Variance at Completion

Variance At Completion (VAC) is the variance between the Estimate At Competion and the Budget at Competion. This is the difference between what the project was originally expected (baselined) to cost, versus what it is currently estimated to cost. The formula is brutally simple.
VAC is calculated by subtracting the BAC from the EAC.
BAC – EAC = VAC

Inturpreting the results is equally simple. If the VAC is a positive integer, that indicates the project is under budget. If the VAC is a negative integer that indicates the project will be over budget.

Example:
Assume your project has an approved budget (BAC) of $25,000.
Your current EAC is $28,000.
BAC – EAC = VAC or in this case 25,000 - 28,000 = -3,000
This indicates that the projects actual costs will exceed the budget.

DEDUCTIONS:

Interestingly, the VAC does not describe a probability, but a projection. So here the term "variance" is not used in the mathmatical sense of the word. The VAC can be a negative number, a positive number or in extremely rare cases, zero. A negative VAC may require either an access to your contingency reserve, or in more extreme cases the management reserve.

The VAC has some functional similatity to the Cost Variance formula, but it somewhat more macroscopic. You will also find similar calculations are used over a time index in control charts under Six Sigma. Strictly speaking the VAC is a status snapshot, and stands alone as a metric. It is not used as an input in any standard PM formula.

CONCLUSIONS:

As much as we all like to come under budget, it is actually ideal that the VAC approach zero. A result of zero or near-zero means that your estimates were and are accurate, your plan was followed and that you were able to plan for all contingencies. If you come in under budget that means you incorrectly estimated costs during the budgeting process. Therefore the best result is zero, the second best result is coming in over budget. Your own margin of error has a proportional relationship with the VACs variance from zero. In other words the greater disatnce between the VAC and zero, the greater the margin of error in your budget calculations.