Six Sigma and KPIs: Project Cost Variance

Are you delivering your projects on budget? Yes, no, how can you be sure? Six Sigma is all about measuring and maintaining order. Your process improvement projects should follow a strict plan as laid out in your project charter. Otherwise, you will inevitably lose sight of certain demands and goals, which will only lead you off budget toward slow delivery. This is especially troublesome when what you really want is the opposite. Firstly, to understand these issues, we must ask, what is project cost variance? It is one of several critical outputs from the Earned Value Management System. Project cost variance tells us whether a project is ahead of or behind on time and budget, among other things. Today, find out how Six Sigma can keep you working on time and budget.

Project Cost Variance Formula

To calculate project cost variance, you should use the following equation: CV (Cost Variance) = EV (Earned Value) – AC (Actual Cost). Each of the three units that make up the equation is a monetary figure. For example, if your CV is a negative figure, this indicates your project to be running over budget. On the other hand, if it appears as zero, then your project is likely to be running on budget.

Moreover, if your CV is a positive value, then it’s safe to say that your project is running under budget. This may seem like the best case, but it can sometimes mean you are not making effective use of resources. Using Six Sigma techniques like DMAIC, you can define, measure, analyze, improve, and control your processes. That way, you will be able to ensure problems like variation and waste don’t hinder your progress. Both are major contributors to delay and overspending due to over-processing and inadequate planning.

Using Six Sigma for Budgeting and Timekeeping

Any and all financing requires some form of forecasting to function properly. Financing relies on the ability to make accurate predictions about future conditions. As such, a lot of planning goes into ensuring your project work doesn’t stray from the budget. The best financial plans demand you forecast returns on any investments you make. Similarly, your plan should also account for how much money you intend to make over time as well as your expenditures. It’s important to remember that you only have limited control over investments. If they’re going to fail, they will. But your control over your revenue goals and spending is much higher.

Frequent evaluation is the key to ensuring you remain on time and budget. Six Sigma project leaders should implement regular evaluation sessions to assess progress. Your team can use these sessions to brainstorm ideas and use tools like root cause analysis to analyze process issues. Through a team-based effort aimed at tackling issues like overspending and low productivity, you can make some lasting changes. You can eliminate these issues by cutting spending and none-value-adding processes. This will help aid cost reduction efforts, ensuring you remain on time and budget. With our help, your project cost variance will be stronger than ever before!