# How To Perform Variance Analysis

Variance analysis is a technique used for evaluating the difference between planned and actual figures. This can be applied to time, resources and any other factor that has a major impact on your project. The total time spent on your project can be analysed by evaluating the difference between the planned time and the actual time.

Variance analysis allows the business analyst to understand the reason for the difference by revealing answers to critical questions such as: What happened? Why did we exceed the budget? Why didn't we meet the deadline? Why did we require more business analyst effort than we planned?

Variance analysis would typically take place at the end of the project.

So, what are the steps you need to take to conduct variance analysis?

### PRACTICAL APPLICATION

• Plan Variance Analysis - Determine which metrics you'd like to collect/compare and create an appropriate model in Excel. Are you comparing the number of business analyst resources required for one project phase to another? Or are you comparing the total number of business analyst resources required from one phase to another across multiple projects?
• Set the Materiality Threshold - This is the point at which variance starts to matter. For example, if you set a 4% threshold on time, a 2% time overage may not mean much and may not require any cause analysis. A 10% time overage may however, be worrisome and you would want to investigate further.
• Cause Analysis - This is where you determine the cause of the variance. The insight you gain here is certainly critical to making business decisions and future adjustments.
In order to produce useful reports on how variances have affected your project , you must always consider the context in which the variance occurred.

CASE 1: Business Analysis Project A

Let X = No. of Business Analysts (Planned) = 5

Let Y = Number of Business Analysts Assigned (Actual) = 3

%age Variance = ((X - Y)/X) * 100 = (2/5) * 100 = 40%

CASE 2: Business Analysis Project B

Let X = No. of Business Analysts (Planned) = 5

Let Y = Number of Business Analysts Assigned (Actual) = 8

%age Variance = ((X - Y)/X)* 100 = (-3/5) * 100 = -60%

While a positive variance is not necessarily a bad thing (As seen in this case where less resources were used than planned), a negative variance is almost always a source of worry. Both cases need to be analysed to understand why and to ensure you keep doing more of the positive things and less of the negative.

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