MEC-4

Variance Analysis
of Changes in
Material Cost & Quantity
&
Labour Rate & Work Time

Variance Analysis
While Budgeting, Materials & Human Resources are
Costed using Standard Rates & Quantities
Should these Rates or Quantities change during the
Project Life Cycle, Cost Performance would be affected
Favourably or Unfavourably
Variance Analysis quantifies the effect of Variance
between the Standard & Actual Rates & Quantities for
Materials used and Labour employed on a Project
Variance is expressed as a Monetary Quantity and
suffixed FAVOURABLE or UNFAVOURABLE depending on
its effect on the Project Cost Performance

Variance Analysis Another Dimension

Variance Analysis is an interplay of 4 Attributes:
- Standard Rate
- Standard Quantity
- Actual Rate
- Actual Quantity
This course will only introduce the subject through
the following types of Variances:
- Material Cost Variance (MCV)
- Material Usage Variance (MUV)
- Labour Wage Rate Variance (LRV)
- Labour Efficiency Variance (LEV)

Basic Definitions
Material Rate Variance (MRV)
Variance due to difference in Actual & Standard Costs
on Actual Quantity
Material Usage Variance (MUV)
Variance due to difference in Actual & Standard
Quantities at Standard Cost/Rate
Labour Wage Rate Variance (LRV)
Variance due to difference in Actual & Standard Labour
Rates on Actual Worktime or Effort
Labour Efficiency Variance (LEV)
Variance due to difference in Actual & Standard
Worktimes or Efforts at Standard Labour Rate
Variance FAVOURABLE if respective
ACTUAL RATE or QTY < STD RATE or QTY, &

Basic Definitions
Varian Fixed Attribute
ce

Differing Attributes

MRV

Actual Quantity of
Material

Actual & Standard

Purchase Costs

MUV

Standard Cost of
Material

Actual & Standard

Quantities of Material

LRV

Actual Worktime

Actual & Standard

Labour Rates

LEV

Standard Labour Rate

Actual & Standard

Worktime

Worktime or Effort measured in Man-Hours, Man-Days, ManWeeks, Man-Months & so on, where:
One Man-Hour = One Man working for One Hour
One May-Day = One Man working for One Day (8 Hours)
One Man-Week= One Man working for One Week (40 Hours or 5
days, @ 8 Hours per day, or as planned in the

Variance Analysis General Template

Actual Qty
X
Actual Rate

Actual Qty
X
Standard Rate

AQ x (SR- MPV
AR) = or
LRV

Standard Qty
X
Standard Rate

MUV = SR x (SQor AQ)

LEV
Net Effect

MRV/LRV FAVOURABLE (+) if: Actual

Rate < Std Rate
MUV/LEV FAVOURABLE (+) if: Actual

Working out Standard Quantity (SQ)

Due care needs to be exercised when working out SQ
from the Quantity Standards as given in the Companys
OPAs, manufacturing standards or such other
documents. The underlying principle is to apply the
Quantity Standard to the scope of the
activity/deliverable (Quantity produced, Area covered
etc) to get
the SQ. Following table illustrates:
Activity
Materia Delivera
l
ble

Quantity
Standard

Deliverab
le Scope
SQ

Cement

5 thick
slab

0.5 bag/sq ft
of slab

2,000 sq ft 0.5x2,000=1,000 bags

Limesto
ne

Cement

1:4

1,000
tonne

(1:4)x1,000 =250
tonne

Rubber

Trampolin
e sheets

5 kg/sheet

10,000
sheets

5x10,000=50,000 kg

Bricks

9 thick
wall

SQ has nothing

1,000 bricks/ 8,000 sq ft 1,000 x8,000 =80,000

100sq ft of
bricks
towall
do with the quantity100
purchased,

Variance Analysis (Material) Simplest Case

considering the Material used only

On a certain construction project, first slab with an

area of 2,000 sq ft has been poured. For this activity,
the standard quantities and rates for cement were:
0.5 bag per sq ft; Rs 400 per bag. The cement was
actually purchased @ Rs 500 per bag and 900 bags
were consumed in the pouring. Carry out Variance
Analysis with respect to its Overall Effect on Project
Qty
Actual Qty
Std Qty
CostActual
Performance.

x
x
x
Actual Cost
Std Cost
Std Cost
900 bags
900 bags
0.5 bag/sq ft x 2,000 sq ft
x
x
x
Rs 500 per bag
Rs 400 per bag
Rs 400 per bag
= Rs 450,000 MRV =Rs 360,000 MUV =Rs 400,000
Rs 90,000 (U)
Rs 40,000 (F)
Net Effect
Rs 50,000

Variance Analysis (Material) considering both the Material

Purchased and the Material Used

In the previous example, 1,200 bags were actually

purchased and, on completion of pouring, 250 bags
remained in the store. Carry out Variance Analysis
with respect to its Overall Effect on Project Cost
Performance.
Material
Material Used

Purchased
Actual Qty
Actual Qty
Actual Qty
Std Qty
x
x
x
x
Actual Cost
Std Cost
Std Cost
Std Cost
1,200 bags
1,200 bags 1,200-250 bags
0.5 bag/sq ft x 2,000 sq f
x
x
x
x
Rs 500 per bag Rs 400 per bagRs 400 per bag
Rs 400 per bag
= Rs 600,000
MRV =Rs 480,000 =Rs 380,000 MUV=Rs 400,000
Rs 120,000 (U)

Net Effect
Rs 100,000
(U)

Rs 20,000 (F)

Variance Analysis (Material) considering the Material

Used, Material Purchased and the Material available ex-stock

In the previous example, while 1,200 bags were

actually purchased, 100 bags (purchased previously
@ Rs 450) were already in stock and, on completion
of pouring, 250 bags remained in the store. Carry out
Variance Analysis with respect to its Overall Effect on
Project Cost Performance.

Material
Material Used
Purchased
Actual Qty
Actual Qty
Std Qty
Actual Qty
x
x
x
x
Actual Cost
Std Cost
Std Cost
Std Cost
100+1,200-250 bags
0.5 bag/sq ft x 2,000 sq
100+1,200 bags 100+1,200 bags
x
x
x
x
Rs 400 per bag
s 450 & 500 per bag
Rs 400 per bagRs 400 per bag
Rs 45,000+600,000
=Rs 520,000 =Rs 420,000 MUV=Rs 400,000
MRV
Rs 125,000 (U)

Net Effect Rs 20,000 (F)

Rs 145,000

Variance Analysis (Labour)

On a certain construction project, HR Assignment Plan
assigned 200 unskilled workers, on a particular
activity, for 100 days, on a daily wage of Rs 500. Due
to countrywide escalating inflation no worker was
available for less than Rs 600 per day. The activity
actually took 80 days to complete. Carry out Variance
Actual Qty
Actual Qty
Std Qty
Analysis xwith respect to its xOverall Effect on Project
x
CostActual
Performance.
Cost
Std Cost
Std Cost
Act Effort
x
Act Lab Rate

Act Effort
Std Effort
x
x
Std Lab Rate
Std Lab Rate
200x80 man-days 200x80 man-days 200x100 man-days
x
x
x
Rs 600 per man-dayRs 500 per man-dayRs 500 per man-day
LRV = Rs 8,000,000 LEV
= Rs 10,000,000
= Rs 9,600,000
Rs 1,600,000 (U)
Rs 2,000,000 (F)
Net Effect
Rs 400,000

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