Cost Variance (CV) measures the budget deficit or surplus at a given point in time by calculating the difference between Earned Value (EV) and Actual Cost (AC). It is a key metric in Earned Value Management (EVM) for tracking project financial performance.
Cost Variance Formula
Where:
- EV (Earned Value): The budgeted cost of completed work.
- AC (Actual Cost): The actual cost incurred for completed work.
Interpreting Cost Variance
| CV Value | Meaning |
|---|---|
| CV > 0 | Under budget (spending less than planned). |
| CV = 0 | On budget (costs align with planned values). |
| CV < 0 | Over budget (costs exceed planned values). |
Example Scenarios
Software Development
A project has an EV of $150,000 and an AC of $140,000:
Interpretation: The project is $10,000 under budget.
Construction Project
A bridge project has an EV of $500,000 and an AC of $550,000:
Interpretation: The project is $50,000 over budget, requiring cost control measures.
Manufacturing
A production line has an EV of $1,000,000 and an AC of $1,000,000:
Interpretation: The project is on budget.
Why Cost Variance Matters
- Tracks Project Cost Performance – Identifies if spending aligns with budget expectations.
- Supports Financial Forecasting – Helps predict future cost trends.
- Enables Proactive Budget Adjustments – Allows corrective action before overruns become critical.
- Enhances Stakeholder Confidence – Demonstrates financial control and accountability.
See also: Schedule Variance (SV), Cost Performance Index (CPI), Earned Value Management (EVM), Cost Baseline.