Variance Question

Submitted by ambahnaresh on Wed, 05/19/2010 - 15:11

Can some one explain in detail about the answer reason:-

 

What would be the best explanation of the following: Both the cost variance and schedule variance are negative, but the cost variance is lower than a schedule variance.

 

1. The project underspent because all work was not completed, but overspent work that was completed

2. The project underspent due to increase cost and yet completed some activity faster

3. The project activities took longer then excepted, but cost were lower

4. The project underspent., because cost were lower then planned and activities were easier to complete then planned

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ChandraR

Wed, 05/19/2010 - 17:25

Answer is Choice 1.  The best way to approach is assign numerical values to PV, EV, AC such that given information is reflected properly


Let us say, PV = $50,000.00; EV = $10,000.00; AC = $20,000.00


Now SV=EV-PV=10,000-50,000 = -$40,000.00


CV = EV-AC= 10,000-20,000 = -$10,000


Both your SV & CV are negative and also your SV is more negative than CV.  Thus we succesfully assigned proper numbers and translated the given information without any deviations from the given info.


Now it is easy to interpret.  Out of  $50,000 budget, we just spent $20,000 means we underspent  --- that matches with the first part of the choice 1. 


But to complete $10,000 (EV) worth of work we spent $20,000 --- that matches with the 2nd part of choice 1


Also look at from process of elimination point of view:


Since SV is negative --- in reality the project is taking longer time than planned--- but opposite is stated in part 2 of choice 2 --- that eliminates choice 2


Since CV is negative ---in reality the project is incurring higher costs--- but opposite is stated in part 2 of choice 3-  that eliminates choice 3


Both SV & CV are negative --- means-- in reality project is lagging and incurring higher costs -- but opposite is stated in part 2 of choice 4 --- eliminated


So select proper numbers and follow logically


Chandra