Cost Variance
By James Bell
- Metrics and Ratios , Project Management ,
- 10 Apr
Cost Variance (CV) helps us understand if we are over, under, or on budget for projects. We use this along with the schedule variance to get an idea of how the project is going. Making good estimations and forecasts about a project is a good way to make sure that Cost Variance does not get out of hand.
CV has a different meaning to Accountants and Finance people so it’s important to understand metrics and terms that Project Managers use. A negative CV means that the project is Over Budget. In turn, a positive number means that you are under budget. Being under budget is good only to a certain point. You may want to set up threshold limits for when you should do a deep dive and investigate what is the root cause of the variance.
Cost Variance
![\[ CV\:=\: EV \:-\: AC \]](http://stumptownfin.com/wp-content/ql-cache/quicklatex.com-a821f8c845b12cca252b8e567f8c5309_l3.png "Rendered by QuickLaTeX.com")
where
Cost Variance
Earned Value
Actual Cost
Earned Value
EV is the sum total of all the completed Planned Value activities.
Actual Cost
This is the actual money that has been spent on the project. It’s really that simple. These are managerial accounting metrics, not something that you are going to send your auditors.