Planned vs Actual Cost in Project Management

Planned vs Actual Cost is a significant Key Performance Indicator (KPI) in project management. It measures the difference between the estimated cost for project activities (Planned Cost) and the actual amount spent to complete them (Actual Cost). This KPI is a critical measure of a project's financial performance, and it provides insights into cost efficiency and budget control.

By comparing planned and actual costs, project managers can identify variances, understand their causes, and take appropriate corrective actions. This can help ensure that the project remains within its budget and achieves its financial objectives.

Calculation of Planned vs Actual Cost

The Planned vs Actual Cost is calculated by subtracting the Planned Cost from the Actual Cost. This computation gives a variance that can be positive, negative, or zero, each having a different implication.

Here is the formula to calculate Planned vs Actual Cost:

Cost Variance = Actual Cost - Planned Cost

In this formula:

• Actual Cost refers to the total amount spent on the project, including labor, materials, overhead, and any other direct or indirect costs.
• Planned Cost represents the estimated expenditure for the project, as determined during the budgeting phase.

If the Cost Variance is positive, it means the project has exceeded its budget (Actual Cost > Planned Cost). If it's negative, the project is under budget (Actual Cost < Planned Cost), and if it's zero, the project is exactly on budget (Actual Cost = Planned Cost).

By using the Planned vs Actual Cost KPI, project managers can make informed decisions, implement cost control measures when necessary, and thus enhance the financial performance of their projects.