HKSM
Cost Variance (CV)
At a specific point in time, the difference between earned value (EV) and actual cost (AC), indicating whether the project has a budget surplus or shortfall.
Key Points
- Formula: CV = EV - AC.
- CV > 0 means under budget (surplus); CV < 0 means over budget (deficit); CV = 0 means on budget.
- Reported at a point in time as part of earned value management (EVM).
- Used with CPI, SV, and trend analysis to assess performance and refine forecasts like EAC/ETC.
Example
At the end of month 4, EV = $400,000 and AC = $450,000. CV = EV - AC = $400,000 - $450,000 = -$50,000, indicating the project is over budget by $50,000.
PMP Example Question
A project at month 3 reports EV = $120,000 and AC = $135,000. What is the cost variance and what does it mean?
- $15,000; the project is over budget
- -$15,000; the project is over budget
- -$15,000; the project is under budget
- $15,000; the project is under budget
Correct Answer: B - Negative $15,000 cost variance indicates over budget
Explanation: CV = EV - AC = 120,000 - 135,000 = -15,000. A negative CV means actual spending exceeds the earned value, so the project is over budget.
