According to PMBOK Guide – “The Cost Variance (CV) is the amount of budget deficit or surplus at a given time, expressed as the difference between the Earned Value and the Actual Cost. At the end of the project it will be the difference between the Budget At Completion(BAC) and the actual amount spent.”
CV is a very critical parameter to look for as it indicates how well the budget is being used to execute the project.
Cost Variance Formula –
Cost Variance is expressed as the difference of the actual cost from earned value.
Cost Variance = Earned Value – Actual Cost
CV = EV – AC
From the above formula, we can infer that:
- If CV > 0 (zero), You are under budget.
- If CV < 0 (zero), You are over budget.
- If CV = 0 (zero), You are on budget.
Sample Questions for Cost Variance –
1. Several IT projects are managed and delivered by a large MNC. we have been provided with the cost variance of 2 projects. Based on this information choose the appropriate option from the below ?
Project A : (CV) = 100,000, Project B: (CV) = -200,000
A) The Actual cost estimate of Project A is greater than Project B
B) The Actual cost estimate of Project A is less than Project B
C) The Earned Value of Project A is greater than Actual cost of Project A
D) The Earned Value of Project B is greater than Actual cost of Project B
E) The Earned Value of Project A is less than Actual cost of Project A
Correct Answer – Do not get confused with options A & B. From the information given in the question, we cannot conclude on either of these choices. Since the Cost Variance for project A is positive the Earned Value is greater than Actual Cost of Project A. Similarly the Cost Variance for project B is negative the Earned Value is less than Actual cost of the project. Hence Option A is the correct answer.