Cost variance (CV) is one of the measures of how the project compares to what was expected. It is calculated as
- CV = EV - AC
that is, the cost variance is the amount that the project was expected to cost (earned value or EV) to a certain point minus the amount it actually costed (actual cost or AC). the cost variance for the entire project is the budget at completion (BAC) minus the actual cost of the entire project.
An alternative way of putting this formula is
- CV (Cost Variance) = BCWP (Budgeted Cost for Work Performed) - ACWP (Actual Cost for Work Performed).
The CV is used as part of earned value management. A negative cost variance indicates that the project is running over the budgeted cost. If CV is 0, the project's costs are on budget. A positive CV indicates that the progress has been accomplished at a lower cost than expected.
A related measure is the cost variance percentage (CVP):
- CVP = CV / BCWP
- also calculated as CVP = (BCWP-ACWP)/BCWP or (EV-AC)/EV
This compares the amount of variance to the overall amount and provides a value relative to the financial size of the project. Some companies use the size of the cost variance percentage as part of their business rules. For instance a variation of less than 10% is expected and needs no justification; variations of 10-20% require an explanation to the sponsor, and variations over 20% must be presented to a review board for evaluation.
- PMP® Formulas and Calculations - The Complete Guide on PM PrepCast
- Earned Value Management: Cost Variances on AcqNotes