Variance At Completion (VAC) is the difference between what the project was originally expected (baselined) to cost, versus what it is now expected to cost.

Every month, our vendor is required to report this total on the project as a whole and on key deliverables.  I’m used to seeing the numbers reported and how to calculate them.  I’m not asking for the Cost Performance Index (CPI).  I want to know how far over or under we’re going to be compared to the budget.

The formula I memorized for the PMP exam and the same formula I use to calculate VAC today is: Variance At Completion = Budget At Completion – Estimate At Completion
(VAC = BAC – EAC)

So, I ask myself, [1] why is there no VAC definition and [2] VAC formula in the PMBoK?

Are you studying for the PMP exam and struggling with the concept of Schedule Performance Index (SPI) and Cost Performance Index (CPI)? Are you just bored and want to impress your friends with your knowledge of SPI and CPI?  Well, I’m going to try to make it easy for you.

To the left you’ll see two charts.  Both are displaying variances on a monthly basis.  The first chart is displaying variances in thousands of dollars, both in schedule and cost.  The second chart is displaying the variances as they relate to a performance index.

Definitions and Formulas

• Earned Value (EV) – The estimated value of the work actually accomplished
• Actual Cost (AC) – The actual cost incurred from the work accomplished
• Planned Value (PV) – The estimated value of the work planned to be done
  

  [Chart 1 - Variance (In Dollars)]

• Scheduled Variance (SV)=EV – PV
  a NEGATIVE schedule variance is behind schedule and
  a POSITIVE schedule variance is ahead of schedule
• Cost Variance (CV)=EV – AC
  a NEGATIVE cost variance is over budget and
  a POSITIVE cost variance is under budget

  [Chart 2 - Variance]

• Schedule Performance Index (SPI)=EV ÷ PV
  You are progressing at __% of the rate originally planned
• Cost Performance Index (CPI)=EV ÷ AC
  You are getting $_____ worth of work out of every $1 spent

Practical Application

So, where does that leave us?  Your goal is to have a $0 (zero dollar) cost and schedule variance, resulting in a SPI and CPI of 1.0.  That would mean you estimated correctly, leading into your project.  Going into the PMP exam, you should know these formulas and how to calculate all of the above.  Here are a 2 simple questions you should be able to answer:

1.  Is a 1.3 CPI a good thing or a bad thing?  Why?

This is a good thing!  A 1.3 CPI translates to you getting 1.3 dollars of results for every dollar you put into the project.

2.  Is a 0.90 SPI a good thing or a bad thing?  Why?

This is a bad thing!  A 0.90 SPI translates to your project progressing at 90 percent of the rate originally planned.

Example Question: Based on the charts listed above, what would you be more concerned with, schedule or cost, if you were taking over this project from another project manager?

Answer: The answer is cost.  As of August, CPI is closest to 1.

I think back to when I sat for the PMP exam and remember taking the first few minutes to quickly write down the following formulas.  It was my cheat sheet.  There was enough to think about for the next few hours and worrying if I could remember some key formulas was not one of them.  So, here is a bit of advice.  If you’re preparing[1] to take the PMP exam, MEMORIZE these formulas.  The exam won’t come right out and ask you to identify the correct formula for a variance of an activity. Rather, it will offer a question like:  Your current activity was pessimistically estimated at 65 hours and optimistically estimated at 40 hours.  What is the variance of the activity?  (you can use this formula for both time and cost)

You can see how knowing the formula is going to make you or break you on this question.

Do yourself a favor.  Make flash cards, get a tattoo, it doesn’t matter.  Commit these formulas to memory and you’ll save yourself some pain and suffering (and a few points on the exam).

The Formulas

Acronym	Title	Formula
PERT	Program Evaluation and Review Technique	P = Pessimistic Estimate M = Most Likely Estimate O = Optimistic Estimate
	Standard Deviation of Activity
	Variance of an Activity
	Total Float	LS – ES or LF – EF
	Communications Channels	[N(N-1)] / 2
CV	Cost Variance	EV – AC
SV	Schedule Variance	EV – PV
CPI	Cost Performance Index	EV / AC
SPI	Schedule Performance Index	EV / PV
EAC	Estimate at Completion	BAC / CPI AC + ETC AC + (BAC – EV)
ETC	Estimate to Complete	ETC = EAC – AC
VAC	Variance at Completion	BAC – EAC
CPIc	Cumulative Cost Performance Index	Σ EV / Σ AC
TCPI	To-Complete Performance Index

[1] This is a link to a product I created