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Unformatted text preview: eports. Page 114 Lower-level managers who are responsible for the execution of control packages need to know the cost and schedule variances for the control packages for which they are responsible. So, whether or not the performance evaluation reports are distributed widely on the project, the control package managers must at least be aware of them. Another approach to handling the distribution of performance evaluation information is as follows. The project manager discusses the performance of each control package with the control package manager and allows the control package managers to share the information about their own performance to lower-level managers below them and so on down the organizational hierarchy. This way, everyone knows what his or her own performance evaluation is, even if performance information about the overall project is not disseminated widely throughout the project. Moreover, under this scheme the higher up one is in the project's management hierarchy, the more one knows about the overall performance evaluation data on the project. 4.3— Variance Analysis Variance Analysis is the term given to the project management activity that might be better titled "problem identification." Two concepts that are fundamental to problem identification are the cost variance and the schedule variance ; hence the title "Variance Analysis." Recall that the cost variance at time t for the total project is E(t)– A(t) in Figure 4- 1 and the schedule variance at time t is defined to be E(t)– B(t). If a control package manager knows the cost variance and the schedule variance for his or her control package, then the control package manager knows whether or not the package is progressing as planned. 4.3.1— Cost Variances The cost variance for a work package is defined as the earned man-hours for the package minus the actual man -hour expen - Page 115 diture for the package. The cost variance can be expressed in either dollars or labor-hours, but in this book we consider only cost variances expressed in labor-hours. Since the earned man-hours and the actual man-hour expenditure (actual man-hours) for a control package can be obtained by summing all the earned and actual man-hours of the work packages contained in the given control package, it follows that this is also true for the cost variance. In other words, the cost variance for a summary-level control package is the sum of all the cost variances of the work packages that are contained in the given control package. Consequently, it is possible to have cost variances from different work packages that effectively cancel each other out at a summary-level control package in which they are all contained. In other words, it is possible that the overall cost performance goals of a project are being met even though they are not being met at the work package level. The tendency of variances to cancel each other is referred to as the Law of Compensating Error in the project management world. Successful managers of large projects tend to rely on the Law of Compensating Error to help them meet their performance g...
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- Spring '10