Cost Variance (CV) indicates how much over or under budget the project is. It is used to track expense line items, but can also be tracked at the project level, as long as there is a budget allocated to the item. CV is used by the Program Manager and program personnel to determine how best to utilize their remaining resources.
Definition: Cost variance is the difference between the actual cost incurred and the planned/budgeted cost at a given time on a project.
Cost Variance (CV) Results
The Cost Variance Outcomes in Earned Value Management (EVM) are:
- Positive: Under budget
- Negative: Over budget.
- Zero: On budget.
EVMS Gold Card: DAU EVM Gold Card 2020
4 Cost Variance (CV) Methods
There are four (4) different CV methods used in EVM.
- Cost Variance
- Cost Variance %
- Cost Performance Indicator (CPI)
- To Complete Cost Performance Indicator (TCPI)
1. Cost Variance (CV)
Cost Variance can be calculated using the following formulas:
- Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
- Cost Variance (CV) = BCWP – ACWP
Cost Variance indicates how much over or under budget the project is in terms of percentage.
- Positive = indicates how much under budget the project
- Negative = indicates how much over budget the project
2. Cost Variance %
Cost Variance % can be calculated as using the following formula:
- CV % = Cost Variance (CV) / Earned Value (EV)
- CV % = CV / BCWP
Cost Variance % indicates how much over or under budget the project is in terms of percentage.
- Positive % = indicates how much under budget the project is in terms of percentage
- Negative % = indicates how much over budget the project is in terms of percentage
3. Cost Performance Indicator (CPI)
Cost Performance Indicator can be calculated using the following formulas:
- CPI = Earned Value (EV) /Actual Cost (AC)
- CPI = BCWP / ACWP
CPI is an index showing the efficiency of the utilization of the resources on the project.
- Greater than (≥) 1: indicates efficiency in utilizing the resources allocated to the project is good.
- Less than (≤) 1: indicates efficiency in utilizing the resources allocated to the project is not good.
4. To Complete Cost Performance Indicator (TCPI)
To Complete Cost Performance Indicator (TCPI) can be calculated using the following formulas:
- TCPI = ( Total Budget – EV ) / ( Total Budget – AC )
- TCPI = ( Total Budget – BCWP ) / ( Total Budget – ACWP)
TCPI is an index showing the efficiency at which the resources on the project should be utilized for the remainder of the project. If the results are:
- Greater than (≥) 1: indicates utilization of the project team for the remainder of the project can be stringent.
- Less than (≤) 1: indicates utilization of the project team for the remainder of the project should be lenient.
Cost Variance (CV) Example
An example of a CV is if a company had actual purchase expenses for June of $1000 but the budgeted amount for June was $600. The company had a cost variance of $400. This is an unfavorable CV because the actual cost is more than the budgeted amount.
EVM Definitions
– BCWP = Budgeted Cost of Work Performed
– ACWP = Actual Cost of Work Performed
– AC = Actual Cost
AcqNotes Tutorial
AcqLinks and References:
- Defense Acquisition Guidebook (DAG)
- DoD Earned Value Management Interpretation Guide – Jan 2018
- EVM Contract Requirements Checklist
- DAU EVM Gold Card – 2020
- DOE EVMS Gold Card – Feb 2019
Updated: 6/2/2021
Rank: G3
