduce the difference between actual progress and planned progress. This difference is measured in terms of cost, time and scope. Activity variances are measured so as to allow project managers to identify risks, plan corrective measures and allocate resources efficiently.
As mentioned above, the best way for management is to assign a certain amount of time for the carrying out of each activity and thus calculate positive/negative activity variance based on actual time spent against the time spent on the same activity in the original schedule.