Cost Variance in Project Management

Cost Variance (CV) is a critical Key Performance Indicator (KPI) in Project Management. It measures the difference between the budgeted cost of work performed, or Earned Value (EV), and the Actual Cost (AC) of the work performed.

CV is a crucial metric as it helps project managers monitor the cost efficiency of the project. A positive Cost Variance indicates that the project is under budget, while a negative Cost Variance shows that the project is over budget.

Calculation of Cost Variance

Cost Variance is calculated by subtracting the Actual Cost of the work from the Earned Value of the work performed.

Here is the formula for calculating Cost Variance:

Cost Variance (CV) = Earned Value (EV) - Actual Cost (AC)

In this formula:

• Earned Value (EV) is the value of the work actually performed, measured against the original budget.
• Actual Cost (AC) is the total cost that has been incurred for the performed work.

By calculating and monitoring Cost Variance, project managers can track cost-related issues and take necessary actions early, helping to ensure the project stays within budget. This proactive management can greatly enhance the likelihood of project success.