How do you incorporate project variances into project risk management and contingency planning?

1 Analyze project variances

The first step is to identify and measure the project variances using various tools and techniques, such as variance analysis, earned value analysis, trend analysis, and root cause analysis. You should compare the actual results with the baseline plan, the budget, and the forecast, and calculate the variance percentage and the impact on the project objectives. You should also determine the causes and sources of the variances, such as internal or external factors, errors or changes in estimates, assumptions, or scope, and risks or opportunities.

2 Report project variances

The second step is to communicate the project variances to the relevant stakeholders, such as the project sponsor, the client, the team, and the management. You should use clear, concise, and consistent formats and methods, such as dashboards, reports, charts, and graphs, and tailor them to the needs and expectations of each stakeholder group. You should highlight the key information, such as the variance amount, percentage, and impact, the root causes and sources, and the actions taken or planned. You should also provide explanations, interpretations, and recommendations, and avoid blaming or hiding the variances.

3 Manage project variances

The third step is to take appropriate actions to address the project variances and prevent them from recurring or escalating. You should follow the change management and risk management processes, and update the project plan, the budget, and the forecast accordingly. You should also monitor and control the project performance, cost, and schedule, and track the progress and outcomes of the actions taken. You should also document and share the lessons learned and best practices from the project variances, and use them to improve your future projects.

4 Incorporate project variances into risk management

The fourth step is to integrate the project variances into your risk management and contingency planning. You should identify and assess the potential risks and opportunities associated with the project variances, such as scope creep, quality issues, customer dissatisfaction, or cost savings. You should also prioritize and rank the risks and opportunities based on their probability and impact, and develop risk responses and contingency plans for each one. You should also update the risk register and the contingency reserve, and communicate them to the stakeholders.

5 Incorporate project variances into contingency planning

The fifth step is to use the project variances as inputs for your contingency planning. You should estimate the possible scenarios and outcomes of the project variances, such as best case, worst case, and most likely case. You should also calculate the contingency allowance and the buffer time for each scenario, based on the variance analysis and the risk responses. You should also document and communicate the contingency plans and the assumptions behind them, and review and revise them as the project progresses.

6 Benefit from project variances

The sixth step is to leverage the project variances as opportunities for learning and improvement. You should recognize and reward the positive variances, such as exceeding the quality standards, delivering ahead of schedule, or saving costs. You should also analyze and learn from the negative variances, such as missing the scope requirements, exceeding the budget, or delaying the delivery. You should also use the project variances as feedback and input for your continuous improvement process, such as the Plan-Do-Check-Act cycle.