Use the Cost Variance (CV) Calculator to quickly determine if your project is over or under budget based on the work completed. Cost Variance is a critical metric in Earned Value Management (EVM).
how to calculate cost variance
how to calculate cost variance Formula
Formula Source: Project Management Institute (PMI) EVM Essentials, PMBOK Guide References
Variables Explained
- Earned Value (EV): The value of the work actually completed, expressed in terms of the approved budget allocated to that work.
- Actual Cost (AC): The total cost actually incurred and recorded in accomplishing the work for which the EV was measured.
- Cost Variance (CV): The difference between the Earned Value (EV) and the Actual Cost (AC). A positive CV is favorable.
Related Calculators
What is how to calculate cost variance?
Cost Variance (CV) is a key metric in Earned Value Management (EVM) that measures the difference between the actual cost of the work performed (AC) and the budgeted amount for that work (EV). It provides a direct, quantifiable assessment of a project’s financial performance up to a specific point in time.
A positive Cost Variance (CV > 0) is known as a favorable variance, meaning the project is currently spending less than the budgeted value for the work accomplished (under budget). Conversely, a negative Cost Variance (CV < 0) is an unfavorable variance, indicating the project is spending more than planned (over budget). Project managers use this value to identify potential financial risks and take corrective action before the project timeline concludes.
How to Calculate how to calculate cost variance (Example)
Imagine a construction project with a total budget of $500,000. Halfway through the project, the following metrics are recorded:
- Identify Earned Value (EV): The team has completed work that was budgeted to cost $250,000. Thus, EV = $250,000.
- Identify Actual Cost (AC): The actual expenses incurred to complete that work amounted to $220,000. Thus, AC = $220,000.
- Apply the Formula: CV = EV – AC.
- Calculate: CV = $250,000 – $220,000 = $30,000.
- Interpret the Result: The Cost Variance is positive ($30,000), meaning the project is currently $30,000 under budget, which is a favorable outcome.
Frequently Asked Questions (FAQ)
Q: What does a CV of zero mean?
A: A Cost Variance (CV) of zero means that the Actual Cost incurred is exactly equal to the Earned Value of the work performed. In simple terms, the project is precisely on budget.
Q: Is Cost Variance calculated using future estimated costs?
A: No. Cost Variance is calculated using historical data: the value of work completed to date (EV) and the costs incurred to date (AC). Future estimations (like Estimate to Complete, ETC) are used for other EVM metrics, such as Estimate at Completion (EAC).
Q: What’s the difference between Cost Variance (CV) and Cost Performance Index (CPI)?
A: CV is an absolute value ($ amount) that measures how much you are over or under budget (CV = EV – AC). CPI is a ratio that measures the efficiency of expenditure (CPI = EV / AC). If CPI > 1, performance is good; if CPI < 1, performance is poor.
Q: Why is it important to monitor CV regularly?
A: Regular CV monitoring allows project managers to catch budget deviations early. This proactive approach helps implement corrective actions, re-baseline the budget if necessary, and ultimately increases the probability of completing the project within the approved financial limits.